IN RE SECURITY PRODUCTS COMPANY, 65 B 1597(3).

• Court: United States District Courts. 8th Circuit. United States District Court (Eastern District of Missouri)
• Citation: 310 F. Supp. 110
• Docket Number: No. 65 B 1597(3).,65 B 1597(3).
• Parties: In the Matter of SECURITY PRODUCTS COMPANY, Bankrupt.
• Decision Date: 01 October 1969

310 F. Supp. 110

In the Matter of SECURITY PRODUCTS COMPANY, Bankrupt.

No. 65 B 1597(3).

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

October 1, 1969.

310 F. Supp. 111

C. Perry Bascom, St. Louis, Mo., for petitioner.

Curtis L. Mann, Clayton, Mo., Trustee in Bankruptcy.

Gerald A. Rimmel, St. Louis, Mo., for Trustee.

ORDER

REGAN, District Judge.

By this petition for review, Tower Grove Bank and Trust Company (Bank) challenges the correctness of the order of the Referee in Bankruptcy dated April 29, 1969^* adjudging in substance that a certain check in possession of Bank is an asset of the bankruptcy estate of Security Products Company (Security) and directing Bank to endorse and deliver same to the trustee in bankruptcy.

The check in question, in the amount of $9,765, is payable to the order of Bank and Security and was drawn by W. B. Fosson & Sons in payment of an account for certain work performed by bankrupt under a contract to furnish and install windows. The account had theretofore on May 21, 1965, been assigned by Security to Pauly Jail Building Company (Pauly) and immediately reassigned by Pauly to Bank to secure, in part, a note executed by Pauly for moneys loaned by Bank to Pauly. No money was paid to Security for the assignment. The Referee found that the assignment by Security was made without consideration and constituted a fraudulent transfer voidable by the Trustee.

The sole controverted issue before the Referee, ruled adversely to Bank, was whether the corporate entity of Security should be disregarded so that, deeming Pauly and Security to be the same corporation, the consideration paid to Pauly would constitute consideration to Security. Both corporations were adjudicated bankrupt on July 22, 1965, in separate voluntary proceedings.

In its petition for review, Bank now also questions the sufficiency of the evidence to support certain other essential facts found by the Referee, namely, (1) that at the time of the assignments of the account and continuously thereafter to the date of bankruptcy, Security was insolvent, (2) that at the time of the assignment, Security owed debts to creditors other than Pauly, some of which debts were unpaid at the time of bankruptcy, and (3) that Charles Bealke, Bank's vice-president, acting on its behalf, had knowledge at the time of the assignments that both Security and Pauly were insolvent and that Security received no consideration for the assignment.

We have carefully studied the entire record transmitted to us by the Referee and are convinced that there is substantial evidentiary basis for each of the Referee's findings. There can be no doubt that under the record Security and Pauly were insolvent long prior to May 21, 1965, the date of the assignments and continuously thereafter to July 22, 1965, the date of bankruptcy, and that Mr. Bealke, the Bank's authorized representative, was fully aware thereof at all times. There can also be no doubt that at the time of the assignments Security owed provable debts to creditors other than Pauly and that at least some of these debts were unpaid at date of bankruptcy.

This brings us to the final question decisive of the issues before the Referee, namely, whether the consideration which passed to Pauly should be deemed consideration to Security, a question which can be resolved in favor of the Bank only if the corporate entity of Security is disregarded. The Referee has fully treated this question in his memorandum opinion and we agree with his findings and conclusions.^* To disregard the separate entity of Security at the instance of Bank would clearly prejudice the rights of Security's creditors, other than Pauly, and work an injustice upon them. The findings of the Referee are not clearly erroneous and the result he reached is the proper one under the record.

310 F. Supp. 112

Accordingly, it is hereby ordered that the order of the Referee dated April 29, 1969, be and it is hereby approved and confirmed in all respects.

APPENDIX

United States District Court Eastern District of Missouri Eastern Division

In the Matter of | SECURITY PRODUCTS COMPANY, | In Bankruptcy | &gt | No. 65B-1597 | Bankrupt. | |

MEMORANDUM OPINION

Pending for determination is the Petition For An Order To Determine Interest In Funds, filed on January 4, 1966, by Tower Grove Bank and Trust Company, and the Petition Of Trustee For Order On Tower Grove Bank and Trust Company To Turn Over Funds, filed on February 23, 1966. By such respective petitions each antagonist seeks a determination in its (his) favor concerning the proceeds ($9,765.00) of a certain account receiveable, to be more specifically described hereinafter.

