In re WE Tucker Oil Co., Inc.

• Decision Date: 05 September 1985
• Docket Number: Adv. No. 84-405M.,Bankruptcy No. ED 84-11M
• Citation: 55 BR 78
• Parties: In re W.E. TUCKER OIL COMPANY, INC., Debtor. W.E. TUCKER OIL COMPANY, INC. and Claude S. Hawkins, Jr., Trustee, Plaintiffs, v. FIRST STATE BANK OF CROSSETT, Portland Bank, Defendant, Intervenor.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

55 B.R. 78 (1985)

In re W.E. TUCKER OIL COMPANY, INC., Debtor W.E. TUCKER OIL COMPANY, INC. and Claude S. Hawkins, Jr., Trustee, Plaintiffs, v. FIRST STATE BANK OF CROSSETT, Portland Bank, Defendant, Intervenor.

Bankruptcy No. ED 84-11M, Adv. No. 84-405M.

United States Bankruptcy Court, W.D. Arkansas, El Dorado Division.

September 5, 1985.

Claude Hawkins, Ashdown, Ark., for plaintiffs.

Richard Griffin, Crossett, Ark., for First State Bank of Crossett.

R.J. Brown, Little Rock, Ark., for E.A. Tucker.

Thomas S. Streetman, Crossett, Ark., for Portland Bank.

MEMORANDUM OPINION

JAMES G. MIXON, Bankruptcy Judge.

The trustee of W.E. Tucker Oil Company, Inc., has filed this action to set aside certain transfers of the debtor's property against First State Bank of Crossett. Portland Bank intervened on behalf of the plaintiff. The trustee asserts that the transfers are fraudulent conveyances under 11 U.S.C. § 548 and preferential transfers under 11 U.S.C. § 547. The trustee alleges that the Bank was an insider.

The debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 1, 1984. The debtor is a closely held Arkansas corporation. E.A. "Sonny" Tucker (Sonny Tucker) is the owner of thirty percent of the outstanding shares of stock. He also holds the office of president of the corporation and is the chief operating officer at all relevant times. Maysel A. Tucker, the mother of Sonny Tucker, owns forty percent of the outstanding stock and is chairman of the board of directors. Sue T. Nolan, sister of Sonny Tucker, owns thirty percent of the outstanding stock and holds the office of secretary-treasurer. Sue T. Nolan's husband, Johnny M. Nolan, owns no stock but is a vice president of the company and was active in the operation of the business.

Generally, W.E. Tucker Oil Company, Inc., is engaged in the business of a wholesale gasoline distributor in south Arkansas. Debtor's business also included the ownership of several retail gasoline stations in Monticello, Dermott, McGehee, Crossett, Eudora, Hamburg, Lake Village and Portland, Arkansas. Typically, these properties were leased to operators who sold products supplied by the debtor.

In 1979 Sonny Tucker acquired twenty-five percent of the stock in Davis Industries, Inc., an Arkansas corporation. The other stockholders in Davis Industries, Inc., were Bobby G. Davis, James L. Sanderlin and George E. Locke. Each owned twenty-five percent of the outstanding stock.¹ James L. Sanderlin was also employed by W.E. Tucker Oil Company, Inc., debtor, as an independent certified public accountant and was a close personal friend of Sonny Tucker. James L. Sanderlin prepared the books for both W.E. Tucker Oil Company, Inc., and Davis Industries, Inc. During 1982 and 1983 Sonny Tucker also owned 2,500 shares of stock in First State Bank of Crossett (FSB), the defendant in this action. He was a member of FSB's board of directors and a member of the executive committee until his resignation in November of 1983.

Beginning in January of 1981, FSB made a series of loans to various individuals and entities as follows:

1. Note No. 56316, dated January 9, 1981,

Maker: Bobby G. Davis, Amount $46,133.65 19% interest, Due on 4/9/81 or demand Extended 4/16/81 — $36,133.65 Extended 11/19/81 — $29,133.65 Extended 6/6/82 — $18,133.65 Extended 10/25/82 — $18,133.65

2. Note No. 56371, dated February 27, 1981

Maker: J.M. Nolan, Amount $60,000.00 19% interest, Due on 5/28/81 Extended 11/19/81 — $60,000.00 Extended 6/6/82 — $60,000.00 Extended 10/25/82 — $60,000.00

