In re Tarbuck

• Decision Date: 02 February 2004
• Docket Number: Motion No. 03-0400.,Bankruptcy No. 01-29836.
• Citation: 304 B.R. 718
• Parties: In re Michael D. TARBUCK, Debtor. Dollar Bank, FSB, Movant, v. Michael D. Tarbuck and Gary L. Smith, Respondents.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

Page 718

304 B.R. 718

In re Michael D. TARBUCK, Debtor Dollar Bank, FSB, Movant, v. Michael D. Tarbuck and Gary L. Smith, Respondents.

Bankruptcy No. 01-29836.

Motion No. 03-0400.

United States Bankruptcy Court, W.D. Pennsylvania.

February 2, 2004.

Michael D. Tarbuck, Washington, PA, pro se.

Gary L. Smith, Pittsburgh, PA, trustee.

MEMORANDUM OPINION¹

JUDITH K. FITZGERALD, Chief Judge.

The matter before the court is Dollar Bank's motion for relief from the automatic stay to exercise a right of setoff against a passbook account with respect to a debt owed under a note and mortgage which was not satisfied in full by a foreclosure proceeding.

FACTS

In May of 1994, Debtor and his nondebtor wife borrowed $480,000.00 from Dollar Bank pursuant to the terms of a note and mortgage. The 1994 loan regarding the real estate was secured by a mortgage and an assignment of leases and rents. None of the documents concerning the mortgage loan purport to convey to Dollar Bank any interest in the passbook account. The account, which was not created until 2001, was opened to secure an irrevocable stand-by letter of credit required for a Performance Bond for Debtor's corporation, Tarbuck Security Agency, Inc. ("TSAI"). The letter of credit was satisfied prepetition, but there were funds remaining in the passbook account on September 26, 2001, when the bankruptcy was filed.² As of January 16, 2003, when the motion was filed, the account had a balance of $21,160.24. Motion for Relief from Stay, Motion No. 03-0400, Dkt. No. 127, at ¶ 13.

Debtor defaulted on the note and mortgage prior to the commencement of a voluntary chapter 11 on September 26, 2001. On January 25, 2002, the case was converted to a chapter 7 proceeding. On June 12, 2002, Dollar Bank was awarded relief from the automatic stay to exercise its rights with respect to the mortgaged premises whereupon it purchased the property pursuant to foreclosure proceedings upon a prepetition confessed judgment. Dollar Bank resold the property 26 days later, realizing net proceeds of $418,457.33. It filed an adversary proceeding at Adversary No. 03-02317 to fix the fair market value of the real estate with respect to a deficiency in the amount of $76,951.37. This court recently issued an opinion and order finding that the complaint was filed out of time under the statute of limitations applicable to the Deficiency Judgment Act. See 42 Pa.Cons.Stat.Ann. § 5522(b)(2); 42 Pa.Cons.Stat.Ann. § 8301. Dollar Bank filed the instant motion to set off against the amount in the passbook account the amount remaining due with respect to the note and mortgage on the real estate. Dollar Bank also filed a proof of claim asserting a secured claim in the amount of $453,373.02, plus interest after March 25, 2002, at a daily rate of $95.92.³

DISCUSSION

Section 553(a) of the Bankruptcy Code states that title 11 "does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case...." 11 U.S.C. § 553(a). See also Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, 18, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995)("whatever right of setoff otherwise exists is preserved in bankruptcy"). There are four prerequisites to the effectuation of a setoff:

(1) a debt exists from the creditor to the debtor and arose prior to the commencement of the bankruptcy case;

(2) the creditor has a claim against the debtor which arose prior to the commencement of the bankruptcy case;

(3) the debt and the claim are mutual obligations; and

(4) each are valid and enforceable.

In re Labrum & Doak, LLP, 237 B.R. 275, 299 (Bankr.E.D.Pa.1999), citing U.S. Through Agr. Stabilization and Conservation Service v. Gerth, 991 F.2d 1428, 1431 (8th Cir.1993); Braniff Airways, Inc. v. Exxon Co., U.S.A., 814 F.2d 1030, 1035 (5th Cir.1987). See also 5 Collier on Bankruptcy ¶ 553.01[1] (15th ed. Rev.2003). We address the four elements as follows:

Was there a mutuality of obligation between the bank and the depositor?

For mutuality to exist, the debts must exist between the same parties in the same capacity, i.e., each must owe the other in his own name and not as a fiduciary. 5 Collier on Bankruptcy at ¶ 553.03[3][c]. The Note was executed by Debtor in his individual capacity and the bank account was also held by him in the same capacity, as explained, infra. See also, e.g., In re Wilde, 85 B.R. 147, 149 (Bankr.D.N.M.1988). The mutuality test is met in this case.

