IN RE THOMSON McKINNON SECURITIES, INC.

• Decision Date: 28 January 1992
• Docket Number: No. 91 Civ. 096-06-005,91 B 13820 (HS) and 92 0015 WP,Bankruptcy No. 90 B 10914 (HS),Adv. No. 91-6044A.,90 B 11805 (HS),91 Civ. 096-06-005
• Citation: 139 BR 267
• Parties: In re THOMSON McKINNON SECURITIES INC., Thomson McKinnon Inc. and Realty International Corporation, Debtors. THOMSON McKINNON SECURITIES INC., Plaintiff, v. Richard M. HARRIS, Defendant.
• Court: U.S. District Court — Southern District of New York

139 B.R. 267 (1992)

In re THOMSON McKINNON SECURITIES INC., Thomson McKinnon Inc. and Realty International Corporation, Debtors THOMSON McKINNON SECURITIES INC., Plaintiff, v. Richard M. HARRIS, Defendant.

No. 91 Civ. 096-06-005, Bankruptcy Nos. 90 B 10914 (HS), 90 B 11805 (HS), 91 B 13820 (HS) and 92 0015 WP, Adv. No. 91-6044A.

United States District Court, S.D. New York.

January 28, 1992.

COPYRIGHT MATERIAL OMITTED

Debevoise & Plimpton, New York City, for debtors; Krista E. Trousdale and Nicholas S. Acker, of counsel.

Richard M. Harris, pro se.

ORDER AND JUDGMENT ADJUDICATING ADVERSARY PROCEEDING

BRIEANT, Chief Judge.

Plaintiff Thomson McKinnon Securities Inc. ("TMSI") having commenced the above-captioned adversary proceeding against defendant Richard M. Harris ("Harris") by serving and filing a complaint dated February 14, 1991 in the United States Bankruptcy Court pursuant to 11 U.S.C. § 542(b), and

The Bankruptcy Court having held a trial of the above-captioned adversary proceeding on December 6, 1991, and having issued a Decision on Adversary Proceeding to Recover on a Promissory Note, dated December 13, 1991, in which the Bankruptcy Court made proposed findings of fact and conclusions of law for submission to this Court pursuant to 28 U.S.C. § 157(c)(1), and

The Court having considered the Bankruptcy Court's proposed findings of fact and conclusions of law, and

No party having timely objected to the Bankruptcy Court's proposed findings of fact and conclusions of law, and

IT APPEARING that this Court has subject matter jurisdiction of this matter under 28 U.S.C. § 1334, and

IT FURTHER APPEARING that Harris is indebted to TMSI in the amount of $4,622.00, and

IT FURTHER APPEARING that Harris's debt to TMSI is property of TMSI's estate and is matured, payable on demand, or payable on order, it is hereby

ORDERED, ADJUDGED AND DECREED that TMSI shall recover of Harris the sum of $4,622.00, together with postjudgment interest accruing from the date of entry of the judgment pursuant to 28 U.S.C. § 961, and it is

FURTHER ORDERED, ADJUDGED AND DECREED, pursuant to 11 U.S.C. § 542(b), that Harris shall immediately pay to TMSI, as debtor-in-possession, the sum of $4,622.00, together with postjudgment interest accruing from the date of entry of the judgment pursuant to 28 U.S.C. § 961. United States Bankruptcy Court

Southern District of New York

Case No. 90 B 10904 and No. 90 B 11805

91 ADV. 6044

In re Thomson McKinnon Securities Inc. and Thomson McKinnon Inc., Debtors.

Thomson McKinnon Securities Inc., Plaintiff,

v.

Richard M. Harris, Defendant.

DECISION ON ADVERSARY PROCEEDING TO RECOVER ON A PROMISSORY NOTE

HOWARD SCHWARTZBERG, Bankruptcy Judge.

Forgiving indebtedness is difficult at any time, let alone during a recession. The debtor, Thomson McKinnon Securities, Inc. ("TMSI"), is unwilling to forgive a loan it made to one of its branch managers, the defendant, Richard M. Harris ("Harris"). After Harris refused to pay the loan, the debtor instituted this adversary proceeding to recover the amount due. Although Harris admits receiving the money in question, he argues that the money was not a loan, but rather, was given to him to induce him to remain with the debtor and that in any event, TMSI's President, Phillip M. Fahey ("Fahey"), assured him that the loan would be forgiven or at least paid down by applying the profits of the branch office managed by Harris. At the trial, TMSI argued that it had made out a prima facie case and that the parol evidence rule barred Harris from introducing evidence relating to whether the parties intended the loan to be forgivable and as to the details regarding how the loan was intended to be repaid.

PROPOSED FINDINGS OF FACT

1. On March 28, 1990, the debtor, TMSI, filed with this court its petition for reorganizational relief under Chapter 11 of the Bankruptcy Code and continued in business as a debtor in possession in accordance with 11 U.S.C. §§ 1107 and 1108.

