383 F.2d 314 (8th Cir. 1967), 18588, Farmers Bank of Clinton, Mo. v. Julian
|Citation:||383 F.2d 314|
|Party Name:||The FARMERS BANK OF CLINTON, MISSOURI, Appellant, v. Vance JULIAN, Trustee in Bankruptcy of Roby C. Woody, d/b/a Woody Motor Company, Bankrupt, Appellee.|
|Case Date:||August 08, 1967|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
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Alvin D. Shapiro, Kansas City, Mo., made argument for appellant, and Michael J. Bogutski, Kansas City, Mo., was with him on the brief, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, Mo., of counsel.
Phineas Rosenberg, Kansas City, Mo., made argument for appellee.
Before VOGEL, Chief Judge, GIBSON and HEANEY, Circuit Judges.
GIBSON, Circuit Judge.
This appeal concerns the Referee in Bankruptcy's orders disallowing alleged secured claims, ordering a turnover of certain alleged preferences, disallowing a bank account setoff as a preference, and subordinating appellant's secured claim to those of the general creditors of the bankrupt estate.
This appeal covers only a part of the bankruptcy administration in the Roby C. Woody bankruptcy, there being other appeals pending relative to other phases of the administration of the bankrupt estate. The District Court on Petition for Review sustained all of the Referee's findings and orders against appellant.
Roby C. Woody, d/b/a Woody Motor Company, commenced business on April 15, 1945, in Clinton, Missouri, as a franchised Cadillac and Oldsmobile dealer. He conducted the usual retail auto sales and service business of a franchised dealer, selling new and used cars, carrying a parts inventory, and maintaining service equipment necessary to operate an automobile agency. The bankrupt, Woody, utilized the financial services of the appellant, along with other banks and the large automobile financing credit institutions of GMAC, Commercial Credit Corporation and possibly C.I.T.
NOVEMBER 1957 LOAN
On November 22, 1957 Woody borrowed $16,000.00 from The Farmers Bank of Clinton, Missouri (hereafter referred to as 'appellant' or 'Bank'), secured by a note and chattel mortgage on 'All machinery and shop equipment, Oldsmobile special tools, Cadillac special tools, furniture, fixtures, and parts bins, parts, accessories, oil and grease, and paint now owned, or hereafter purchased during the life of this loan, by Woody Motor Company, R.C. Woody sole owner.' This chattel mortgage was duly filed of record the following day. The note secured by the chattel mortgage called for payments of $1,000.00 per month plus interest, for five months with a final payment of $11,000.00 due on May 22, 1958.
The monthly payments were made as agreed but the final payment of $11,000.00 was not made as called for in the note on the due date, though the $1,000.00 monthly payments were continued until August 27, 1958, at which time there remained a balance of $7,000.00 due on the note. An oral extension of the note was
made, according to the parties, with interest being paid monthly and subsequently two $500.00 payments were made, bringing the balance on the note down to $6,000.00 as of June 4, 1959.
MAY 12, 1959 LOAN
In the spring of 1959 Woody furnished the Bank with his financial statement dated March 31, 1959, which also included a Profit and Loss Statement of his operations for the first three months of 1959. This statement showed a net worth of $113,713.06 and a profit fo.$17,305.67 for the three-month period. On May 12, 1959 the Bank lent Woody an additional $12,000.00 evidenced by a note due in seven days and secured by a chattel mortgage on some automobiles. The chattel mortgage was not filed of record. Woody represented to the Bank that he needed the money for operating capital until a major loan could be obtained from Commercial Credit Corporation. The sum of $9,000.00 was repaid on this loan by June 3, 1959, leaving $3,000.00 balance due.
JUNE 3, 1959 LOAN
On June 3, 1959, Woody borrowed an additional $16,000.00 from the Bank, $3,000.00 of which was credited to the balance owing on the May 12 loan, discharging the May 12 loan. The remaining $13,000.00 of this loan was deposited to Woody's bank account and the loan was secured by a chattel mortgage on certain automobiles but was not filed of record. This loan was payable on demand.
