In re De Luxe Oil Co.
| Citation | 36 F. Supp. 287 |
| Decision Date | 04 November 1940 |
| Docket Number | No. 7655.,7655. |
| Parties | In re DE LUXE OIL CO. |
| Court | U.S. District Court — District of Minnesota |
Robert F. Leach (of Oppenheimer, Dickson, Hodgson, Brown & Donnelly), of St. Paul, Minn., for petitioner.
William P. O'Brien and W. M. Kronebusch, both of St. Paul, Minn., for alleged bankrupt.
GLENN, Referee.
This matter came on to be heard before the undersigned referee upon the involuntary petition of Kanotex Refining Company filed herein December 22, 1938, praying that the above-named De Luxe Oil Company be adjudged bankrupt, and alleging as acts of bankruptcy that De Luxe Oil Company while insolvent permitted Kelly-Springfield Tire Company, a creditor, to obtain preferences by the assignment of accounts receivable from the said Oil Company to the said Tire Company on August 23, 1938, and on September 27, 1938, to secure a past-due debt; and upon the answer of the said De Luxe Oil Company denying the commission of said acts of bankruptcy.
At the commencement of the hearing the petitioner moved to amend its petition by the insertion of an allegation that the transfers alleged in the petition as filed were made with the intent to hinder, delay or defraud creditors, to which motion for amendment the alleged bankrupt objected. The referee took the motion under advisement, and received the proofs subject to such objection. The referee now denies said motion to amend.
After considering the evidence and the arguments of counsel, the referee makes the following findings of fact:
1. During the year 1937 and until some time in the month of September, 1938, the said De Luxe Oil Company was engaged in the operation of a retail gasoline filling station business and the sale of automobile tires and accessories in the City of St. Paul, Minnesota. On the 27th day of September, 1937, it was indebted to Kelly-Springfield Tire Company in the sum of $1,791.54 for tires and accessories previously purchased, which indebtedness was unsecured, and on that date the said De Luxe Oil Company, while solvent, assigned to said Kelly-Springfield Company certain accounts receivable representing credit sales made by the De Luxe Oil Company to its customers, aggregating $2,427.97 in amount, as security for said indebtedness. In said assignment the assignor agreed to account for any monies paid to and received by it on said assigned accounts, either by the payment to the assignee of said monies or by the replacement and substitution of another account or accounts equal in value and in amount to the monies received by the assignor, said accountings to be made on the first of each month thereafter, and additional accounts so furnished to be in lieu of and in substitution for those paid. The said assignment was filed for record in the office of of the City Clerk of the City of St. Paul on April 14, 1938, and there was annexed thereto not only the list of accounts so assigned on September 27, 1937, but also a list of accounts receivable entitled "List of accounts receivable Sept. 1st, 1937," aggregating $6,947.61 in amount, a "List of Receivable for November, 1937," aggregating $2,337.55 in amount, a "List of accounts receivables for January, 1938," aggregating $2,590.53 in amount, and a "List of accounts Receivables for February, 1938," aggregating $2,868.74 in amount.
2. Under date of April 14, 1938, the De Luxe Oil Company executed an assignment to said Kelly-Springfield Company of a list of accounts receivable aggregating $2,884.65 in amount, as supplemental to and a part of the said assignment of September 27, 1937, as additional security to the original obligation and original accounts, and to constitute such substitutions as are provided for in the original assignment by reason of accounts theretofore assigned having become settled, paid or disputed; and such assignment of April 14, 1938, was filed for record in the office of the said City Clerk on May 3, 1938.
3. Thereafter similar assignments of accounts receivable were executed by the De Luxe Oil Company to said Kelly-Springfield Company, identical in terms with the said assignment of April 14, 1938, except for the respective lists of additional and substituted accounts attached thereto. The dates of such assignments, the aggregate of accounts so assigned, and the dates of filing thereof in the office of the City Clerk are as follows:
May 11, 1938 $3012.43 filed May 18, 1938
May 31, 1938 2489.25 " June 7, 1938
July 12, 1938 2463.13 " July 18, 1938
August 4, 1938 2544.96 " Aug. 9, 1938
August 19, 1938 2510.96 " Aug. 23, 1938
September 6, 1938 2511.84 " Sept. 15, 1938
September 19, 1938 2500.63 " Sept. 27, 1938
4. On the 14th day of September, 1938, and at all times thereafter, the aggregate of the property of the said De Luxe Oil Company was not at a fair valuation sufficient in amount to pay its debts, and the said De Luxe Oil Company was insolvent.
