In re Penny Saver, Inc., Bankruptcy No. 80-03387T(7).

• Decision Date: 16 November 1981
• Docket Number: Bankruptcy No. 80-03387T(7).
• Parties: In re PENNY SAVER, INC. t/a Trudy's Deli, Debtor.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

15 B.R. 252 (1981)

In re PENNY SAVER, INC. t/a Trudy's Deli, Debtor.

Bankruptcy No. 80-03387T(7).

United States Bankruptcy Court, E.D. Pennsylvania.

November 16, 1981.

Harry Newman, Newman, Fox & Parks, Bethlehem, Pa., for debtor.

Nathan L. Reibman, Reibman & Reibman, Easton, Pa., for Dennis'.

OPINION

THOMAS M. TWARDOWSKI, Bankruptcy Judge.

Before us in this matter is a motion by a party in interest to vacate the order for relief and to dismiss the voluntarily filed petition. The party in interest claims that the debtor's president was without authority to file the voluntary petition on behalf of the debtor. For reasons hereinafter given, we will deny the motion.¹

The facts of this case are as follows:

Richard and Penelope Dennis (hereinafter, the Dennis') were the owners of all the shares of Penny Saver, Inc., a small business whose sole activity was the operation of a gas station and convenience store. In the fall of 1979, the Dennis' entered into negotiations with John and Trudy Groller (hereinafter, the Grollers) for the sale of Penny Saver, Inc., from the Dennis' to the Grollers.

Initially, the parties entered into a franchise agreement whereby Grollers would pay a monthly rate to the Dennis' for the right to operate the business. This relationship was apparently intended to give the Grollers an opportunity to inspect the operation of the business firsthand. Evidently the Grollers liked what they saw, as they entered an agreement to purchase the shares of Penny Saver, Inc. a month and a half after entering the franchise agreement. This agreement was apparently intended to supercede the franchise agreement.

Because the Dennis' had loaned large sums of money to Penny Saver while they owned the shares,² they were advised by counsel after the execution of the agreement of sale that considerable tax savings could be achieved if the purchase was restructured. Therefore, a third agreement, superceding the franchise agreement and the first agreement of sale, was drawn up by the Dennis' counsel, and executed by the parties in early 1980. The agreement of sale was written to be effective as of October 15, 1979, and provided that the Grollers would pay for the shares in monthly installment payments, and the Dennis' shares of Penny Saver would be transferred to the Grollers, but held in escrow by Dennis' attorney.

The agreement of sale provided for a purchase price of $24,476, plus 9% interest, to be paid in 36 installments. The buyers executed a note evidencing the debt, and the debt was allegedly secured by a security interest in all present and future assets of the corporation. In addition, it appears that the Grollers agreed to personally guarantee the repayment of the corporate loan made by the Dennis' in the amount of $54,524, at 9% interest in 36 monthly payments. Thus, in order to own Penny Saver, Inc. free and clear, the Grollers undertook to purchase all the outstanding capital stock for a price of approximately $25,000, and to pay off the corporate debt to Dennis at the sum of approximately $55,000. The default provisions of the agreement of sale provided that should the buyers default in their payments, the shares held in escrow would be returned to the Dennis', and all sums paid would be retained by the Dennis' as liquidated damages.

Following the execution of the agreement of sale, the Grollers, now sole shareholders, held a meeting and elected themselves officers of Penny Saver. It is not clear whether they were ever nominated or elected to the Board of Directors.

The Grollers continued their operation of Penny Saver, but almost immediately began experiencing financial difficulties. Mr. Dennis became increasingly annoyed with missed payments, and eventually tendered a document to Mrs. Groller which would have admitted the Groller's default under the agreement. Mrs. Groller refused to sign the document, but instead closed the doors of the convenience store and returned the keys to Dennis. Thereafter, the Dennis' began execution on the personal property of Penny Saver, though it is not clear if the execution was pursuant to the confession of judgment contained in the note securing the...