Engelkes v. Farmers Co-Operative Company

• Decision Date: 22 May 1961
• Docket Number: Civ. No. 923.
• Citation: 194 F. Supp. 319
• Parties: Carroll E. ENGELKES, Trustee in Bankruptcy for Harold Gibleon, Plaintiff, v. FARMERS CO-OPERATIVE COMPANY, Dike, Iowa, Defendant.
• Court: U.S. District Court — Northern District of Iowa

194 F. Supp. 319

Carroll E. ENGELKES, Trustee in Bankruptcy for Harold Gibleon, Plaintiff, v. FARMERS CO-OPERATIVE COMPANY, Dike, Iowa, Defendant.

Civ. No. 923.

United States District Court N. D. Iowa, E. D.

May 22, 1961.

COPYRIGHT MATERIAL OMITTED

George J. Lindeman (of Beecher, Buckmaster, Beecher & Lindeman), Waterloo, Iowa, for plaintiff.

Wirt P. Hoxie and Max R. Teske, Jr. (of Pike, Hoxie, Butler & Teske), Waterloo, Iowa, for defendant.

GRAVEN, District Judge.

The plaintiff, as duly appointed trustee in bankruptcy for Harold Gibleon, bankrupt, commenced this action against the defendant seeking to set aside and recover a payment in the amount of $11,704.97 allegedly made by the bankrupt to the defendant within four months of bankruptcy. Plaintiff urges that such payment constituted a preferential transfer under the provisions of Section 60 of the Bankruptcy Act, 11 U.S.C.A. § 96. The defendant admits that the payment in question was made but denies that the circumstances under which it was made were such as to make the payment a voidable preference. The case was tried to the Court, which has jurisdiction under the provisions of Section 60, sub. b of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. b.

The facts leading up to and surrounding the transaction in question are as follows. The bankrupt herein, Harold Gibleon, who will hereinafter be referred to as the bankrupt, was the owner and operator of a trucking line which had its headquarters in Conrad, Iowa. He operated that business from August, 1955, until August, 1958. In addition to general trucking for hire, he personally engaged in the buying and selling of grain for delivery to cattle feeders. The defendant is a co-operative grain elevator located in Dike, Iowa.

On or shortly before April 9, 1958, the bankrupt contacted the office of the defendant by telephone and talked to the assistant manager. He inquired about the price of the corn which the defendant had for sale and made arrangements to purchase approximately 800 bushels of corn. During the course of that conversation, the assistant manager of the defendant asked the bankrupt how he intended to pay for the corn and was told that payment would be made by a personal check drawn on the bankrupt's account at the Farmers Savings Bank of Grundy Center, Iowa. Although Conrad, Dike, and Grundy Center are all located in Grundy County, Iowa, the bankrupt at that time was unknown to those in charge of defendant's operations. Immediately after talking with the bankrupt on the telephone, the assistant manager of the defendant telephoned the Farmers Savings Bank of Grundy Center and talked to the cashier of that bank about the status of the bankrupt's account. He was told in substance that the bankrupt had maintained a checking account at that bank for some time, that he had always maintained a good balance, and that there was no apparent reason why his checks would not be honored. The cashier also told the assistant manager of the defendant that the bankrupt was "reported to be a thin operator," but that the bank could find no fault with his previous financial dealings with it.

Later on the same day, the bankrupt's trucks came to defendant's place of business and picked up 849 bushels of corn. The driver of the first truck delivered to the office of the defendant a blank check drawn on the Farmers Savings Bank of Grundy Center and signed by the bankrupt. After the last load of corn had been hauled out, the weights were totaled and the check was filled in by the employees of the defendant so as to cover the amount of the purchase price for the corn sold. The check was honored by the drawee bank in due course.

During the months of April, May, and June of 1958, the bankrupt continued to purchase corn from the defendant. The nature of each transaction was the same as the initial purchase. The bankrupt would place each order by telephone and then send along a blank check, drawn on the Farmers Savings Bank and signed by himself, with the driver of the first truck sent to pick up the corn. These checks were all subsequently filled in by employees of the defendant to cover the purchase price of the corn sold. Between April 9, 1958, and June 18, 1958, the bankrupt delivered thirteen checks to the defendant in this manner. These checks, totaling $46,122.40, were all honored by the Farmers Savings Bank in due course.

