Corland Corp., Matter of
| Decision Date | 12 August 1992 |
| Docket Number | No. 91-1820,91-1820 |
| Citation | 967 F.2d 1069 |
| Parties | , Bankr. L. Rep. P 74,817 In the Matter of CORLAND CORPORATION, Debtor. JAMES L. STEPHENSON, and UNITED BANK, N.A., Appellants Cross-Appellees, v. DUKE SALISBURY, Appellee Cross-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
George H. Tarpley, Sheinfeld, Maley & Kay, Dallas, Tex., for United Bank.
Daniel B. Jones, Williford & Wood, Dallas, Tex., for Stephenson.
Camille R. McLeod, Johnson & Gibbs, Dallas, Tex., for appellee cross-appellant.
Appeals from the United States District Court For the Northern District of Texas.
Before GOLDBERG, HIGGINBOTHAM, and DAVIS, Circuit Judges.
Appellants appeal the district court's judgment allowing the bankruptcy trustee to avoid a postpetition transfer of property of the estate and denying appellant Stephenson a setoff. Because we conclude that the transfer was a third-party payment on a guaranty and did not involve property of the estate, we reverse on both issues and remand for further proceedings. The Trustee cross-appeals the admission of certain evidence and the denial of leave to amend his complaint; we find no error and affirm the judgment on both these issues.
In 1980 the First National Bank of Lancaster loaned Clint Murchison, Jr. and Empire Leasing Co., one of his companies, $375,000 in return for a promissory note. Empire, in turn, loaned $275,000 of that $375,000 to a company controlled by appellant James L. Stephenson, Jr., in return for a note. Both notes were renewed several times. By the time Murchison renewed the note to the Bank on October 22, 1984, the First National Bank of Lancaster had become appellant United Bank, N.A. (the Bank), the obligor had changed from Empire to another Murchison company, Corland Corporation, and the principal amount of the note had been reduced to $250,000. Thus the October 22, 1984 note evidenced a debt of $250,000 owed by Corland to United Bank; we will refer to this renewal as the Corland Note. Stephenson personally guaranteed the Corland Note. That same day, Stephenson gave Corland his own note for $250,000, with the identical interest rate and payment terms through maturity as the Corland Note; we will refer to this renewal as the Stephenson Note. Stephenson, therefore, was directly liable to Corland on the Stephenson Note and secondarily liable to the Bank as the guarantor of the Corland Note. No one has adequately explained why the transaction was structured in this manner.
The parties intended payments to Corland on the Stephenson Note to cover payments Corland owed the Bank under the Corland Note. This intent can be inferred from the fact that the two notes have identical payment terms, and from the explicit "credit language" of the Stephenson Note to Corland, which provides that
all payments on this note shall be applied by Corland to its note of like amount and date payable to United Bank, N.A. James L. Stephenson, Jr. shall have the right to make payment direct to United Bank, N.A. on that Corland Note and receive credit on this [Stephenson] [N]ote.
At first, the parties' actions comported with this intent. On January 22, 1985, Stephenson took a check for $14,410.41 to TXSO, Inc., a Murchison entity, as his periodic payment due under the Stephenson Note. TXSO, in turn, then issued a check for $14,410.41 and took it to the Bank as a periodic payment due under the Corland Note.
But this procedure changed in April 1985 when Corland filed for bankruptcy. After this event, Stephenson began making periodic principal and interest payments directly to the Bank. The Bank then credited those payments against the amount it was owed under the Corland Note. These periodic payments totaled $94,831.30 between April 1985 and April 1987. Although no evidence was presented that the Bank made any demand on Stephenson to make the periodic payments, there is evidence that the Bank demanded that Stephenson make the balloon payment due under the Corland Note on April 22, 1987. Stephenson complied, and on April 22, 1987, paid the Bank $220,636.33, thereby extinguishing the Corland Note. 1
Duke Salisbury, estate trustee, by and through D.M. Lynn, plan trustee of Corland (Trustee), sued Stephenson and the Bank under § 549 of the Bankruptcy Code to avoid Stephenson's payments to the Bank. 2 The Trustee contends that the payments were made pursuant to the Stephenson Note and thus constituted postpetition transfers of property of the estate. Stephenson and the Bank (together, "the defendants") maintain that the payments were made pursuant to Stephenson's guaranty on the Corland Note, not as payments on the Stephenson Note. Stephenson also sought to set off his payments to the Bank against the debt he owed to Corland under the Stephenson Note.
