In re Taco Ed's, Inc.
| Decision Date | 13 August 1986 |
| Docket Number | Bankruptcy No. 84-0304,Related Case: 84-00039. |
| Citation | 63 BR 913 |
| Parties | In re TACO ED'S, INC., et al., Debtor(s). Thomas R. MICHALSKI, Plaintiff(s), v. STATE BANK AND TRUST, et al., Defendant(s). |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
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Ruth Meacham, Toledo, Ohio, for plaintiff.
John J. Hunter, Toledo, Ohio, for State Bank.
James Hitchcock, Defiance, Ohio, for Admin. of Estate of Joseph Barentine.
This cause comes before the Court upon the Motion For Summary Judgment filed by the Plaintiff in the above entitled adversary action. The parties have filed the arguments and evidence they wish the Court to consider relative to the merits of this motion, and have been afforded the opportunity to respond to the arguments made by opposing counsel. The Court has reviewed those arguments, the evidence, and the entire record in this case. Based upon that review and for the following reasons the Court finds that the Motion For Summary Judgment should be granted in part and denied in part.
The Plaintiff in this action is the trustee appointed by the Court subsequent to the conversion of the Debtor's Chapter 11 Petition to a proceeding under Chapter 7. The Defendant Eddie L. Bernal (hereinafter Bernal) was an officer and shareholder of the Debtor corporation. Joseph E. Barentine (hereinafter Barentine) was also an officer and the remaining shareholder of the Debtor. Inasmuch as Barentine is deceased, his estate and its representative have been made defendants in this action. The State Bank & Trust Co. (hereinafter Bank) is a banking institution with which Bernal, Barentine, and the Debtor had numerous business relationships prior to the filing of the Debtor's Petition. The Debtor and its related entity, Taco Operations, Inc., were corporations engaged in the business of owning, operating, and franchising a series of Mexican-style restaurants. They were also in the business of supplying and marketing the materials associated with such restaurants.
The facts which serve as the basis for the present Motion are derived primarily from the deposition testimony of an officer of the Bank and from the Exhibits employed during the course of that deposition. These facts set forth a complex series of transactions between the Defendants which began approximately one year prior to the filing of the Debtor's Petition. It does not appear that the facts established by this evidence are in serious dispute.
Prior to February 7, 1983, it appears that the only involvement between the Bank and the other Defendants entailed the existence of a mortgage held by the Bank against Barentine's personal residence. However, on February 7, 1983, Bernal and Barentine, in their capacities as corporate officers, applied for and received a line of credit with the Bank in the name of the Debtor. It appears that the purpose of this line of credit was for the funding of the Debtor's ongoing operations. On or about this same date, Bernal and Barentine established with the Bank a "VISA" credit card account in the name of the Debtor.
On April 15, 1983, Barentine opened a checking account with the Bank, account number 041-704 (hereinafter Barentine Checking Account). This account was opened in his own name on April 18, 1983, Barentine opened a money market account with the Bank, account number XXX-XXXX (hereinafter Barentine Money Market Account). This account was also opened in his own name. On May 9, 1983, Barentine, on behalf of the Debtor, opened a money market account with the Bank, account number 690-1091 (hereinafter Debtor Money Market Account). The evidence reflects that this account was opened in the name of and belonged to the Debtor.
On May 19, 1983, Taco Operations, Inc., applied for and received a Fifty Thousand and no/100 Dollars ($50,000.00) loan from the Bank. In return for this loan, Taco Operations, Inc. gave the Bank a promissory note and a security interest in several parcels of real estate. Although the record in unclear as to the owners of these parcels, the documents appear to reflect that they were owned by Taco Operations, Inc. There is, however, some indication that these parcels included the personal residence of Bernal. The mortgage securing this loan to Taco Operations, Inc. was recorded on May 25, 1983.
