IN RE STEEL STRUCTURES, INC., Bankruptcy No. 28387.

• Decision Date: 21 December 1971
• Docket Number: Bankruptcy No. 28387.
• Citation: 346 F. Supp. 332
• Parties: In the Matter of STEEL STRUCTURES, INC., Bankrupt.
• Court: U.S. District Court — Eastern District of Tennessee

346 F. Supp. 332

In the Matter of STEEL STRUCTURES, INC., Bankrupt.

Bankruptcy No. 28387.

United States District Court, E. D. Tennessee, N. D.

December 21, 1971.

Max M. Morrison, Knoxville, Tenn., for bankrupt.

Leon Steinberg, Knoxville, Tenn., for trustee.

MEMORANDUM

ROBERT L. TAYLOR, District Judge.

This controversy between the Trustee, representing creditors of Steel Structures, Inc. (bankrupt), Detroit Gasket and Manufacturing Company (Gasket) and Star Manufacturing Company (Star) arises on account of a fourth mortgage given by the bankrupt to secure a loan evidenced by a note in the amount of $16,240.54 from Gasket and used by the bankrupt to pay an indebtedness to Star for building materials.

The materials were furnished by Star to the bankrupt for use in construction of a building for Gasket, the entire cost of the materials being approximately $18,045.04. The construction of the building was completed and Gasket paid Steel in full in December, 1969 or early January, 1970. On January 30, 1970, Star filed a notice of lien for materials and supplies furnished with the Register of Deeds in Cocke County, Tennessee. The notice of lien was filed against the property of Gasket. On April 30, 1970, a bill was filed by Star to enforce its claimed lien for materials and supplies. A writ of attachment was issued on April 30, 1970 and levied May 1, 1970. Gasket filed an answer denying the validity of the claimed lien. On July 29, 1970, the respective attorneys for Star and Gasket, Thomas S. Matthews, President of bankrupt, and Doyle Vaden, Vice President and Secretary of bankrupt, met and worked out the following settlement:

"Steel Structures executed and delivered to Detroit Gasket a promissory note in the amount of $16,276.54 secured by a fourth mortgage on Steel Structures' real estate located in Knox County. Detroit Gasket delivered two checks to Steel Structures payable to Steel Structures and in the amounts of $16,240.54 and $36.00. The former check was endorsed by Steel Structures and delivered to Star together with a promissory note in the amount of $1,804.50 secured by a fifth mortgage on the Steel Structures, Knox County, real estate. The latter check was delivered to the Cocke County Chancery Court Clerk for payment of court costs of Star's Lienor's Bill filed in that court. Star executed a release of its claimed lien and all the parties approved for entry an agreed order of dismissal with full prejudice of the suit commenced by Star against Steel Structures and Detroit Gasket."

At the time the settlement was made, the bankrupt was insolvent and the bankrupt, Star and Gasket knew or had reasonable cause to believe that bankrupt was insolvent. As evidence of this fact, during May or June, 1970, the President and Vice President and Secretary of the bankrupt discussed the advisability of filing a petition in bankruptcy for the bankrupt with E. L. Hicks, certified public accountant of Knoxville. During the latter part of July or the first of August, 1970, Matthews and Vaden discussed the filing of a petition in bankruptcy for the bankrupt with Max M. Morrison, attorney in Knoxville.

The Referee in a definitive and exhaustive memorandum opinion held: (1) That the transfer to Gasket by the bankrupt on July 29, 1970 was void under Section 67d(3) and (6) of the Bankruptcy Act,¹ (2) That the transfer of $16,240.54 by bankrupt to Star on July 29, 1970 was a voidable preference under Section 60 of the Bankruptcy Act² to the extent fo $10,000.00, this being the amount of equity realized for the creditors from the liquidation of the property against which, as heretofore indicated, there were four mortgages. There was a fifth mortgage on the bankrupt property to secure an amount of $1,804.50 which is not material to the matters involved in this case. (3) That the bankrupt, Gasket and Star be returned to their status as of July 29, 1970. (4) That any claim hereafter filed by Gasket or Star as a result of the July 29, 1970 transaction be allowed as an unsecured claim against the bankrupt.

The record clearly shows that the bankrupt intended to use the $16,240.54 obtained from Gasket under the loan to pay Star for the materials furnished the bankrupt for the construction of a building. Both Star and Gasket knew that the...