In re Schindler

• Decision Date: 09 October 1963
• Docket Number: No. 61 B 336(1).,61 B 336(1).
• Citation: 223 F. Supp. 512
• Parties: In the Matter of John D. SCHINDLER, d/b/a Circle "S" Farm and Schindler Feed & Fertilizer Store, Bankrupt.
• Court: U.S. District Court — Eastern District of Missouri

223 F. Supp. 512

In the Matter of John D. SCHINDLER, d/b/a Circle "S" Farm and Schindler Feed & Fertilizer Store, Bankrupt.

No. 61 B 336(1).

United States District Court E. D. Missouri, E. D.

October 9, 1963.

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Ralph L. Alexander, Columbia, Mo., William H. Armstrong, St. Louis, Mo., for bankrupt.

Everett S. VanMatre, Mexico, Mo., for trustee.

Terence C. Porter, Welliver, Porter & Cleaveland, Columbia, Mo., for American Nat. Bank & Trust Co. of Chicago, Ill., appellant.

HARPER, Chief Judge.

Memorandum opinion on the petition of American National Bank and Trust Company of Chicago and First National Bank of Centralia to establish liens on assets and on said respective secured Claims Nos. 45 and 56 filed by the Referee in Bankruptcy on April 17, 1963, is hereby adopted as the findings of fact and conclusions of law of the court, and the orders of the Referee are in all respects confirmed.

The opinion of O'Herin, Referee, follows:

On September 6, 1961, American National Bank and Trust Company of Chicago filed a secured claim herein, designated as Claim No. 45, in the principal amount of $38,430.97 and interest of $496.63 as of March 13, 1961, the date of Bankruptcy, the security being a deed of trust on bankrupt's farm and a chattel mortgage on growing wheat thereon. On the same day the bank filed a petition to establish a lien on assets of this estate, based upon the same deed of trust and chattel mortgage.

On September 26, 1961, First National Bank, Centralia, Missouri, filed a second amended secured claim, which is designated as Claim No. 56, based upon certain notes of bankrupt, secured by assignment of life insurance policies and a deed of trust on bankrupt's farm. That same day it filed a petition to establish a lien on assets herein, based upon the deed of trust.

The assignments of life insurance policies were valid liens, and the bank having realized thereon prior to the date of this trial, the validity of the lien of the bank's deed of trust is the only security issue here presented as to the Centralia Bank.

From the complicated computation of the amount owing on this claim, contained in the allegations therein and testimony (Tr. p. 29), it appears that the amount presently claimed is $6,682.55 and interest.

The farm, with the growing wheat thereon, was sold by the trustee in bankruptcy for $425,000.00, subject to a first deed of trust of the Equitable Life Assurance Society of the United States with balance due of $318,666.11, and the liens of the chattel mortgage on the growing wheat and the deed of trust held by the banks (explanation of this deed of trust securing notes to the respective banks appears hereinafter) were transferred to the proceeds of sale, the validity thereof to be later determined herein. By agreement of the parties, $12,000.00 of the sale price was allocated as the proceeds to which the lien of the chattel mortgage on the wheat should be transferred. The net realization from the sale was $106,333.89, so the assets are sufficient to pay the claims in full, if the liens be valid.

Trustee challenges the validity of the crop mortgage, the validity of the notes and deed of trust securing same and asserts that in any event the latter constituted preferential transfers, the details of which objections will hereinafter appear.

As the facts on the issue of preferential transfer are in large measure common to both claims, and the business transactions between bankrupt and the two banks intermingled, by agreement of the parties and with approval of the Court, the claims and petitions were consolidated for the purpose of the trial. The matters were heard upon a stipulation of fact (Banks' Ex. 8), oral testimony at the trial, and by depositions. In those instances where exhibits were offered jointly by claimants, such are marked "Banks Exhibit", otherwise the exhibits are identified by the name of the offeror.

The facts giving rise to the present controversies are found to be as follows: John D. Schindler, bankrupt herein, owned and operated a farm of approximately 2,000 acres in Audrain County, Missouri. On March 13, 1961, he filed a voluntary bankruptcy petition initiating this proceeding. For several years prior thereto he had conducted his banking business with the First National Bank of Centralia, Missouri. Three accounts were maintained at the bank. One was a joint account in the names of bankrupt and his wife, which was the farm operating account and in which most of his money was handled. Another account was the John D. Schindler Feed and Fertilizer account, which account was for a feed and fertilizer store bankrupt operated in town. The third account was in the name of Catherine Schindler, bankrupt's wife.

