In re Skilled Trades Co., Inc.
| Decision Date | 03 December 1979 |
| Docket Number | Bankruptcy No. NK 78-00248 B 8. |
| Citation | 1 BR 396 |
| Parties | In re SKILLED TRADES COMPANY, INCORPORATED, Bankrupt, Joseph A. CHRYSTLER, Trustee, Plaintiff, v. SOUTH BEND SUPPLY CO., Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Stanley, Davidoff, Long & Gray, David Davidoff, Kalamazoo, for plaintiff.
O'Connor & Tushla, Paul E. Deats, Cassopolis, and James M. Miller, South Bend, Ind., for defendant.
Joseph A. Chrystler, the duly appointed, qualified, and acting trustee in bankruptcy, filed a complaint for the recovery of alleged preferential transfers of $7,466.13. No objection to the summary jurisdiction of the court was raised.
There is no dispute that the transfers in question were within the four month period immediately preceding the filing of a voluntary petition. However, as to one of the transfers, the defendant denies that the transfer was of property of the debtor, that it was for an antecedent debt, that the debtor was insolvent at the time of the transfer, and that defendant had "reasonable cause" to believe that the debtor was insolvent, Bankruptcy Act of 1898, Secs. 60a and 60b, 11 U.S.C. Sec. 96 (1970), which Statute is effective in this case, Bankruptcy Reform Act of 1978. Pub.L. 95-598 Title IV Sec. 403(a). It is agreed, that, if all other elements of Secs. 60a and 60b are proved, the transfer would enable defendant to obtain a greater percentage of his debt than some other creditor of the same class.
The court is satisfied that the debtor was insolvent at the time of the transfer. Income tax returns, the schedules filed in this case, and the testimony of the debtor's president and general manager conclusively establish this fact.
Defendant had been a supplier for bankrupt since about 1972. Most of the business had been on an open account basis until the fall of 1976 when the defendant informed bankrupt that it would only deal with it on a C.O.D. basis. At this time, bankrupt gave defendant a balance sheet that showed assets of $173,000 and liabilities of $152,000; but, this was for the period of May 1, 1976, to October 1, 1976, the best period of the year. Also, bankrupt's president told a representative of defendant that bankrupt was solvent. But, defendant would then sell to bankrupt only if a check were given. However, bankrupt would then ask defendant to hold checks because funds were not available and there were no funds to cover the checks in the bank. On inquiry, the defendant obtained trade information that bankrupt was slow to pay and further information was refused. Then, between the dates of July 18, 1977, and August 22, 1977, eight checks were returned for insufficient funds. Defendant acknowledged that it had never had this experience with a customer before. Defendant then notified bankrupt it would not deal with it unless it had a certified check at the time of delivery.
Around October of 1977, bankrupt required materials for an air conditioning job for Church of Christ, Buchanan, Michigan. It discussed the matter with defendant, and a representative of defendant and bankrupt's president met with the trustees of the church. It was agreed that defendant would ship the materials to the site of the church and that bankrupt would pay defendant when it got its payment from the church. The church agreed, through its board of trustees, to pay $8,000 when all equipment was received. The only written evidence of the contract were three "sales orders," two of which were initialed but none signed. These orders furnish the following information:
Shipping
Date of Order Purchaser Shipped To Invoice Date Date Amount
Oct. 14, 1977 Skilled Trades Church of Christ Oct. 31, 1977 $4114.25
Oct. 14, 1977 Skilled Trades Church of Christ Nov. 11, 1977 Nov. 14, 1977 1548.00
Oct. 14, 1977 Skilled Trades Skilled Trades 1513.20
The first two orders were clearly marked "C.O.D." However, on the first order, in the box marked "Credit," initials indicated approval.
The only evidence available on the question indicated that the last delivery was made November 14, 1977, by defendant's truck. The court will take judicial notice that Buchanan is approximately 16 miles from South Bend, Indiana.
A check, dated November 15, 1977, in the sum of $8,000, was issued by the church made payable to Skilled Trades Company. A check dated November 17, 1977, in the sum of $7,175.45 was issued by bankrupt, made payable to South Bend Supply. This check was certified by the bank on the same date and was apparently endorsed by one bank on November 22, 1979, and marked paid November 25, 1977. According to bankrupt's president, he notified the church the day the last shipment arrived, and, he received the check the next day or the day after.
From the above facts, the court is satisfied that the defendant not only had reasonable cause to believe that the debtor was insolvent, but, did believe debtor was insolvent. Its actions, in first, insisting on C.O.D. sales, then even insisting on certified checks, and, finally, notifying the church that there was a credit problem and setting up a procedure to be followed on the church project, indicated that defendant believed bankrupt to be insolvent. Thus, certain elements of a voidable transfer are established. Bankruptcy Act of 1898, Sections 60a and 60b, 11 U.S.C. Sec. 96 (1970). The payment was a transfer of property a creditor made by the debtor while insolvent and within four months before the filing by him of a petition initiating a proceeding under the Act, the effect of which transfer enabled the creditor to obtain a greater percentage of his debt than some other creditor of the same class. Defendant had, at the time when the transfer was made, reasonable cause to believe that the debtor was insolvent.
However, defendant contends that the transfer was not for or on account of an antecedent debt. It claims that this was a C.O.D. transaction, as plainly marked on two orders. But, while the contracting parties agreed that the transaction was to be on a C.O.D. basis, and, two orders were so marked; the parties at no time treated the sale as C.O.D. and deliveries were made with no attempt to collect payment. Although the last delivery was made November 14, 1977, and payment was probably made three days later, the three day delay, or even less, would be sufficient to make the transaction one of credit.
Defendant also claims that, through its discussions with the church and bankrupt, it had a proprietary interest in the church's check and, therefore, this check was never the property of the bankrupt but was held by it in trust for defendant. It is true that in Limperis v. Material Service Corp., 415 F.Supp. 65 (N.D., Ill., 1976), the court granted a summary judgment against the trustee where there was an agreement that the owner in a construction case would issue checks to the bankrupt which would endorse them while still in owner's possession, and, the owner would then deliver the checks to the defendant. The court found that a trust existed, that bankrupt never had a beneficial interest in the checks, and, therefore, there was no preferential transfer. But, there was no such arrangement in this case. The church issued and delivered its check unendorsed to bankrupt which deposited the same in its own bank account, on which it issued its check to defendant. Much closer to our facts is San Mateo Feed & Fuel Co. v. Hayward, 149 F.2d 875 (9th Cir., 1945). There, within four months of filing, bankrupt delivered four checks to defendant creditor made payable to the bankrupt contractor and creditor, a materialman. These checks were written by the owner. This was according to the practice of the owner, but, there was no evidence that there was an agreement to do so. Judgment for the trustee was affirmed by the District Court and Court of Appeals. In our case, there was not even a joint check issued by the church. Thus, I cannot find that defendant had any proprietary interest in the church's check which was in the full amount due the bankrupt, a sum somewhat larger than the amount due defendant for the job.
Although, not originally raised by the parties, the court was concerned about the impact of the so called "Builders Trust Fund Act" of Michigan, Act ...
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