On or shortly before June 19, 1958, the bankrupt again ordered a substantial quantity of corn from the defendant by telephone. The corn so purchased was hauled away from defendant's place of business by the trucks of the bankrupt on June 19, 20, and 21. According to the established practice, a single blank check signed by the bankrupt was given to cover the price of the corn. That check was filled in by the employees of the defendant for the proper amount after all of the corn had been hauled out. The check was drawn on the Farmers Savings Bank and totaled $11,652.85. It was deposited by the defendant in the Iowa Savings Bank of Dike, Iowa, on June 23, 1958, which was a Monday. During that same week, the bankrupt telephoned the office of the defendant and informed the assistant manager that the last check he had given them would be returned because of insufficient funds. He suggested that if they would run the check through again he would make sure that there were enough funds on deposit to cover it. Shortly thereafter, the check for $11,652.85 was in fact returned because of insufficient funds. Upon receiving it, the assistant manager of the defendant immediately telephoned the Farmers Savings Bank. He was told by the cashier of that bank that the bankrupt seemed to be having a little difficulty with his checking account and that, in addition to defendant's check, two other checks drawn on his account had been returned because of insufficient funds. Subsequent to this conversation, the check in question was redeposited by the defendant but was again returned unpaid because of insufficient funds.

On at least four occasions between the time his check was initially returned to the defendant, and July 21, 1958, the bankrupt was contacted by the manager of the defendant. On each occasion the manager was informed by the bankrupt that the latter had sold a large amount of corn in the western part of the state for which he had not as yet been paid. The bankrupt gave the assurance that as soon as those accounts were collected he would be able to make good the $11,652.85 check. When pressed for the names of some of these accounts, the bankrupt informed the manager of the defendant that one of the persons owing him money was a man named McPherson who lived near Atlantic. Following the bankrupt's reference to a Mr. McPherson, the manager and assistant manager of the defendant checked with the sheriff's office and with several banks in Atlantic concerning the existence of a person named McPherson who might have been purchasing corn. They were unable to get any confirmation of the man's existence from those sources.

A few days prior to July 21, 1958, the manager of the defendant informed the bankrupt that the defendant had gone as far as it could with him and that it was about to turn the matter over to its attorney for handling. The bankrupt was informed that a meeting pertaining to the matter would be held at an attorney's office in Grundy Center on July 21, 1958, and that he might attend if he wished. Such a meeting was held and the bankrupt was present together with the manager and several directors of the defendant and the attorney retained by the defendant. At that time, the bankrupt was informed that his total obligation to the defendant, including attorney fees and protest fees, was $11,704.97. He then offered to settle that obligation by endorsing to the defendant certain checks payable to him which were drawn on a Marshalltown, Iowa, bank. These checks had been received from a customer as an advance for corn to be delivered in the future. The manager of the defendant refused to take the checks but offered to drive the bankrupt to Marshalltown so that the latter might cash the checks at the drawee bank. A trip was made to Marshalltown, the checks were cashed, and the bankrupt returned to the attorney's office in Grundy Center with cashier's checks totaling $11,200 and $504.97 in cash. The cashier's checks and cash were accepted by the manager of the defendant in full settlement of the debt owed it by the bankrupt and the latter was given a receipt therefor. On November 20, 1958, an involuntary petition in bankruptcy was filed against the bankrupt in this District by certain of his creditors under which he was subsequently adjudicated to be a bankrupt.

It is the payment made by the bankrupt to the defendant in the attorney's office on July 21, 1958, which is herein assailed as a preference. The date of that transfer falls within the four-month period prescribed by Section 60, sub. a of the Bankruptcy Act, 11 U.S. C.A. § 96, sub. a, by one day. All payments made by a debtor to his creditors, even though made during the four-month period preceding the filing of a petition in bankruptcy, are presumed to be valid and a trustee who seeks to avoid such payments bears the burden of establishing all of the several elements of a voidable preference as set forth in the Bankruptcy Act. Republic National Bank of Dallas v. Vial, 5 Cir., 1956, 232 F.2d 785, 789; Canright v. General Finance Corp., 7 Cir., 1941, 123 F.2d 98, 99; Doyle Dry Goods Co. v. Lewis, 8 Cir., 1925, 5 F.2d 918, 919; 3 Collier, Bankruptcy, par. 60.62 (1956). In order for a transfer to constitute a preference, as defined by Section 60, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, it must be: (1) a transfer of any of the debtor's property that is (2) to or for the benefit of a creditor, (3) for or on account of an antecedent debt, (4) made or suffered by the debtor while insolvent and (5) within four months of bankruptcy, (6)...