In re Crouthamel Potato Chip Co. Inc.
| Decision Date | 25 September 1980 |
| Docket Number | Adv. No. 79-0016G.,Bankruptcy No. 79-01939G |
| Citation | 6 BR 501 |
| Parties | In re CROUTHAMEL POTATO CHIP CO. INC., Debtor. JENSEN-McLEAN COMPANY, INC., Plaintiff, v. CROUTHAMEL POTATO CHIP COMPANY, INC., Defendant, and Westinghouse Credit Corporation, Defendant Intervenor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Diane J. Sigmund, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for plaintiff Jensen-McLean Company, Inc.
Marvin Krasny, Adelman & Lavine, Philadelphia, Pa., for debtor/defendant Crouthamel Potato Chip Company, Inc.
Marjorie O. Rendell, Duane, Morris & Heckscher, Philadelphia, Pa., for defendant intervenor Westinghouse Credit Corp.
The issue at bench is whether a party who asserts that the debtor bought a piece of equipment as an agent of that party is entitled to reclaim that equipment over the objections of the debtor and of a secured creditor who holds a security interest in all of the debtor's present and after-acquired equipment. We conclude that the reclaiming party is entitled to the equipment inasmuch as the debtor, in purchasing the equipment, was only acting as the agent of that party and, therefore, did not acquire any rights in that equipment which would entitle it thereto or to which a security interest could attach.
The rather complicated facts of the instant case are as follows:1 Crouthamel Potato Chip Company, Inc. ("Crouthamel") was a producer and packager of potato chips. In early 1977 Crouthamel began producing canned potato chips for the Daddy Crisp Company ("Daddy Crisp") using specialized equipment ("the can line equipment") owned by Daddy Crisp. In conjunction with the can line equipment, Crouthamel used other equipment which it purchased itself with funds made available by Westinghouse Credit Corporation, Inc. ("Westinghouse"). Westinghouse had loaned various amounts of money to Crouthamel in the past and had obtained a security interest in, among other things, all of Crouthamel's present and after-acquired equipment. That security interest was perfected by Westinghouse by filing financing statements in the proper offices.
On July 31, 1978, Crouthamel ceased producing canned chips for Daddy Crisp apparently because Daddy Crisp had failed to pay amounts due on past orders. Shortly thereafter, Crouthamel and Daddy Crisp instituted suits against each other which became very heated and protracted and which prevented Crouthamel from using the can line equipment.2 John Crouthamel, the president of Crouthamel, determined at that time that, in order to use the can line equipment again, Crouthamel would have to purchase that equipment as well as settle the Daddy Crisp litigation. He was anxious to do so as expeditiously as possible since the sale of its canned chips accounted for about 50% of Crouthamel's profits. However, all of Crouthamel's efforts to obtain financing for the purchase of the can line equipment were unavailing.
Some time in April, 1979, John Crouthamel was contacted by Wally Nelson, the vice president and chairman of the board of directors of the Jensen-McLean Company ("Jensen-McLean"), an exporter of food products to various countries around the world. Jensen-McLean had been selling canned chips which were produced by Western Crisp in the same manner as Crouthamel produced its canned chips. Jensen-McLean had developed a sizeable market overseas for canned chips because of the chips long shelf life and lack of preservatives. However, in early 1979, Western Crisp went into receivership and Jensen-McLean had to find another source of canned chips. The only other producer of canned chips in the country was Crouthamel.
When Wally Nelson contacted John Crouthamel in April, 1979, they quickly agreed to enter into a business relationship for the purpose of selling canned chips overseas. However, they understood that the Daddy Crisp litigation would have to be settled and the can line equipment would have to be purchased before Crouthamel could begin to produce canned chips again. Crouthamel was unable to pay for the can line equipment by itself and had been unable to find financing for its purchase of that equipment although negotiations were still being conducted with a number of possible sources.
After numerous discussions on the phone and after visiting the Crouthamel plant, Wally Nelson and John Crouthamel agreed that Jensen-McLean would provide the money with which Crouthamel would buy the can line equipment, in exchange for which Jensen-McLean would get 10% of the capital stock of Crouthamel.3 However, on May 15, 1979, the day of the closing for the sale of the equipment, the attorney for Crouthamel advised both Wally Nelson and John Crouthamel that a sale of Crouthamel's stock was impossible because it would violate both the federal and state securities law. Wally Nelson and John Crouthamel therefore suggested that the deal be arranged so that Jensen-McLean would loan Crouthamel the money with which to buy the equipment in exchange for a future sale of stock. Since Crouthamel's attorney advised them that that would also violate the securities laws, it was agreed that Jensen-McLean would itself buy the can line equipment and that it would transfer the equipment to Crouthamel when Crouthamel had complied with the securities laws and could legally transfer the stock to Jensen-McLean.
