Bullard v. Aluminum Company of America, 71-1149.

• Decision Date: 14 September 1972
• Docket Number: No. 71-1149.,71-1149.
• Citation: 468 F.2d 11
• Parties: Joel BULLARD, As Trustee of the Estate of Kritzer Radiant Coils, Inc., Bankrupt, Plaintiff-Appellee, v. ALUMINUM COMPANY OF AMERICA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

468 F.2d 11 (1972)

Joel BULLARD, As Trustee of the Estate of Kritzer Radiant Coils, Inc., Bankrupt, Plaintiff-Appellee, v. ALUMINUM COMPANY OF AMERICA, Defendant-Appellant.

No. 71-1149.

United States Court of Appeals, Seventh Circuit.

Argued January 25, 1972.

Decided September 14, 1972.

Milton L. Fisher and J. T. Mullen, Chicago, Ill., Kenneth P. Fedder, South Bend, Ind., for defendant-appellant.

David H. Kleiman, Indianapolis, Ind., James W. Oberfell, South Bend, Ind., for plaintiff-appellee.

Before KILEY, Circuit Judge, STEVENS, Circuit Judge and CAMPBELL^*, Senior District Judge.

WILLIAM J. CAMPBELL, Senior District Judge.

The defendant Aluminum Company of America (Alcoa) appeals from an order of the district court which granted the motion of the plaintiff, trustee in bankruptcy of the estate of Kritzer Radiant Coils, Inc. (Kritzer Radiant), for summary judgment. The district court held that a transfer of $23,370.60 from the bankrupt to Alcoa was a "fraudulent transfer" under § 67d(2)(a) of the Bankruptcy Act. 11 U.S.C. § 107d(2) (a). Alcoa raises three contentions on appeal: (1) that the transfer was not fraudulent inasmuch as there was no evidence that Alcoa participated in a scheme to defeat the other creditors of Kritzer Radiant or that the transaction involving the transfer of monies was lacking in good faith; (2) that summary judgment was improperly entered since the pleadings and affidavits raised genuine issues of material fact concerning the intentions and motives of Alcoa; and (3) that the district court erred in failing to hold Alcoa had a right under § 67d(6) of the Bankruptcy Act to retain the $23,370.60 as security for repayment of the actual consideration given by Alcoa.

The facts as gleaned from the pleadings, affidavits and from defendant's answers to plaintiff's interrogatories show that on December 1st, 1965, the date of the transfer in question, the bankrupt, Kritzer Radiant, was indebted to Alcoa in the amount of $46,741.20. As of that time 85% of the outstanding capital stock of Kritzer Radiant was owned by Bastian Morely Company, Inc. (Bastian Morely) and the remaining 15% of the stock was held by Henry Kritzer, Sr. Henry Kritzer at that time also owned 15% of the outstanding common stock of Bastian Morely and was a director of that Company. The $46,741.20 debt of Kritzer Radiant, which had been personally guaranteed by Henry Kritzer, had been reduced to a judgment against Kritzer individually and in favor of Alcoa in the Circuit Court of Lake County, Illinois. For a period of time prior to December 1st, 1965, both Kritzer Radiant and Bastian Morely had dealt with Alcoa as a supplier of materials used in manufacturing their products. Bastian Morely was also indebted to Alcoa as of that date in the amount of $11,319.78.

On the critical date of December 1, 1965 an agreement was entered into by and between Kritzer Radiant, Henry Kritzer, Bastian Morely and Alcoa. Pursuant to this agreement, Kritzer Radiant paid to Alcoa $23,370.60 in full satisfaction of the antecedent debt owed Alcoa in the amount of $46,741.20. Additionally, Alcoa released Henry Kritzer from the judgment it had recovered against him in the state court. Finally, Bastian satisfied its debt to Alcoa in the amount of $11,319.78, and ordered from Alcoa additional materials for payment upon receipt. On the date the settlement agreement was executed, Kritzer Radiant was insolvent and there existed creditors of Kritzer Radiant with outstanding claims against it.

The pertinent portion of § 67d(2)(a) of the Bankruptcy Act provides as follows:

"(2) Every transfer made and every obligation incurred by a debtor within one year prior to the filing of a petition initiating a proceeding under this Act by or against him is fraudulent (a) as to creditors existing at the time of such transfer or obligation, if made or incurred without fair consideration by a debtor who is or will be thereby rendered insolvent, without regard to his actual intent; . . ." (11 U.S.C. § 107d(2)(a) (Emphasis supplied).

The definition of fair consideration is furnished in § 67d(1)(e) which provides:

"Consideration given for the property or obligation of a debtor is `fair\' (1) when, in good faith, in exchange and as a fair equivalent therefor property is transferred or an antecedent debt is satisfied, . . . ." (11 U.S.C. § 107d(1)(e). (Emphasis supplied).

As the district court indicated in its memorandum opinion, essentially four elements must be present for a transfer to be fraudulent under § 67d(2)(a) of the Act:

1. The transfer must occur within one year of the initiation of the bankruptcy proceedings;

2. Creditors of the debtor must exist at the time of the transfer;

3. The debtor must be insolvent at the time of the transfer; and

4. There must be a failure of consideration for the transfer.

The bankruptcy petition here was filed on November 22nd, 1966, clearly within one year of the date of the transfer in question. Creditors of Kritzer Radiant were in existence when the transfer was made. Also there is no serious dispute regarding the insolvency of Kritzer Radiant on the date of the transfer. Alcoa then possessed a financial statement of Kritzer Radiant which reflected a negative net worth. Also, some three weeks prior to the execution of the settlement agreement the defendant wrote its attorneys suggesting that certain precautions be undertaken ". . . should either Bastian Morely or Kritzer Radiant Coils go into bankruptcy within four months of the transaction." While it is true that the defendant denied the allegation of insolvency in its answer, we agree with the district court that since Alcoa did not challenge plaintiff's assertion by counter-affidavit nor make any attempt to demonstrate the inaccessibility of information on this question, the issue of insolvency did not present a fact issue precluding the entry of summary judgment.

Thus, the question becomes, under the undisputed facts as set forth above, whether the transfer from Kritzer Radiant to Alcoa was...