An agent of the Commercial Credit Corporation was scheduled to be in Woody's place of business on about June 23, 1959 to finalize Woody's application for a major operating loan but was delayed one week in arriving. The Bank agreed to go along with Woody during this interim period. The agent of the Commercial Credit Corporation did appear on June 30, 1959 and when an officer of the Bank conferred with him and Woody at Woody's place of business, the officer found out that Commercial Credit would not make the loan until it had a detailed audit of Woody's operation. Woody and the Commercial Credit agent then requested the Bank to make a long-term loan to Woody.
At this point the officer of the Bank decided that Commercial Credit would not make the long-term operating loan. He then returned to the Bank and applied a setoff of $9,733.88 in Woody's bank account to the $16,000.00 indebtedness of June 3, 1959. On the following day, July 1, 1959, Woody gave the Bank a note and chattel mortgage on several motor cars for the remainder of the $16,000.00 indebtedness, namely $6,266.12. This chattel mortgage was filed on July 2, 1959. The cars covered under the mortgage were repossessed on either July 4 or 5, 1959, and subsequently sold for $4,850.00. A return premium on an insurance policy provided the Bank $550.00 and Jerry Woody, a third person, paid the Bank the remaining balance of $866.12-- due on this indebtedness.
In addition to Woody's indebtedness to the Bank, the Commercial Credit Corporation was given a note and chattel mortgage on July 1, 1959, recorded July 2, 1959, that covered the same property as is described in the Bank's November 22, 1957 chattel mortgage, and was made 'subject to the first chattel mortgage of record' to the Bank. On July 8, 1959 the Commercial Credit filed a replevin action against the items covered by its chattel mortgage. The next day, July 9, 1959 Woody made an assignment for the benefit of creditors.
An involuntary petition in bankruptcy was filed July 13, 1959. Woody filed an answer on the same date admitting that he was insolvent, and an adjudication of bankruptcy and order of general reference was made July 14, 1959. Vance Julian was duly appointed as the Receiver and later as Trustee for the property and assets of the bankrupt.
The Trustee recovered the furniture and fixtures, the shop equipment, parts and chattels used in Woody's business from Commercial Credit. The Trustee valued these assets in his Petition for
Order of Sale at $30,394.43. 1 This property was ordered sold free and clear of all incumbrances on November 5, 1959 and was actually sold on November 9, 1959 at a private sale for$23,000.00.
The Bank filed its claim as a secured creditor for the $6,000.00 together with interest at 7 percent from June 4, 1959 on the balance due on its note and chattel mortgage of November 22, 1957. The Trustee objected to the allowance of the claim and asserted in addition that the Bank had received within four months of the filing of bankruptcy void or voidable preferences and void and voidable transfers on account of antecedent and other debts while Woody was insolvent and at a time when the Bank had reasonable cause to believe that Woody was insolvent.
The Referee ruled the chattel mortgage of November 22, 1957 invalid, that the repayment of the $12,000 note of May 12, 1959 was a preference, that the repayment on the $16,000.00 note of June 3, 1959 was 'a preference and/or fraudulent' (to the extent of $13,00.00) and that the Bank was not entitled to a setoff of $9,733.88 in Woody's bank account as he found the account had been 'built up * * * under prearrangement'. The referee directed the Bank to turn over $25,000.00 to the Trustee and then conditioned on compliance with the turnover order allowed the Bank's claim as a subordinate and inferior claim to the rights of general creditors. 2
STANDARD OF REVIEW
The Bank contends the Referee's findings and orders issued pursuant thereto and the District Court's approval of them on review were, in the respects complained of, clearly erroneous.
General Order in Bankruptcy No. 37 makes the Federal Rules of Civil Procedure applicable to bankruptcy proceedings 'insofar as they are not inconsistent with the Act' and commands that these
Rules 'be followed as nearly as may be.' 3
Rule 52(a) Fed.R.Civ.P., states that 'Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.' Likewise, under General Order in Bankruptcy No. 47, unless otherwise directed in the order of reference the Referee 'shall set forth his findings of fact and conclusions of law, and the judge shall accept his findings of fact unless clearly erroneous.'
In applying and interpreting the 'clearly erroneous' standard, the courts have used varying language to indicate the thrust and limitations of this principle. The Supreme Court in United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948) said: 'A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.' This language is later quoted with approval in Commissioner v. Duberstein, 363 U.S. 278, 291, 80 S.Ct. 1190, 4...
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