After a trial, the bankruptcy court concluded that the Trustee could avoid the payments and that Stephenson was not entitled to setoff. The court awarded judgment as follows:
1. Against Stephenson and Bank, jointly and severally, for $315,477.63 (the balloon payment plus the periodic payments);
2. Against the Bank for $54,955.62 in interest;
3. Against Stephenson for $110,122,37 ($425,600.00 principal and interest due under the Stephenson Note less the amount payable under # 1 above); and
4. Against Stephenson for $42,560.00 in attorney's fees (based on 10% of Stephenson Note).
The district court affirmed, primarily on the basis of the bankruptcy court's opinion. Stephenson and the Bank timely appealed, and the Trustee timely cross-appealed.
We review the bankruptcy and district courts' findings of fact for clear error, but their legal conclusions de novo. Matter of Consolidated Bancshares, Inc., 785 F.2d 1249, 1252 (5th Cir.1986).
We first address whether Stephenson paid the Bank pursuant to his guaranty of the Corland Note, or pursuant to his obligation to Corland under the Stephenson Note. The bankruptcy and district courts concluded that the payments were made as constructive payments on the Stephenson Note. Critically, however, neither court addressed the effect, if any, of the guaranty.
Initially we must determine whether a valid guaranty existed. The record contains three documents dated October 22, 1984: the Corland Note between Corland and United Bank; Stephenson's guaranty of the Corland Note; and Stephenson's note to Corland. The guaranty is proper on its face. At trial, counsel for the Trustee read Stephenson's deposition into the record; in that deposition, Stephenson stated that he guaranteed the October 22, 1984 Corland Note. In addition, defense counsel offered the guaranty into evidence after Charles Floyd, the Bank's chairman and chief executive officer, identified the document; the bankruptcy court admitted the document without objection. And in its April 1988 denial of the defendants' motion for summary judgment, the bankruptcy court stated that Stephenson guaranteed the October 22, 1984 Corland Note. At oral argument to us, 3 counsel for the Trustee suggested that the guaranty may have been backdated; she also conceded, however, that she had no proof of this fact. We conclude that a valid guaranty existed on October 22, 1984 whereby Stephenson guaranteed payment on Corland's promissory note to the Bank.
We now turn to the question of whether Stephenson's payments to the Bank were made pursuant to his guaranty of the Corland Note, or whether they were constructive payments on the Stephenson Note. In its Findings of Fact and Conclusions of Law, the bankruptcy court did not mention the guaranty at all. The general rule, however, "is that upon default of the maker of a note in the payment thereof a guarantor of it becomes liable to the holder and the relationship of debtor and creditor is at once established between the guarantor and the holder of the note." United States v. Select Meat Co., 275 F.Supp. 38, 45 (W.D.Tex.1967). Corland owed the Bank quarterly payments on the Corland Note. When Corland filed for bankruptcy in April 1985, it defaulted on its payments to the Bank. Stephenson then stepped in to make the payments to the Bank. It is of no consequence that the Bank did not demand payment from Stephenson pursuant to the guaranty. The terms of the guaranty expressly waived demand on Stephenson. 4 This is consistent with Texas law, which provides that if an instrument is not paid when due, a guarantor must "pay it according to its tenor without resort by the holder to any other party"; "presentment, notice of dishonor and protest are not necessary to charge the user." V.T.C.A., Bus. & C. §§ 3.416(a) and (e). The commentary to this provision explains that "the liability of the indorser becomes indistinguishable from that of a co-maker." Id. comment. Once Corland defaulted on its note to the Bank, Stephenson, as guarantor, became liable on the note according to its terms. Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874, 877 (Tex.1976); Hopkins v. First Nat'l Bank at Brownsville, 551 S.W.2d 343, 345 (Tex.1977).
