In re Lane, Bankruptcy No. 583-00188.

• Decision Date: 04 July 1984
• Docket Number: Bankruptcy No. 583-00188.
• Citation: 41 BR 285
• Parties: In re Charles Gene LANE and Elaine Lane, Debtors. FIRST NATIONAL BANK OF LEVELLAND, Plaintiff, v. Myrtle McDONALD, Trustee, Defendant. HALLMARK CARDS, INC., Plaintiff, v. Myrtle McDONALD, Trustee, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Texas

41 B.R. 285 (1984)

In re Charles Gene LANE and Elaine Lane, Debtors.

FIRST NATIONAL BANK OF LEVELLAND, Plaintiff, v. Myrtle McDONALD, Trustee, Defendant.

HALLMARK CARDS, INC., Plaintiff, v. Myrtle McDONALD, Trustee, Defendant.

Bankruptcy No. 583-00188.

United States Bankruptcy Court, N.D. Texas, Lubbock Division.

July 4, 1984.

James Walters, Lubbock, Tex., for debtor.

Larry Glazner, Levelland, Tex., for Hallmark Cards and First National Bank of Levelland.

Myrtle McDonald, Lubbock, Tex., trustee.

MEMORANDUM AND ORDER

BILL H. BRISTER, Bankruptcy Judge.

First National Bank of Levelland ("Bank") filed motion to modify stay to permit it to foreclose its claimed liens against inventory, fixtures, and accounts receivable of the debtors. Hallmark Cards, Inc. ("Hallmark") filed motion for modification of stay to permit it to foreclose its claimed liens against fixtures. J.E. Franklin, a co-debtor with the debtors on the bank indebtedness, intervened and urged granting of the requested relief requested by the bank. Each motion was concerned with some of the same property and similar defenses were advanced by the debtor to each motion. Therefore the two motions were consolidated for nonjury trial on December 12, 1983. The following summary constitutes the findings of fact and conclusions of law.

On October 9, 1976, debtors, Charles Gene Lane and Elaine Lane, opened a Hallmark card shop at 801 Houston Street in Levelland, Texas, which they operated as a sole proprietorship under the common name and style of "E'Lane's Expression Shoppe." On March 10, 1978, the debtors formed a partnership with Billie Franklin and Julian E. Franklin for the ownership and operation of a retail sales outlet for religious and inspirational materials which they operated at 504 Avenue G in Levelland, Texas, under the common name and style of "E'Lane's Agape Bookstore."

The record does not clearly reflect when the Hallmark card shop at 801 Houston Street, operated under the name of E'Lane's Expression Shoppe, was closed. However, it does appear that at least for a period of time the debtors were involved in ownership and operation of two separate businesses at the same time—the Hallmark card store as sole proprietors and the bookstore in partnership with the Franklins.

As far as the record reflects the business operations prior to July 1980 required no outside financial arrangements. In any event there was no evidence adduced at the trial which reflected the existence of any relevant liens against the debtors' property prior to July 1980.

In July 1980 a third business location was opened by debtors and the Franklins at 210 Club View Drive in Gentry Square Shopping Center in Levelland, Texas. Again, it is not clear in the record whether any of the remaining assets of the proprietorship operation of the Hallmark card shop were initially transferred to the new location, but it is clear that the assets of the bookstore were transferred to the new operation. The partnership agreement was amended on July 18, 1980, to reflect the change of the partnership name from "E'Lane's Agape Bookstore" to "E'Lane's" and at all relevant times thereafter the business operations in which the debtors were involved were conducted at that address.

Extensive financing was required for the new operation. On July 9, 1980, E'Lane's, by and through the debtors' signatures and those of the Franklins, executed a promissory note to the order of the bank in the principal sum of $125,000.00 and secured the note with three security agreements and financing statements against all accounts, merchandise inventory, furniture, fixtures and equipment then owned or thereafter acquired by E'Lanes. The financing statements, reflecting "E'Lane's," 210 Club View Drive, Levelland, Texas, 79336 as debtor, were filed with the Secretary of State of Texas and with the Hockley County Clerk.

I have remarked earlier that whether the Hallmark card store which had been operated by the debtors as a proprietorship had been terminated or whether it was removed to the new Gentry Square Shopping Center location was not reflected by the record. It is clear, however, that the debtors and the Franklins intended for a Hallmark card operation also to be conducted at the Gentry Square Shopping Center location. On October 10, 1980, the debtors and the Franklins, as partners, contracted with Hallmark Cards, Inc. for the purchase of inventory, fixtures and equipment. In connection with that purchase they executed a note to Hallmark on October 10, 1980, in the principal sum of $40,877.31, secured¹ by security agreement and financing statement describing "trade fixtures, card racks and related equipment."

The contract for purchase reflected that the debtors and the Franklins had conducted business as a partnership at 210 Club View Drive, Gentry Square Shopping Center, in Levelland, Texas, under the name of "E'Lane's." However the security agreement and the financing statements reflected the identity of "debtors" to be "Charles E. and Elaine Lane and J.E. and Billie Franklin, d/b/a E'Lane's Expression Shoppe, 210 Club View Drive, Gentry Square Shopping Center, Levelland, Texas 79336."

The business operations were not as profitable as the partners had hoped. They executed a partnership dissolution agreement, effective August 1, 1982, whereby the Franklins conveyed their interest in the partnership business to the debtors, the debtors agreed to hold the Franklins harmless on account of any debts of the business which might subsequently arise, and an agreement was reached between them for the payment of the existing partnership debts. Specifically, for the purposes of this memorandum, the Franklins agreed to pay one-half of the indebtedness to the bank. The bank divided the existing indebtedness between the debtors and the Franklins. The Franklins executed a new note to the bank in the principal sum of $64,279.05, dated February 12, 1982, and the debtors executed a new note to the bank in the principal sum of $125,000.00 which immediately was credited with the sum of $64,279.05, the amount of the Franklin note.

The debtors continued the business operations until they filed petition for order for relief under Chapter 7 on ...