U.S. for Use and Benefit of Julien P. Benjamin Equipment Co. v. Sapp, 80-1123

• Decision Date: 17 February 1981
• Docket Number: No. 80-1123,80-1123
• Parties: Bankr. L. Rep. P 68,100 UNITED STATES for the Use and Benefit of JULIEN P. BENJAMIN EQUIPMENT COMPANY, Plaintiff, and Julien P. Benjamin Equipment Company, Appellant, v. Newell W. SAPP, Individually and as Chap. X Trustee for Southern Foundation, Inc., and the American Insurance Company, Appellees, v. Charles F. HOWELL, W. Fred Williams, Jr., William F. Smalley and R. Dale Wood, Third Party Defendants. In re SOUTHERN FOUNDATION CORPORATION, Bankrupt.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 182

641 F.2d 182

Bankr. L. Rep. P 68,100

UNITED STATES for the Use and Benefit of JULIEN P. BENJAMIN

EQUIPMENT COMPANY, Plaintiff, and Julien P. Benjamin Equipment Company, Appellant, v. Newell W. SAPP, Individually and as Chap. X Trustee for

Southern Foundation, Inc., and the American

Insurance Company, Appellees, v. Charles F. HOWELL, W. Fred Williams, Jr., William F. Smalley and R. Dale Wood, Third Party Defendants.

In re SOUTHERN FOUNDATION CORPORATION, Bankrupt.

No. 80-1123.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 9, 1980.

Decided Feb. 17, 1981.

David F. Meschan, Greensboro, N. C. (Edward V. Zotian, Tuggle, Duggins, Meschan, Thornton & Elrod, P. A., Greensboro, N. C., on brief), for appellant.

William F. Horsley, Reidsville, N. C. (Griffin, Post, Deaton & Horsley, Reidsville, N. C., on brief), for appellee.

Before RUSSELL, WIDENER and ERVIN, Circuit Judges.

PER CURIAM:

The question presented by this appeal is whether a trustee in reorganization under Chapter X ¹ can be held personally liable on his bond for negligent failure to pay a claim for services furnished the debtor in reorganization in the course of continuing the debtor's business under court order. The Bankruptcy Judge held that he could not be so held. On appeal, the District Judge, after expressing doubt on the basis of his personal knowledge of the trustee's action that any basis for a claim of negligence on the part of the trustee existed, confirmed the Bankruptcy Judge's ruling that there could be no personal liability of the trustee for negligence under the circumstances. The plaintiff has appealed. We affirm.

The debtor in reorganization was a construction contractor. It had filed its petition for reorganization under Chapter X. That petition was accepted and approved by the Bankruptcy Court in September, 1974. Following that approval, a trustee was appointed by the District Court. Such trustee was expressly authorized to continue the business of the debtor, and, incident thereto, "to employ ... agents, and employees," to "purchase or otherwise acquire for cash or on credit, such materials, supplies, services, or other property, as he may deem necessary and advisable in connection with the operations of said business....", and, finally, to "incur such other expenses as may be necessary and advisable in the proper management and conduct of the affairs of said Debtor...." The claim in this proceeding arose out of an oral lease made in connection with the operation of the debtor's continuing business under this authorization. The lease covered the possession and use of certain equipment to be employed in the debtor's pending construction projects. It began as an oral lease on or before March 1, 1976. Later on April 15, 1976, the plaintiff wrote the debtor, "ATTENTION: Mr. Charles Howell, President," setting forth in writing the terms of the lease. The agreed monthly rental, as stated in the letter, was $1,550. The letter of agreement indicated that the monthly payments due for the months of March and April were due and unpaid. This letter of agreement, which on its face related back to March 1 when the debtor took possession of the leased equipment, was accepted by the debtor through its president, on May 7, 1976, and by the defendant in his capacity as trustee on the same day.

Contemporaneous with his written acceptance of the lease, the trustee gave the plaintiff a post-dated check in the sum of $3,100 in payment of the past-due lease payments for the months of March and April, 1976. When later presented, that check was returned unpaid "for insufficient funds." When the plaintiff communicated this fact to the president of the debtor, the latter instructed the plaintiff to redeposit the check with the assurance the check "would clear" upon re-presentation. When the check was, however, returned unpaid a second time, the plaintiff brought the matter to the attention of the trustee, who promptly advised the District Court of the development and requested to be relieved as trustee. The defendant trustee was relieved by the District Court as soon as a successor could be secured. Some arrangement was thereafter made between the successor trustee and the plaintiff whereby the leased equipment was returned to the plaintiff. This suit then followed to recover of the trustee personally the lease rentals from March, 1976, to the date when the equipment was returned to the plaintiff.

The plaintiff's basis for personal liability against the trustee is strictly limited to negligence on his part. In its specification of the trustee's negligence on which it relied for recovery, the plaintiff alleged that the defendant had failed

(a) To ascertain the Debtor's financial ability to comply with the ... equipment rental agreement before (the) agreement was executed;

(b) To place on deposit funds sufficient to cover the post-dated check of $3,100 given the plaintiff when presented; and

(c) To return immediately to the defendant the leased equipment when the defendant knew of the return of the post-dated check for insufficient funds.

There was no allegation or claim by the plaintiff that the defendant improperly used or converted to his own personal gain any funds or properties of the debtor, thereby preventing the plaintiff from being paid by the debtor from the latter's assets or earnings during reorganization. Nor was it contended that any funds received by...