The Trustee offers three reasons why we should deem the payments to the Bank as constructive payments on the Stephenson Note rather than as payments pursuant to the guaranty of the Corland Note. The Trustee argues first that the defendants admitted that Stephenson made the payments as constructive payments on the Stephenson Note. During discovery, the Trustee asked the defendants to admit the following:
Admit or deny that Stephenson, since January of 1985, has made payments on the Stephenson Note to United Bank, N.A., making the final payment in April of 1987.
Trustee's Request for Admission No. 9. Both defendants admitted this statement. The Trustee contends that this admission conclusively establishes that the payments were constructive payments on the Stephenson Note. The Trustee even goes so far as to cross-appeal the bankruptcy court's admission of any evidence that contradicted this admission. 5
We note...
To continue reading
Request your trial
-
Electric Mobility Corp. v. Bourns Sensors/Controls
...District Court's finding of a judicial admission from a "clear[] and unambiguous[]" allegation in the complaint); In re Corland Corp., 967 F.2d 1069, 1074 (5th Cir.1992)(holding that only "deliberate, clear and unequivocal" statements can constitute conclusive judicial admissions). When a s......
-
U.S. ex rel. Garibaldi v. Orleans Par. School Bd., CIV. A. 96-0464.
...Claims Act. The court disagrees. Only deliberate, clear, and unequivocal statements can be judicial admissions. Matter of Corland Corp., 967 F.2d 1069, 1074 (5th Cir.1992), (citing Backar v. Western States Producing Co., 547 F.2d 876, 880 n. 4 (5th Cir.1977)). OPSB cites Backar for the prin......
-
Scott v. Am. Sec. Ins. Co. (In re Scott)
...Clerk, U.S. Bankruptcy Court (In re Chateaugay Corp.), 89 F.3d 942, 947 (2d Cir. 1996). See also Stephenson v. Salisbury (In re Matter of Cortland Corp.) , 967 F.2d 1069, 1078 (5th Cir. 1992) (noting that " § 509(a)'s right of subrogation has meaning only if the payment is made post-petitio......
-
In re M & T Elec. Contractors, Inc.
...direct legal obligation. Id. at 303. Accord, In re Jones Truck Lines, Inc., 196 B.R. 123, 127 (Bankr.W.D.Ark.1996); In re Corland Corp., 967 F.2d 1069, 1078 (5th Cir.1992). Accordingly, the court held that if the contractor paid the supplier, state law and § 553 would allow it to set off th......
-
CHARTER 2 Introduction to the Business Bankruptcy System
...Id. at § 552(b).[163] Id. at § 552(a).[164] Id. at § 553(a).[165] 11 U.S.C. § 553(b).[166] But see, e.g., In re Corland Corp., 967 F.2d 1069 (5th Cir. 1992).[167] See Herod v. S.W. Gas Corp. (In re Gasmark Ltd.), 193 F.3d 371, 374 (5th Cir. 1999).[168] See, e.g., See Ashland Petroleum Co. v......
-
CHAPTER 11 ISSUES WHEN A FELLOW WORKING INTEREST OWNER FILES FOR BANKRUPTCY
...N.Y. State Elec. & Gas Co. v. McMahon (In re McMahon), 129 F.3d 93, 96 (2d Cir. 1997); Stephenson v. Salisbury (In re Coreland Corp.), 967 F.2d 1069, 1076 (5th Cir. 1992).[19] 11 U.S.C. § 362(a)(7).[20] In re Wilson, 69 B.R. 960, 965 (Bankr. N.D. Tex. 1987) (citing 4 Collier on Bankruptcy ¶......