In re Bentzel

• Decision Date: 23 April 1958
• Docket Number: No. 10580.,10580.
• Citation: 161 F. Supp. 219
• Parties: In the Matter of Charles Howard BENTZEL, Bankrupt.
• Court: U.S. District Court — District of Maryland

161 F. Supp. 219

In the Matter of Charles Howard BENTZEL, Bankrupt.

No. 10580.

United States District Court D. Maryland.

April 23, 1958.

Paul Martin, Smalkin, Hessian, Martin & Taylor, Towson, Md., for petitioners.

Charles D. Harris, Baltimore, Md., for Herbert H. Hubbard, trustee in bankruptcy.

THOMSEN, Chief Judge.

Petitioners, G. Thomas Zepp and G. Thomas Zepp, Jr., trading as Arcadia Garage, seek review of an order of the referee denying their petition to rescind the sale of a 1955 Chrysler Imperial automobile made to C. H. Bentzel in September, 1955, less than three months before he filed his voluntary petition in bankruptcy. The referee found the evidence insufficient to establish that Bentzel had obtained possession of the automobile from petitioners by actual fraud or that the automobile was sold to him on credit at a time when he was insolvent and had no reasonable expectation of being able to pay the balance of the purchase price in ninety days, as he promised. The referee also held that the petitioners were precluded from rescinding the sale, since they had previously elected to affirm the transaction by asserting in these proceedings an alleged lien arising out of the sale.

Bentzel was a certified public accountant, who had been employed by several firms as a comptroller. Petitioners had dealt with him before, having sold him an automobile in 1953. On that occasion Bentzel had given them a ninety day note, which had been renewed once or twice and paid off within a year. In September, 1955, Bentzel owned a 1954 Mercury, on which he still owed $2,700 to a lienor. He made a deal with petitioners whereby he traded in the Mercury, valued at $3,522, on the purchase of a 1955 Imperial, valued at $5,222. The balance of $4,400 above the agreed value of his equity in the Mercury was represented by a note for $4,400, signed by Bentzel and his wife, which Bentzel told petitioners would be paid in ninety days. In view of Bentzel's good reputation and their previous satisfactory dealings with him, petitioners did not obtain a credit report, did not ask Bentzel any questions about his financial position, and did not have him sign a conditional sale agreement or a chattel mortgage. They did retain physical possession of the certificate of title to the Imperial which was issued in Bentzel's name, and caused a lien for $4,400 to be noted on the certificate.

Although Bentzel had made about $8,000 during 1954, he was out of a job in the summer of 1955 and owed about $3,000 in addition to the balance due on the Mercury and a mortgage of $11,000 on a house which he and his wife owned as tenants by the entireties. The house had cost them $10,000, and they had spent $15,000 improving it. In 1955 it was leased, with an option in the lessees to purchase it for $16,000. Bentzel's wife may have been jointly liable on some of the other debts besides the mortgage, and there may have been some additional debts due at that time which petitioners did not prove. Petitioners argue that Bentzel should have known that he was hopelessly insolvent when he made the deal for the Imperial, and that his promise to pay the $4,400 note in ninety days constituted a fraudulent misrepresentation.

On or about December 2, 1955, petitioners learned of Bentzel's bankruptcy, and he allowed them to repossess the Imperial. The trustee in bankruptcy thereupon filed a petition for turn-over. Petitioners filed an answer, alleging that they had a valid lien recorded on the title. On or about March 21, 1956, the trustee and petitioners agreed that the car should be sold by the trustee and the proceeds held pending the referee's decision on the validity of the lien. In June, 1956, the referee held that the notation of lien on the title was not sufficient to constitute a lien in the absence of a properly recorded mortgage or conditional contract of sale. Petitioners did not seek a review of that decision. In the meantime, they had filed a secured claim in the amount of $4,466, in which they contended that the sale had been conditional and that under the contract or agreement of the parties possession of the vehicle was to be returned to petitioners in the event of nonpayment.

On March 18, 1957, petitioners for the first time alleged that Bentzel had obtained the automobile, while insolvent, by false and fraudulent inducements without any expectation of making payment therefor. Petitioners had long since disposed of the Mercury which they had taken in part payment for the Imperial; they did not offer to restore to the trustee its agreed equity value or any part of the proceeds of its sale.

I. If a person...