5. Prior to September 27th, 1938, all collections of said assigned accounts were made by the De Luxe Oil Company, and the Kelly-Springfield Company made no collections, and all collections so made by the De Luxe Oil Company were kept and used by it as collected for its own purposes, with no report of collections or the disposition thereof to the Kelly-Springfield Company, except for the successive assignments of approximately $2,500 each of new accounts in substitution for and to replace collected accounts. Prior to September 27, 1938, no payment whatever was made by the De Luxe Oil Company to the Kelly-Springfield Company on account of said indebtedness of $1,791.54. During the period of these assignment transactions the De Luxe Oil Company had from the Kelly-Springfield Company a consigned stock of tires and tubes, from which they were selling to their customers, and for which sales they were liable to account monthly to the Kelly-Springfield Company. The successive assignments of approximately $2,500 each of new accounts was intended by the parties as security for such indebtedness for consigned merchandise sold as well as in substitution for collected accounts.
6. In the month of June, 1938, the Kanotex Refining Company had actual notice of the said assignment of accounts by the De Luxe Oil Company and of the manner of dealing therewith as hereinbefore set forth.
7. On the 22nd day of December, 1938, the petitioner Kanotex Refining Company was a creditor of the De Luxe Oil Company, having a provable, unsecured claim fixed as to liability and liquidated as to amount in excess of $10,000, and all of the creditors of said De Luxe Oil Company were less than twelve in number. During all the times herein mentioned the said Kanotex Refining Company was a creditor of De Luxe Oil Company in an amount exceeding $9,000.
As conclusions of law, the referee finds and decides that the said assignment of accounts of September 27, 1937, and the supplemental assignments made thereafter by De Luxe Oil Company, were constructively fraudulent and void as to creditors of De Luxe Oil Company; that the said assignment of accounts dated September 19, 1938, and filed September 27, 1938, was a transfer by De Luxe Oil Company, while insolvent, to Kelly-Springfield Tire Company, a creditor, of a portion of the property of De Luxe Oil Company with intent to prefer said Kelly-Springfield Tire Company over its other creditors; and that petitioner is entitled to have said De Luxe Oil Company adjudicated a bankrupt.
It is therefore adjudged that the said De Luxe Oil Company is a bankrupt under the Act of Congress relating to bankruptcy.
The involuntary petition attempts to plead only the second act of bankruptcy, which is defined in Section 3 of the Bankruptcy Act, 11 U.S.C.A. § 21, as "having * * * transferred, while insolvent, any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors". The pleading omits any allegation that the transfer was made with intent to prefer, an essential ingredient of this act of bankruptcy, unless it is to be implied from the allegation that the alleged bankrupt permitted the Kelly-Springfield Company to obtain a preference by assigning to it, while the assignor was insolvent, certain accounts receivable, as security for a pastdue debt. At the hearing the referee called attention to this deficiency and invited an amendment, which was not forthcoming, although counsel did move to amend to incorporate an allegation of the first act of bankruptcy — a transfer with intent to hinder, delay or defraud creditors. Obviously the requested amendment cannot be allowed, for it was offered some five months after the filing of the original petition, and nearly eight months after the alleged act was committed, and Section 3 provides that a petition may be filed only within four months after the commission of an act of bankruptcy. Acts poorly pleaded in time may be amended after the expiration of four months, but new acts cannot be brought in after that period has expired. Counsel for petitioner in his brief cites in support of his right to amend Prentice-Hall Bankruptcy Service, p. 906. I find the rule there stated to be as follows:
Counsel having ignored the referee's suggestion that the pleading of the act originally pleaded be amended, and that pleading having omitted an essential ingredient of the act, it may be doubted whether he is entitled to prevail. Numerous authorities emphasize the essential character of the pleading of the intent to prefer, with respect to the second act; but some announce the rule that if...
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