In re Taggatz
| Decision Date | 29 September 1989 |
| Docket Number | Adv. No. 88-0082-7.,Bankruptcy No. WU7-86-00169 |
| Citation | 106 BR 983 |
| Parties | In re Vernon G. TAGGATZ, Debtor. Don E. WHINNERY, Plaintiff, v. BANK OF ONALASKA, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
Jeffrey W. Guettinger, Eau Claire, Wis., for plaintiff.
Konrad T. Tuchscherer, Wausau, Wis., for defendant.
The trustee, Don Whinnery, by his attorney Jeffrey W. Guettinger, filed a complaint against the Bank of Onalaska (the Bank) for failure to turnover property of the estate pursuant to 11 U.S.C. § 542(b) and (c). Trial was held on March 2 and March 3, 1989. The Bank appeared by its attorney Konrad T. Tuchscherer.
The question presented by this case is twofold: 1) whether an agreement between the debtor and the Bank to fund the unfunded portion of a promissory note upon fulfillment of conditions precedent constitutes an executory contract under 11 U.S.C. § 365; 2) whether such an agreement between the debtor and the Bank constitutes a contract to make a loan, or extend other debt financing or financial accommodations under 11 U.S.C. § 365(c)(2). For the reasons stated below, the Court holds that the agreement between the parties to fund the unfunded portion of the promissory note upon fulfillment of conditions precedent constitutes an executory contract under 11 U.S.C. § 365, and that this agreement also constitutes a contract to make a loan or extend other debt financing or financial accommodations under 11 U.S.C. § 365(c)(2). Accordingly, the trustee may not assume the agreement between the debtor and the Bank.
The question before the Court involves 11 U.S.C. § 365(c) which reads in part:
In the Winter of 1985 the debtor Vernon Taggatz, the owner of an insurance agency, was looking for real estate and financial credit. At the same time Charles Raymond, the owner of a parcel of real estate and the president of the Bank of Onalaska, was looking for customers. The two men met in Florida in the early Spring of 1985 to discuss their mutual interests. Mr. Raymond encouraged the debtor to make him an offer on the real estate and to contact his bank for financial services.
In the Spring of 1985 the debtor visited the Bank of Onalaska several times to meet with Dan Netwal, executive vice president of the Bank of Onalaska. During those meetings the two men loosely discussed the financial needs of the debtor and the lending requirements of the Bank. The debtor wanted a master loan, a $400,000 line of credit, and a short-term loan; the Bank wanted a profit and loss statement, an appraisal of the insurance agency, a copy of the debtor's tax returns, a cash flow statement and either a purchase or lease of real property within the Bank's lending area. Neither the debtor's financial needs nor the Bank's lending requirements were ever memorialized in writing.
On March 29, 1985, the debtor executed a 45-day promissory note in the amount of $50,000. Mr. Netwal issued a bank money order drawn on the Bank of Onalaska in the amount of $50,000. The note was unsecured but the debtor was required to submit a sworn financial statement which estimated the debtor's net worth to be $3,981,500.
On April 25, 1985, the debtor sent a letter to Mr. Netwal which stated his insurance commissions for the past three years and enclosed a letter from Becker, Kumm and Associates, the debtor's accounting firm, which offered to supply the Bank with any information concerning the Taggatz Agency.
On May 13, 1985, the debtor executed a 60-day promissory note in the amount of $75,000. Mr. Netwal issued a bank money order drawn on the Bank of Onalaska in the amount of $75,000. The debtor paid the $50,000 note in full with a check and promised to pay the $75,000 note within 10 days instead of 60 days. The note was unsecured.