The matter came on for hearing on July 12, 1966, before Referee William O'Herin, now retired, who took the matters under submission, with leave to the parties to file briefs. Briefs were filed by March 31, 1967. The matters were resubmitted to the undersigned Referee on December 26, 1967, upon the same evidence upon which the matters were submitted to Referee O'Herin.

PLEADINGS

Petitioner, Tower Grove Bank and Trust Company, hereinafter referred to as the bank, alleges in its Petition that it has since November 19, 1965, held and now holds a check for $9,765.00, now certified, issued by W. B. Fosson & Sons, Ashland, Kentucky (hereafter referred to as Fosson); that the check is payable to Security Products Co. and to the bank (Security Products Co. is hereafter referred to as the bankrupt); and that the trustee in bankruptcy of the bankrupt refuses to endorse the check to the bank.

The bank further alleges that it is entitled to the proceeds of the check by reason of (1) the bankrupt's assignment of its account receivable from the Fosson company, to Pauly Jail Building Company (hereafter referred to as Pauly); (2) the assignment, in turn, of the account by Pauly to the bank on May 21, 1965, (3) for valuable consideration.

The bank prays for an order that it is entitled to the proceeds of the check, and an order requiring the trustee's endorsement to the bank of that check.

To such petition, the trustee filed an Answer, on February 23, 1966, admitting the creditor-debtor relationship of the bankrupt and Fosson; the amount of the Fosson indebtedness to the bankrupt, $9,765.00; the bank's receipt of the Fosson check for $9,765.00; and his refusal to endorse the check payable to the bank. He denies, in that Answer, all other material and substantive allegations, praying for an order that the bank has no interest in the check and that the bank endorse and deliver the check to him as an asset of this bankruptcy estate.

In the same pleading instrument, the trustee filed his Petition Of Trustee For Order On Tower Grove Bank And Trust Company To Turn Over Funds, in four counts, praying in each for an order that

310 F. Supp. 113

the alleged assignments of the account receivable due by Fosson are null and void as to the trustee, that the bank be ordered to endorse and deliver the check to the trustee as an asset of the bankruptcy estate, and that the bank has no interest in or lien upon the Fosson account or check

Each count alleges certain facts which the trustee claims to support a legal theory. The trustee's allegations, and proof in respect thereof, in each count of his said Petition, will be discussed hereafter.

To his Petition, the bank filed its Answer, on April 19, 1966, praying ultimately that the trustee's Petition be dismissed. The bank's allegations, admissions, etc., will be discussed hereafter.

EVIDENCE

At the hearing before Referee O'Herin, on July 12, 1966, the parties submitted the matters on a written Stipulation, which contains matters of fact. Also, by that Stipulation, testimony adduced, and exhibits received into evidence, at earlier hearings, were offered as evidence in respect of such matters; and, all other items and matters of record, which were to be judicially noticed in respect of an earlier hearing (February 16, 1966), were offered. The evidence will not be described in detail here, but will be discussed infra, as need be.

LAW

Count I (of trustee's petition)

In Count I of his Petition, the trustee alleges that on or about May 21, 1965¹, the bankrupt purportedly assigned the Fosson account to Pauly; that Pauly was then the sole stockholder of the bankrupt, or the dominant and controlling stockholder of the bankrupt; that on the same date Pauly purportedly assigned the Fosson account to the bank; that the purported assignments were done contemporaneously by the same officers, reflected in one instrument, and constituted on transaction, for the purpose of enabling Pauly to use bankrupt's assets to borrow from the bank; and that the bank knew, or in the exercise of ordinary business judgment and prudence should have known, such facts and purposes. (para. 1)

The trustee alleges, further, that the bankrupt did not receive any money, labor or property, nor any consideration whatsoever, for the alleged assignment, from Pauly, from the bank, or from anybody. (para. 2)

He alleges further that neither Pauly nor the bank filed a notice of the alleged assignment with the Secretary of State of the State of Missouri; and further that neither gave actual notice of the alleged assignment to Fosson, the debtor, so that the alleged assignment was not valid under Chapter 410, RSMo 1959, V.A.M.S., in particular Sec. 410.020, and thus null and void as to him, the trustee by virtue of the provisions of Section 70, sub. c of the Bankruptcy Act, Sec. 110(c), Title 11 U.S.C.A. (para's. 3 and 4)

In its Answer to said Count I, the bank admitted all of the allegations in paragraph 1, except that it denied that the two alleged assignments were in fact one transaction for the purpose of enabling Pauly to use bankrupt's assets to borrow money, and denied that the bank knew or should have known such purpose. The bank admitted (in response to paragraph 2) that the bankrupt did not receive any...