3. Note No. 56751, dated November 19, 1981

Maker: James L. Sanderlin, Amount $50,000.00 17.5% interest, Due on 2/17/82 or demand Extended 6/6/82 — $50,000.00 Extended 10/25/82 — $50,000.00

4. Note No. 56861, dated January 13, 1982

Maker: E.A. Tucker, Amount $120,000.00 16.5% interest, Due on demand Extended 10/25/82 — $120,000.00

5. Note No. 56864, dated January 13, 1982

Maker: J.L. Sanderlin, Amount $23,500.00 Due on demand Extended 10/25/82 — $23,500.00

6. Note No. 56863, dated January 13, 1982

Maker: Davis Industries, Inc., Amount $20,000.00 Due on demand Extended 10/25/82 — $20,000.00

7. Note No. 56962, dated March 2, 1982

Maker: Davis Apparel Mfg., Inc. Amount $240,000.00, Due on demand Extended 10/25/82 — $228,000.00

On March 2, 1982, Sonny Tucker, on behalf of W.E. Tucker Oil Company, Inc., executed a series of mortgages to FSB to secure the various notes described above. These mortgages granted liens to FSB in various real properties owned by the debtor, W.E. Tucker Oil Company, Inc. Sonny Tucker admitted that the debtor received none of the loan proceeds. Moreover, because of a bank oversight, these mortgages were not recorded in the appropriate offices of the circuit clerk until April 6, 1983, which was within one year before the filing of the bankruptcy petition in this case.

It is not necessary to reach the more difficult question regarding the alleged preferential transfers and FSB's status as an insider because the trustee has established that these transfers should be set aside as constructive fraudulent transfers under 11 U.S.C. § 548(a)(2)(A) and (B)(i), (ii). This section provides:

The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily —

(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; or . . .

There is no question that property of the estate was transferred because the granting of a lien in real property of the debtor is a transfer within the meaning of 11 U.S.C. § 548. The transfer is deemed to have occurred at the time the lien is perfected if perfection occurs before filing. In re Hogg, 35 B.R. 292 (Bkrtcy.D.S.D. 1983); In re Gurs, 34 B.R. 755 (Bkrtcy. App. 9th Cir.1983); In re Lyon, 35 B.R. 759 (Bkrtcy.D.Kan.1982); In re Caudy Custom Builders, Inc., 31 B.R. 6 (Bkrtcy.D.S.C. 1983). The recording of the mortgages in the office of the circuit clerk on April 6, 1983, constituted the final step under Arkansas law to perfect the transfer of the lien from claims of bona fide purchasers. Ark.Stat.Ann. § 51-1002 (Repl.1971); Thornton v. Findley, 97 Ark. 432, 134 S.W. 627 (1911). Perfection occurred within one year of the filing of the petition.

The trustee is also required to prove under Section 548 that the debtor received less than a reasonably equivalent value in exchange for the transfer. 11 U.S.C. 548(d)(2)(A) defines value under this section to mean, "property or satisfaction or securing of a present or antecedent debt of the debtor. . . ." A transfer made to benefit third parties is clearly not made for a fair consideration or for value unless the debtor is also benefited. 4 Collier on Bankruptcy ¶ 548.09 (15th ed. 1984); Matter of Evans Potato Co., Inc., 44 B.R. 191 (Bkrtcy.S. D.Ohio, W.D.1984). Since the lien was granted to secure a loan to third parties, there was no economic benefit to the debtor.

The trustee's remaining burden is to establish the elements under 11 U.S.C. § 548(a)(2)(A) and (B)(i) or (ii), either of which is sufficient to set aside the transfer. 4 Collier on Bankruptcy §§ 548.03, 548.04 and 548.05 (15th ed. 1984). In re Bell & Beckwith, 44 B.R. 656 (Bkrtcy.N.D.Ohio, W.D.1984). The trustee's evidence clearly and unmistakably establishes that the debtor was insolvent before and after the transfers and that after the transfers an unreasonably small amount of capital remained for the debtor to engage in its business.

The evidence concerning the issue of insolvency consisted primarily of the testimony of the debtor's accountant and two exhibits, the debtor's financial statement and the debtor's tax return. The financial statement was for the period July 1, 1982 through June 30, 1983. This is shown as Exhibit 20 to the deposition of James L. Sanderlin which was introduced as Exhibit 2 at the trial. The debtor's tax...