In re Gustie
| Decision Date | 22 July 1983 |
| Docket Number | Bankruptcy No. 79-1627 JG. |
| Citation | 32 BR 466 |
| Parties | In re Joseph A. GUSTIE, Jr., Debtor. The FIRST NATIONAL BANK OF BOSTON, Plaintiff, v. Stephen M. RICHMOND, Trustee, et als., Defendants. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Stephen Richmond, Kaye, Fialkow, Richmond & Rothstein, Boston, Mass., trustee.
Francis Matera, Joseph Pisarri, Corwin & Corwin, Boston, Mass., for debtor/defendant.
Richard Mercer, Boston, Mass., for The First National Bank/plaintiff.
The plaintiff, First National Bank of Boston ("The Bank"), contends that the transfer of title to real estate at 170 Ridgeway Road, Weston, Massachusetts ("the Weston property") by the debtor, Joseph A. Gustie, Jr. ("the debtor") or ("Joseph Gustie") to his brother and sister-in-law, Frank and Isabelle Gustie ("the Gusties" or "Frank Gustie") was a fraudulent conveyance under Massachusetts General Laws Chapter 109A Section 41 and under Section 67d(2)2 of the former Bankruptcy Act.3 The Bank alleges that Joseph Gustie, while insolvent, transferred the Weston property to his brother Frank Gustie for less than fair consideration. The Bank's amended complaint also seeks to establish the validity and priority of the Bank's judicial lien on the Weston property by reason of a real estate attachment in the amount of $500,000 obtained on all property of the debtor on November 8, 1978 in Middlesex Superior Court.
The complaint of Stephen M. Richmond, the Chapter XII trustee ("the trustee") seeks to avoid the debtor's transfer of the property to the Gusties on May 19, 1978 as a fraudulent conveyance, alleging that the transfer was made by an insolvent debtor for less than fair consideration, and that the transfer was made with intent to hinder, delay, and defraud present and future creditors.4 The trustee seeks to set aside the transfer pursuant to Section 70(e)(1) of the Bankruptcy Act.5 The defendants, in answer to the complaints, denied they were the recipients of a fraudulent transfer, asserting that Joseph Gustie held only bare legal title to the Weston property, had no ownership interest in the property, and at all material times they were and are the true owners of the Weston property. The Court ordered consolidation of the complaints for trial.
Based upon the stipulated and admitted documents, and testimony heard during the three days of trial, I find the following facts as required by Bankruptcy Rule 752.
Frank and Isabelle Gustie are the brother and sister-in-law of the debtor, Joseph A. Gustie, Jr., deceased. Joseph Gustie was a real estate developer in the Route 9 area of Framingham, Massachusetts in connection with two corporations, J.A.G., Inc. and Framingham Arbor Corporation, and a partnership, Consulate Realty Trust. In 1978 the two malls owned by Consulate were operating and the Framingham Arbor project was under construction.
Joseph Gustie had a banking relationship with the First National Bank of Boston. The loan officer with whom he dealt was David McKown. During the period from 1972 to 1978 Joseph Gustie executed eighteen promissory notes payable to the Bank both in his individual capacity and as a guarantor on the obligations of J.A.G., Inc., Framingham Arbor, Paul G. Holian (one of the Consulate partners) and the Estate of Joseph A. Gustie, Sr. which totalled approximately $1,000,000 in principal amount. Joseph Gustie had executed many of the notes in blank, leaving them in the possession of David McKown. This procedure was followed to accomplish a speedy transfer of funds when Joseph Gustie needed money. Generally, upon Joseph Gustie's request Mr. McKown would fill in the blanks noting the interest rate on the document, and then would inform Joseph Gustie of the particulars. By the end of May 1978 Joseph Gustie on joint and several obligations owed the Bank $1,184,928.23.
Frank R. Gustie and Isabelle M. Gustie, husband and wife, purchased the real estate and house located at 170 Ridgeway Road, Weston, Massachusetts from Mr. and Mrs. Harvey on November 10, 1955. The tax stamps indicated consideration of approximately $55,000 was paid. There was no evidence presented that the Frank Gusties purchased the house with any funds other than their own and the proceeds of a note secured by a mortgage. Joseph Gustie, the debtor, played no part in this transaction. Since 1955 to the present the Frank Gustie family has resided here. The title to the property remained in the name of Frank and Isabelle Gustie as tenants by the entirety until 1965. During the ten years preceding 1965, Frank Gustie made all mortgage, tax, and insurance payments.