Does Dollar Bank owe Debtor a debt that arose prepetition?

When money is placed on deposit with a bank, the depositor is considered a creditor of the bank for the amount of money that was placed on deposit. See Bank of Marin v. England, 385 U.S. 99, 101, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966)("[t]he relationship of bank and depositor is that of debtor and creditor, founded upon a contract"). The deposit in Debtor's name satisfies the first condition of § 553. There is no dispute that the account and therefore the debt arose prior to the commencement of the bankruptcy case, even though the date of deposit has not specifically been set forth in the pleadings. The dispute is whether the account belongs to Debtor or TSAI.

Debtor contends that he personally did not have an account with the bank. He argues that the account was for his corporation, TSAI, to secure the Performance Bond. Debtor states that TSAI did not have the borrowing power needed to attain the required $50,000 letter of credit, so he, as an officer of TSAI, borrowed $30,000 from his parents and $20,000 from his minor children to obtain funding for the bond.⁴ Although Debtor asserts that he borrowed the money in his capacity as a corporate officer for TSAI, there is no evidence of a loan or that the money in the account was acquired by him in his corporate rather than his individual capacity. None of the exhibits provided by Debtor establish a loan or that any transactions were made in the corporation's name.⁵ The only documentation regarding the Dollar Bank account was provided by Dollar Bank in its Notice of Filing of Additional Exhibits, Docket No. 134, to which Dollar Bank attached what appears to be the signature card for the passbook savings account. See Notice of Filing of Additional Exhibits to Motion for Relief from the automatic stay to Exercise Right of Setoff Against Deposit Account, Exhibit F, Dkt. No. 134. Debtor signed in his individual capacity only. The corporation's name does not appear on the document.

Debtor asserts that Dollar Bank was well aware that the funds were for the sole use of his corporation and therefore it cannot reach the account although it is in his individual name.⁶ However, case law supports the proposition that a corporate officer is acting as an individual unless the signature indicates otherwise. See Watters v. DeMilio, 390 Pa. 155, 134 A.2d 671, 674 (1957) (noting that a corporate officer cannot escape personal liability if "the note was signed simply `Gregory DeMilio' without any indication that the signer was acting as a corporate body or as the agent for such an entity"); Hillbrook Apartments, Inc. v. Nyce Crete Co., 237 Pa.Super. 565, 352 A.2d 148, 152 (1975)("[c]orporations necessarily act through agents and if one so acting is to escape personal liability for what he intends to be a corporate obligation, the limitation of his responsibility should be made to appear on the face of the instrument. Otherwise, the individual signature imports a personal liability"). Thus, the evidence of record does not support Debtor's contention. We find that Debtor is the owner of the passbook account in his individual capacity.

Debtor also argues that the money in the account does not belong to him. He alleges that the money belongs to his two minor children and therefore is not subject to a setoff. Dollar Bank, however, produced the account card that shows that Michael D. Tarbuck was the sole name on the account.⁷

Does Dollar Bank have a claim against Debtor that arose prior to the commencement of the bankruptcy case?

It is undisputed that Dollar Bank had a prepetition claim against Debtor, as evidenced by the Note and mortgage and the prepetition confessed judgment. Debtor contends that Dollar Bank does not have a deficiency claim to which the bank account can be applied because Dollar Bank never obtained a determination of the fair market value of the property under the Pennsylvania Deficiency Judgment Act which provides:

Whenever any real property is sold, directly or indirectly, to the judgment creditor in execution proceedings and the price for which such property has been sold is not sufficient to satisfy the amount of the judgment, interest and costs and the judgment creditor seeks to collect the balance due on said judgment, interest and costs, the judgment creditor shall petition the court to fix the fair market value of the real property sold. The petition shall be filed as a supplementary proceeding in the matter in which the judgment was entered.

42 Pa.Cons.Stat.Ann. § 8103(a). Section 5522(b)(2), title 42 Pa.Cons.Stat.Ann., requires a deficiency judgment action to be brought within six months of the sheriff's sale. Dollar Bank never filed such an action in state court and the adversary proceeding it filed in this court to fix the fair market value of the real estate with respect to the deficiency remaining from the sheriff's sale was filed out of time. This court dismissed Dollar Bank's complaint as a result. See Adversary No. 03-02317, Memorandum Opinion of January 14, 2004, docketed January 15, 2004, Dkt. No. 7. When a creditor does not bring a timely action under the Pennsylvania Deficiency Judgment Act there arises an "irrebuttable presumption that the creditor was paid in full in kind." McCartney v. Integra Nat'l Bank N., 106 F.3d 506, 509 (3d Cir.1997), quoting ...