On June 28, 1983, a check was executed by Fugate Enterprises in the amount of One Hundred Fifty Thousand and no/100 Dollars ($150,000.00) (hereinafter Fugate check). This check was made payable to Bernal and Barentine, individually, and bore no reference to the Debtor. It does not appear that Fugate Enterprises is affiliated or associated with Bernal, Barentine, or the Bank. On June 29, 1983, the Fugate check was negotiated by Bernal and Barentine at the Bank. Subsequent to this negotiation, One Hundred Thousand and no/100 Dollars ($100,000.00) was deposited in the Debtor's Money Market Account. The remaining Fifty Thousand and no/100 Dollars ($50,000.00) was used as a downpayment on the purchase of a parcel of real estate (hereinafter Schafer Property) which was being bought by the Debtor from John L. and Sarah E. Schafer. On August 1, 1983, Barentine applied for and received an additional Thirty Thousand and no/100 Dollar ($30,000.00) loan from the Bank, account number XXXXX (hereinafter Barentine Real Estate Loan). The documents representing this obligation reflect that Barentine was individually liable on this debt. The proceeds of the Barentine Real Estate Loan were used to purchase a cashier's check from the Bank which, in turn, was tendered as the balance of the purchase price on the Schafer Property. In return for the Barentine Real Estate Loan, Barentine, in his capacity as an officer of the Debtor, executed a mortgage of the Schafer Property in favor of the Bank. On August 9, 1983, a deed was executed by the Schafers transferring the Schafer Property to the Debtor. Although the deed was recorded on August 10, 1983, the mortgage was not recorded at this time.
On August 8, 1983, a check was executed by one Barbara Gray in the amount of Ten Thousand and no/100 Dollars ($10,000.00) (hereinafter Gray Check # 1). Only the Debtor was named as payee on this instrument. On August 11, 1983, this check was indorsed by Bernal and Barentine in their corporate capacity and deposited into the Barentine Money Market Account. On September 2, 1983, a second check was executed by Barbara Gray in the amount of Ten Thousand and no/100 Dollars ($10,000.00) (hereinafter Gray Check # 2). This check was also made payable solely to the Debtor. As with Gray Check # 1, Gray Check # 2 was indorsed by Bernal and Barentine in their corporate capacities and deposited in the Barentine Money Market Account.
On September 19, 1983, Bernal and Barentine passed a corporate resolution, whereby the Debtor was authorized to seek further extensions of credit from the Bank. On September 20, 1983, pursuant to this apparent grant of authority, Barentine applied for and received a loan in the amount of Thirty Thousand and no/100 Dollars ($30,000.00) (hereinafter Barentine Company Loan). In return for this loan, Barentine executed a promissory note in favor of the Bank. Inasmuch as the loan documents make no reference to the Debtor, it appears that Barentine incurred this debt in his individual capacity. However, in addition to his execution of the promissory note, Barentine pledged to the Bank as security for this loan approximately 532 shares of Toledo Trustcorp stock (hereinafter Toledo Trust Securities) which were owned by the Debtor. It also appears that Barentine pledged as additional security for this loan approximately 132 shares of Toledo Trustcorp stock which he individually owned. The proceeds of the Barentine Company Loan were ultimately used to pay certain entities which appear to have been creditors of the Debtor. It further appears that at the time this loan was made, the Bank's officers were aware of the fact that the loan was sought for the purpose of paying corporate "bills".
On September 21, 1983, a check was executed by the Enterprise Investment Club in the amount of One Thousand Eight Hundred and no/100 Dollars ($1,800.00) (hereinafter Enterprise Investment Check). This check was made payable to Bernal and Barentine without reference to their corporate capacities. However, this instrument bore a notation that it was for "1 1/3 Notes". On September 22, 1983, a check was executed by one Bradley Smith in the amount of Nineteen Thousand Nine Hundred Fifty and no/100 Dollars ($19,950.00) (hereinafter Smith Check). This check was also made payable directly to Bernal and Barentine. Both the Enterprise Investment Check and the Smith Check were indorsed by Bernal and Barentine on September 23, 1983, and were deposited in the Barentine Money Market Account. Neither the Enterprise Investment Club nor Bradley Smith appear to have an affiliation with any of the Defendants.
On October 5, 1983, one Earl Unkefer executed a check in the amount of Four Thousand and no/100 Dollars ($4,000.00) (hereinafter Unkefer Check). This instrument was made payable to Bernal and Barentine. The check bore the notation that it was for . The Unkefer Check was indorsed by Bernal and Barentine and deposited in the Barentine Money Market Account on October 12, 1983. Unkefer also appears to be unrelated to the Defendants.
On November 7, 1983, Barentine opened a checking account with the Bank in the name of the Debtor, account number 898-996 (hereinafter Debtor Checking Account). The source of the funds used to open this account is unclear. On November 8, 1983, a check was executed by a person whose name cannot be positively identified from the exhibit. However, it does not appear to have been an entity which is associated with the Defendants. This check is in the amount of Seven...
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