Because of the animosity of the owner of Daddy Crisp towards Wally Nelson, however, it was agreed by the parties that Wally Nelson should not go to the closing and that his identity as the actual purchaser should not be revealed. Therefore, it was agreed that John Crouthamel would go to the closing for Jensen-McLean and present its check for the equipment. Accordingly, John Crouthamel attended the closing with his attorney and presented Jensen-McLean's check to the National Bank of Georgia ("the Bank"). The Bank was the owner of the can line equipment at that time as a result of foreclosing on a mortgage it held on the property of Daddy Crisp.4 Because the check was not a certified check, however, the Bank refused to deliver the bill of sale. Consequently, all the documents were held in escrow until Jensen-McLean could wire the money to the Bank.5 When everything was done as required by the escrow agreement, on or about May 25, 1979, the Bank released the bill of sale to Crouthamel's attorney. The bill of sale was made out to Crouthamel since the parties had originally understood that Crouthamel was to be the purchaser.6 Therefore, Crouthamel's attorney typed an assignment on the back of the bill of sale and sent it to John Crouthamel to execute and send on to Jensen-McLean. The attorney also drafted an agreement granting Crouthamel an option to buy the equipment within ninety days. On receipt of those documents, John Crouthamel executed the assignment and turned all of the papers over to Anthony Mazullo, the secretary and general counsel of Crouthamel, who, after redrafting the option, forwarded them to Jensen-McLean on June 18, 1979. Brooke Nelson, the president of Jensen-McLean, executed the option on June 29, 1979, but failed to return it to Crouthamel. However, Anthony Mazullo had spoken to Brooke Nelson by telephone and learned that Jensen-McLean had no objection to giving the option to Crouthamel. Furthermore, no one at Crouthamel ever pressured Jensen-McLean for a return of the option.
Meanwhile, John Crouthamel had offered Wally Nelson a position on the Crouthamel board of directors which he had accepted. Thereupon, Wally Nelson was formally nominated and elected to that position on June 21, 1979. During the summer he attended board meetings and kept in constant contact with Crouthamel, generally about its production of canned chips which Jensen-McLean was selling overseas pursuant to their broker agreement.7 However, Crouthamel never provided Jensen-McLean or Wally Nelson with the up-to-date financial statements he requested nor did it make any attempt to comply with the requirements of the securities laws.8
In October, 1979, Wally Nelson attended a board of directors meeting at the Crouthamel plant which was disrupted by the appearance of several of Crouthamel's unsecured creditors. Following that chaotic meeting, Crouthamel filed a petition for an arrangement under Chapter 11 of the Bankruptcy Code ("the Code")9 on October 16, 1979. On November 21, 1979, Jensen-McLean filed a complaint for an order declaring Jensen-McLean to be the holder of all title to the can line equipment and directing Crouthamel to turn that equipment over to Jensen-McLean. Crouthamel, in its answer and counterclaim, asserted that it was the owner of the equipment and that Jensen-McLean owed it $100,000 under their agreement with respect to the sale and purchase of Crouthamel stock. In an amended answer, Crouthamel further asserted that, even if Jensen-McLean owned the equipment, the transfer of that equipment by Crouthamel to Jensen-McLean was a voidable preference pursuant to section 547(b) of the Code. Subsequently, on December 13, 1979, Westinghouse filed a motion to intervene which motion we granted on January 4, 1980, by consent of all parties. In its answer and counterclaim, Westinghouse asserted that it holds a security interest in all of Crouthamel's equipment, that Crouthamel acquired title to the can line equipment in May, 1979, that Westinghouse's security interest thereupon attached to that equipment, and that, consequently, Westinghouse's interest is superior to any interest asserted by Jensen-McLean.
The issues presented by Crouthamel in its answer are whether Jensen-McLean ever got title to the can line equipment and, if so, whether the transfer of title to the equipment from Crouthamel to Jensen-McLean was a voidable preference or whether Jensen-McLean was obligated to transfer that equipment and...
To continue reading
Request your trial