On May 22, 1985, Jane L. Gucwa, second vice president with the All American Life Insurance Company, wrote a letter to Mr. Netwal which he received. The letter read:
On Tuesday, June 11, 1985, the debtor met with Mr. Netwal at the Bank of Onalaska. Mr. Netwal suggested that the debtor improve his financial position by paying the $75,000 note with the Bank of Onalaska. The debtor paid the $75,000 note with a check drawn on the Nekoosa Port Edwards State Bank. The debtor suggested that Mr. Netwal write a letter to the M & I Peoples Bank of Coloma stating the status of their negotiations. Mr. Netwal wrote a letter to Richard Lysy, president of the M & I Peoples Bank of Coloma which read:
On Friday, June 14, 1985, the Bank of Onalaska presented for payment the $75,000 check drawn on the debtor's account with the Nekoosa Port Edwards State Bank. Because the debtor was overdrawn at that time, Betty Rowe, manager of operations for the Nekoosa Port Edwards State Bank, showed the check to Mr. Sigler, president of the Nekoosa Port Edwards State Bank. Mr. Sigler held the check and contacted the debtor.
On the evening of June 14, 1985, the debtor delivered an appraisal of his insurance agency to Mr. Netwal. While he was waiting for Mr. Netwal, the debtor opened a checking account and received some counter checks without making a deposit. During his meeting with Mr. Netwal, the debtor said he needed a short term loan. After Mr. Netwal received approval from two members of the board of directors, the debtor executed a promissory note dated June 17, 1985, in the amount of $125,000 to the Bank of Onalaska (the Note). At this time the Bank issued a money order dated June 17, 1985, in the amount of $25,000 to the debtor. The debtor signed a general business security agreement dated June 17, 1985, a collateral assignment of commissions dated June 17, 1985, and a financing statement. The debtor also delivered a chattel security agreement dated May 21, 1985. The collateral assignment of commissions was mailed to the All American Life Insurance Company, the source of the assigned commissions, on November 14, 1985; the financing statement was filed on December 8, 1985.
On Saturday, June 15, 1985, the debtor wrote two checks for a total of $100,000 on his new account with the Bank of Onalaska. The debtor deposited a check for $80,000 in his individual money market account with Nekoosa Port Edwards State Bank and a check for $20,000 in his account with M & I Peoples Bank of Nekoosa. The Bank of Onalaska refused to honor the checks.
On Monday, June 17, 1985, Betty Rowe, manager of operations at Nekoosa Port Edwards State Bank, showed the debtor's $80,000 check for deposit to Mr. Sigler; Mr. Sigler instructed her to call the Bank of Onalaska. She called the Bank of Onalaska and asked the Bank's bookkeeping department if sufficient funds were in the debtor's account to cover the $80,000 check. She spoke with Ardis Warren, the Bank of Onalaska's head bookkeeper, who told her that papers were going through to cover the check. Betty Rowe relayed this information to Mr. Sigler. The Nekoosa Port Edwards State Bank paid the $75,000 check before midnight.
On Tuesday, June 18, 1985, Betty Freeman, employed as an assistant cashier and teller at M & I Peoples Bank of Nekoosa, called the Bank of Onalaska and asked Betty Falkenberg, bookkeeper at the Bank of Onalaska, whether the debtor had sufficient funds in his account to cover a check in the amount of $20,000. Betty Freeman called the Bank of Onalaska because the debtor's account was on a collected funds basis. Betty Freeman noted in the records of the M & I Peoples Bank of Nekoosa that an employee of the Bank of Onalaska checked with an officer of the Bank of Onalaska and said that the check was good. Betty Falkenberg testified that she referred the matter to her supervisor, Ardis Warren, who told her that a loan had not yet been approved. Betty Falkenberg testified that she told the caller that funds were not available.
On Thursday, June 20, 1985, Mr. Netwal returned from his business trip to Milwaukee.
On Friday, June 21, 1985, the Federal Reserve Bank informed the Nekoosa Port Edwards State Bank that a check drawn by the debtor on his account at the Bank of Onalaska in the amount of $80,000 was being returned for nonsufficient funds.
On Tuesday, June 25, 1985, Betty Freeman, assistant cashier and teller with M & I Peoples Bank of Nekoosa, called the Bank of Onalaska to see if the debtor's check for $20,000 had been paid. Betty Freeman noted in the records of M & I Peoples Bank that the check had not yet been paid.
On or about this time, Mr. Netwal spoke with the debtor about the status of the debtor's loan application and the debtor's returned checks. Mr. Netwal explained the conditions which the Bank required before the money would be...
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