On October 19, 1965 Frank and Isabelle Gustie executed a deed transferring title to the Weston property to Joseph A. Gustie, Jr. At this time the property was worth $150,000. Although the deed's tax stamps reveal $55,400 in consideration paid, Joseph Gustie did not pay any consideration for the transfer. The reason for the transfer was Frank Gustie's worsening financial condition. During this period, Frank Gustie's restaurant, the Abner Wheeler House, was not operating profitably and had a substantial liability for meals taxes, for which Frank Gustie was personally liable. After discussing the matter with his father and brother, Frank transfered title to Joseph. The transfer was intended to accomplish two purposes: to insure that the home was protected from Frank's creditors, and, to insure that Frank Gustie did not jeopardize his equity position in the house because he owed his father $25,000. It was orally agreed that Joseph was to hold title for the benefit of Frank Gustie and his family. There was no agreement as to how long Joseph Gustie was to hold title, but it was agreed that equitable ownership was to remain with the Frank Gusties.
Two days after the transfer, Joseph Gustie executed a mortgage of the Weston property to the Wellesley National Bank in exchange for a $50,000 loan. The proceeds of the loan, however, went not to Joseph Gustie but to discharge the Wellesley bank mortgage of Frank and Isabelle Gustie in the amount of $33,000 and to satisfy Frank Gustie's obligations to business creditors of $17,000. Joseph Gustie neither obtained nor received any monetary benefit in this transaction.
After the transfer of title to Joseph, the Frank Gustie family continued to reside at 170 Ridgeway Road. Frank Gustie continued to make monthly payments on the new $50,000 mortgage obtained by Joseph and continued to pay the insurance premium and real estate taxes for the house. All the bills for household expenses remained in the name of Frank and Isabelle Gustie. They deducted the mortgage interest and taxes paid on their income tax return. The Frank Gusties did not pay Joseph rent for the use of the premises. While he held title to the Weston property, Joseph lived at his own residence in Belmont.
On two occasions while the property stood in the name of Joseph Gustie, the Weston property was pledged as collateral for Joseph Gustie's own obligations. On August 13, 1971 Joseph Gustie borrowed $20,000 from the Atlantic Corporation and granted a mortgage on the Weston property, and on July 31, 1973 Joseph again granted a mortgage to Atlantic to secure repayment of a $70,000 note. The Atlantic Corporation also took two other parcels as collateral for this loan.
On only one of these occasions did Frank Gustie know that Joseph was mortgaging the Weston property. Joseph had asked Frank for permission to pledge the property so that he could purchase another parcel for the Deerskin Shopping Plaza, and Frank assented. On other occasions Frank refused to permit Joseph to mortgage the property.
From 1976 to 1980 seven creditors of Joseph Gustie attached the Weston property.
Frank Gustie was not aware that Joseph Gustie listed the property as an asset on three financial statements to the First National Bank dated September 1, 1971, January 7, 1975 and June 23, 1975. Another financial statement to the Bank dated May 4, 1978 does not list the Weston property as an asset of Joseph.
Joseph Gustie was instructed by the Bank officer, David McKown to list all assets. There is an evidentiary dispute as to whether Mr. McKown knew that Frank was living there. Joseph Gustie's handwritten note explains Joseph Gustie's reasons for listing the assets and also attempts to interpret McKown's state of mind concerning this issue. This note is inadmissible hearsay not within any of the exceptions to the hearsay rule set forth in the Federal Rules of Evidence Rules 803 and 804, and plays no part in reaching these findings.
I find that in granting the loans, McKown did not rely on Joseph's ownership of the Weston property. McKown testified that he based his loan decisions on the entire contents of the financial statements. Where Joseph Gustie had numerous substantial real estate interests and the bank had a long history of dealings with Joseph Gustie, it does not seem plausible that the Bank attached weight to his ownership of the Weston property. I also find that the value of the equity in this house as listed by Joseph in his financial statements is, in relation to all the other listed assets, relatively minor and that the loans would in all probability have been approved by the Bank in the absence of this listed asset. I find that McKown relied on the parties past banking relationship, and on Joseph Gustie's total asset structure, in issuing the numerous promissory notes on which the Bank's claim is based. Even if the bank officer did put some weight on Joseph Gustie's purported ownership, it was unreasonable. Mr. McKown testified that he knew that the Frank Gustie family was living there, and should have made inquiry as to Frank's interest.
In the Spring of 1978, the Framingham Arbor project remained unfinished and Joseph Gustie and his partners defaulted in their obligations to the bank, which was unwilling to extend further credit....
To continue reading
Request your trial