During this period of time he made loans from this bank for the farm operation. This operation was too large for the Centralia Bank to handle alone, so it arranged with its correspondent bank, American National Bank & Trust Company of Chicago, to handle the loans. The financing was done by notes secured by chattel mortgages on crops and livestock. The practice was that the notes and chattel mortgages were in the first instance made to the Centralia Bank, and assigned by it to the Chicago Bank without recourse.

The first loan made by the American National was November 30, 1959, (Amer. Natl. Bank Ex. 8). There followed a number of loans. On September 2, 1960, Schindler owed this bank $102,263.74 (Amer. Natl. Bank Ex. 8) secured by chattel mortgages on crops and livestock.

In September and October, 1960, bankrupt sold soy beans, corn, lamb wool and hogs, which were mortgaged. See depositions of L. W. Angell, Wendell C. Mustain and Ward Truesdell (Banks' Exhibits 9, 13, 15) and testimony of Albert Craig (Tr. p. 114 et seq.).

Truman Garrison was an appraiser for the Centralia Bank and a director thereof (Tr. p. 58). On March, 1960, he was employed by the American National Bank to make appraisals of bankrupt's livestock and crops. He made such an appraisal July 29, 1960, (Banks' Ex. 17).

On October 6, 1960, he made another appraisal (Banks' Ex. 18). This appraisal showed a decrease in crop items of $21,805.00 from the appraisal of July 29th. The largest item of the discrepancy was $10,000.00 worth of soy beans. He notified both Harry Jennings, then President of the Centralia Bank, and the American National Bank, of the facts disclosed by the appraisal of October 6th. (Tr. p. 79 et seq.).

Jennings wrote the American National Bank about the matter. As a result Everett Dovale, Assistant Vice President of the American National Bank, came from Chicago to Centralia. (Tr. p. 53).

On October 20, 1960, a conference was held with bankrupt at the Centralia Bank. Present, beside bankrupt, were Jennings, Dovale and Garrison. At the insistence of the banks, bankrupt executed Trustee's Ex. A. This is in the form of a letter dictated by Dovale and typed in the Centralia Bank office. (Tr. pp. 56, 74, 142). It is dated October 20, 1960, addressed to Harry Jennings, First National Bank, Centralia. It states that in connection with notes totaling $102,263.74 "made to your bank and assigned to the American National Bank and Trust Company of Chicago, I wish to make the following statement and agreements:".

The agreements bankrupt then made were that "the bank" was to be represented by Garrison, who would employ two picker-shellers; bankrupt to use his picker-sheller and his equipment to pick and shell his entire corn crop. Garrison was to sell the oats, hay milo, and the livestock except lambs, which were to be kept thirty days, and it then be determined if such were to be kept longer. Proceeds of the sales were to be placed in an escrow account at the First National Bank, Centralia. Wages for harvesting the corn were to be paid by Garrison from the escrow account.

Bankrupt further agreed that after the entire liquidation was completed, should there be a deficit, bankrupt would execute a note and deed of trust on his entire farm to the American National Bank and Trust Company, for "a like sum including interest". Bankrupt further agreed therein to execute a chattel mortgage "to the bank" on 230 acres of growing wheat on his farm.

The accounting of Garrison's liquidation appears in Banks' Ex. 19. It shows the first sale on October 25, 1960, and the last (2 lambs) on February 17, 1961. There is one last item "stalk field $100.00" on April 7, 1961. Further reference will hereinafter be made to this exhibit.

The chattel mortgages under which the bank claimed a lien on the proceeds of the foregoing liquidation are American National Bank's Exhibits 9, 10 and 11. Each mortgage provides it shall secure the renewal of any note therein mentioned and each contains a future advances clause. Under Missouri Law a chattel mortgage may be given to secure future advances. Foster v. Reynolds, 38 Mo. 553; Smith-Wallace Shoe Company v. Wilson, 63 Mo.App. 326, 330; Rice v. Davis, 99 Mo.App. 636, 74 S.W. 431; Jacques v. Goggin, 362 Mo. 1005, 245 S.W.2d 904. Also, as will be noted from authorities hereinafter cited in connection with the wheat crop mortgage, an antecedent debt is sufficient consideration for a chattel mortgage.

These three chattel mortgages were executed June 16th, August 4th and August 26th, 1960. Two covered various livestock and crops, the third covered lambs only. They were promptly and properly filed in Audrain County, Missouri, the residence of bankrupt at all times here material. They were held by the American National Bank as security for bankrupt's notes assigned to it by the Centralia Bank, without recourse.

Three of the notes so secured are American National Bank's Exhibits 2, 4 and 5, executed in April, June and July, 1960, aggregating $55,000.00. In addition the American National, as shown by its Exhibit 8, held other notes of bankrupt at the time of the liquidation, some later in date than the chattel mortgages, but all...