51 B.R. 751 (Bkrtcy.W.D.Wis. 1985), 83-0283-7, Matter of Prescott

Docket Nº:Adv. No. 83-0283-7.
Citation:51 B.R. 751
Party Name:In the Matter of John B. PRESCOTT and Janet L. Prescott, Debtors. Jerry J. ARMSTRONG, Trustee, Plaintiff, v. MARINE BANK DANE COUNTY and Gateway Foods, Inc., Defendants.
Case Date:July 11, 1985
Court:United States Bankruptcy Courts, Seventh Circuit

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51 B.R. 751 (Bkrtcy.W.D.Wis. 1985)

In the Matter of John B. PRESCOTT and Janet L. Prescott, Debtors.

Jerry J. ARMSTRONG, Trustee, Plaintiff,


MARINE BANK DANE COUNTY and Gateway Foods, Inc., Defendants.

Adv. No. 83-0283-7.

United States Bankruptcy Court, W.D. Wisconsin.

July 11, 1985

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John D. Center, Murphy & Desmond, S.C., Madison, Wis., for plaintiff.

Jerry J. Armstrong, pro se.

Patricia M. Gibeault, John C. Mitby, Brynelson, Herrick, Gehl & Bucaida, Madison, Wis., for Marine Bank Dane County.

Mark S. Schmitt, Minahan & Peterson, S.C., Milwaukee, Wis., for Gateway Foods, Inc.

ROBERT D. MARTIN, Bankruptcy Judge.

This proceeding arises on the trustee's complaint to recover alleged preferences

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paid to or for the benefit of the debtor's principal financing bank and a guarantor of that financing. The trustee Jerry J. Armstrong was represented at the September 5, 1984 trial by Attorney John Center of Murphy, Stolper, Brewster & Desmond, S.C., Marine Bank was represented by Patricia Gibeault and John Mitby of Brynelson, Herrick, Gehl & Bucaida, and Gateway Foods was represented by Thomas E. Reinhart of Minahan & Peterson, S.C. Upon the evidence presented at trial, the stipulations of counsel and the entire record in the case the findings of fact and conclusions of law incorporated in the following opinion constitute the decision of this court.

John Prescott ("Prescott") was the owner of three grocery stores, including one located in Madison ("the Madison store"), which he bought from Gateway Foods ("Gateway") in 1982, while a Gateway employee. Gateway helped to finance the purchases and in return retained comprehensive security interests in all three stores, including a security interest in the Madison store's inventory.

Prescott secured additional financing for the Madison store by giving a note ("the note") in the amount of $125,000.00 to Marine Bank ("Marine") on December 15, 1982. Gateway was 50% guarantor of the note. As security for the note Marine was granted a senior security interest in the Madison store's inventory and accounts receivable the value of which remained essentially stable throughout the period relevant to this case. The note was additionally secured by all future security agreements between Prescott and Marine, and by any credit balances in Prescott's bank accounts at Marine. Prescott also signed on December 15, 1982, a commitment to deliver a $45,000.00 certificate of deposit to Marine within sixty days as additional collateral. The security agreement between Prescott and Marine provided that all the collateral secured the note and all future indebtedness of Prescott to Marine.

The note was to be paid off in monthly installments of $2,275.00, beginning January 15, 1983. Prescott made payments through March 1983, reducing the note's outstanding balance to $121,920.49.

Prescott's checking accounts at Marine were overdrawn frequently during the first quarter of 1983. Some such overdrafts were honored by Marine, apparently in the faith that the next day or two's deposits would right the balance. On March 16, 1983 the status of Prescott's accounts at Marine was:


010-2822 Monona Store Operating O.D. ($49,070.04)

010-2830 Madison Store Operating O.D. ($ 1,476.80)

4669.56 Savings $ 1,734.00

On March 16, 1983, Prescott was indebted to Marine in the following amounts:

note $121,920.49

overdrafts 50,546.84


TOTAL $172,467.33

That indebtedness was secured by:

deposit accounts $ 1,734.00

inventory and accounts

receivable approximately 130,000.00


TOTAL $131,734.00

On that day Prescott was indebted to Gateway in the total amount of approximately $1,247,617.70. The indebtedness to Gateway was secured by:

junior security interest in

Madison Store inventory and

account receivables $ -0-

other security conceded to be

less than $600.00 $600,000.00


TOTAL $600,000.00

At the request of Marine, on March 17 Prescott delivered his $35,000.00 certificate of deposit (the "C/D") to Marine ostensibly in fulfillment of his prior commitment to provide a certificate as an additional item of collateral. On March 31, 1983, after numerous checks from Prescott to Gateway were returned N.S.F. and after determining that its security in Prescott's stores had decreased, Gateway took over operations of Prescott's three stores. On April 4, 1983, after learning of Gateway's takeover, Marine declared itself insecure on the note and applied all of Prescott's bank accounts, each of which had a positive balance and all totalling $18,353.59, to the payment of the note. On June 3, seventy-eight days after having taken possession of

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it, Marine cashed the C/D for $34,290.12 and applied the proceeds to the note, reducing the outstanding note balance to $69,276.78.

On July 18, 1983, Gateway paid Marine $76,872.81 on the note. In return Marine assigned its security interests in the Madison store to Gateway.

Prescott filed for bankruptcy under chapter 7 on June 14, 1983. The trustee appointed in that case now...

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