2. The debtor filed its complaint in this adversary proceeding on March 25, 1991.

3. The plaintiff, TMSI, is a corporation organized under the laws of the State of Delaware. The defendant, Harris, is a former employee of TMSI, most notably, a branch manager at the debtor's offices in Lake Forest, Illinois. Harris now resides in Boise, Idaho.

4. On or about January 5, 1985, Harris attempted to resign as Branch Manager of the Lake Forest office at a meeting in Chicago, Illinois with TMSI's Regional Manager, Jim Price, and National Manager, Jerry Tankersley. Price and Tankersley refused to accept Harris's resignation and instead requested that Harris travel to New York City to meet with TMSI's President, Fahey. On January 7, 1985, Harris met with Fahey in New York City.

5. On or about January 9, 1985, after Harris returned to Lake Forest, Illinois, Fahey telephoned Harris and offered to wire $150,000.00 into Harris's checking account. Fahey also offered Harris the opportunity to manage the Pacific Northwest, Los Angeles and San Francisco branch offices, all of which he turned down. Harris claims Fahey stated, both during their meeting in New York City and during their telephone conversation, that the note was forgivable, that the Lake Forest manager profit sharing fund would account for the repayment of the loan, and that if Harris went into another position, TMSI would "work it out." TMSI also gave Harris a fifty percent increase in salary.

6. TMSI wired $150,000.00 into Harris's account that same day. TMSI did not require Harris to enter into any written agreement at the time the funds were wired.

7. Harris claims that the $150,000.00 and fifty percent raise in his salary were given to him as incentives to remain on as Branch Manager of the Lake Forest office. This position is consistent with the fact that Fahey called Harris to make him the offer immediately after a meeting which Harris was directed to attend so that he could present his resignation to Fahey. Harris's testimony that Fahey represented to him that the $150,000.00 loan was forgivable is also supported by the fact that Fahey made such a representation at, and after, a meeting the express purpose of which was for Harris to present his resignation to Fahey.

8. Harris resigned as Branch Manager of the Lake Forest office in July or August of 1985, but remained with TMSI as a stock broker.

9. On September 23, 1985, two months after Harris resigned as Branch Manager of the Lake Forest office and nine months after TMSI wired the $150,000.00 into his account, TMSI sent him the promissory note regarding this transaction. Surprisingly enough, Harris executed the promissory note on October 3, 1985. The note has a typed date of "May 1985," however, Harris changed that date by hand to October 3, 1985, the date he executed the note. Harris claims that he signed the note after being told by TMSI officers that it was only a record keeping matter.

10. The note provides:

PROMISSORY NOTE

In consideration for a loan by THOMSON McKINNON SECURITIES INC., a Delaware Corporation (hereinafter referred to as the "Holder") in the amount of One Hundred Fifty Thousand $150,000 dollars to Richard M. Harris (hereinafter referred to as the "Maker"), Maker promises to pay Holder, at One New York Plaza, New York, New York 10004, or at such other place within the United States of America which Holder may designate in writing to Maker, the sum of One Hundred Fifty Thousand ($150,000) on or before March 1, 1989 plus interest at Holder\'s cost of money. Repayment of this loan shall be made by crediting Maker\'s manager profit sharing payable in calendar years 1986, 1987, 1988 and 1989 against the outstanding balance of the loan with the remaining balance, if any, being due and payable on March 1, 1989.

In the event of the occurrence of any of the following: a default in the repayment of the loan, death of the Maker, termination of Maker\'s employment with Holder, Maker\'s reassignment to a position other than branch office manager, an assignment by Maker for the benefit of creditors, appointment of a receiver to manage the property of Maker, institution of voluntary or involuntary proceedings concerning Maker under the Bankruptcy Act, as amended; the Holder may, at its option without prior notice or presentment demand or declare this Promissory Note immediately due and payable.

Holder may, without notice and without releasing the liability of any party hereto, grant extensions and/or renewals hereof from time to time and for any term or terms. No delay by Holder or its assignee, if any, in exercising any power or right hereunder and no partial exercise of such power or right, shall operate in any way as a waiver of any subsequent exercise thereof. Holder shall not be liable for or prejudiced by any lack of diligence in obtaining any payment on this Promissory Note or any renewal or extension thereof.

Maker hereby waives any notice, protest, presentment or demand for payment. This Promissory Note shall be governed by the Laws of the State of New York.

Promissory Note, Trial Exhibit 1 (emphasis added).

11. The manager profit sharing fund attributable to the Lake Forest office for the period between 1985 and 1989 was $138,378.00. At no time did the debtor apply any of these funds to reduce the unpaid balance of the note, despite the express language in the note which states that these funds would be the primary source of repayment, with Harris responsible for any unpaid portion.

12. Although the promissory note provides that the loan is subject to "interest at Holder's cost of money," TMSI removed the interest from the account. Trial Exhibit I. TMSI does not seek the interest, only $143,000.00, which it claims it is owed as principal.

13. By letter dated November 15, 1989, TMSI informed Harris that "our accounting records indicate that you have an open debt obligation owing to Thomson in the amount of approximately $143,000.00," and that TMSI "would...