United Pacific Ins. Co. v. First National Bank of Oregon

• Decision Date: 29 August 1963
• Docket Number: Civ. No. 62-145.
• Citation: 222 F. Supp. 243
• Parties: UNITED PACIFIC INSURANCE COMPANY, a corporation, Plaintiff, v. The FIRST NATIONAL BANK OF OREGON, a National Banking Association, and William Kennedy, Trustee of the Bankrupt Estate of Nils Sigurd Andersson, Defendants.
• Court: U.S. District Court — District of Oregon

222 F. Supp. 243

UNITED PACIFIC INSURANCE COMPANY, a corporation, Plaintiff, v. The FIRST NATIONAL BANK OF OREGON, a National Banking Association, and William Kennedy, Trustee of the Bankrupt Estate of Nils Sigurd Andersson, Defendants.

Civ. No. 62-145.

United States District Court D. Oregon.

August 29, 1963.

COPYRIGHT MATERIAL OMITTED

Douglas M. Thompson, Mautz, Souther, Spaulding, Kinsey & Williamson, Portland, Or., for plaintiff.

Walter H. Pendergrass, Pendergrass, Spackman, Bullivant & Wright, Portland, Or., for The First Nat. Bank of Oregon.

Seymour L. Coblens, Reinhardt, Coblens & Stoll, Portland, Or., for defendant, William Kennedy, trustee of bankrupt estate of Nils Sigurd Andersson.

KILKENNY, District Judge.

STATEMENT

I adopt, insofar as applicable, the statement of facts as outlined by the Court in deciding the jurisdictional question, United Pacific Insurance Company v. First National Bank of Oregon, etc., D.C., 206 F.Supp. 94. In addition to the $13,500.43, item mentioned in said Opinion, there are involved in this litigation other amounts as follows: (1) On bankrupt's bridge contract with the City of Medford, $1,789.06, (2) on Bankrupt's Stringtown contract with the State of Oregon, the sum of $12,516.94, (3) On money paid on bankrupt's Slide Order with the United States of America, the sum of $18,369.04, and (4) Additional on Stringtown contract $1,581.58.

Beyond the "Joint Control Agreement" mentioned in the original Opinion, the bankrupt executed a number of documents commencing with May 23, 1960, and ending with January 2, 1962, in which he transferred or attempted to transfer his right, title and interest in and to earnings and future earnings under all such contracts.

On May 23, 1960, the bankrupt and his wife executed a document which is known to the record as a Bond Application and Agreement of Indemnity, which instrument in broad and concise language, assigned earnings under construction contracts and indemnified plaintiff from any and all loss in connection with contracts for the construction of certain highways in Coos County, Oregon.

Thereafter pursuant to said application and indemnity agreement the plaintiff executed on behalf of the bankrupt the following performance and payments bonds:

(a) December 19, 1960, bond for $39,844.00 with the United States of America, Bureau of Public Roads, Contract No. CPR 8 9496, Baker Creek Road, and

(b) On April 24, 1961, plaintiff issued its performance and payment bond in the amount of $13,268.50 to the United States of America, Bureau of Public Roads, in connection with Contract No. CPR 8 9507, Smith River Bridge, and

(c) On April 24, 1961, plaintiff issued another performance and payment bond in the amount of $81,482.50, to the City of Medford relative to the City of Medford Bridge construction contract.

(d) Performance and Payment Bond dated June 12, 1961, in the sum of $158,863.50 with the Oregon State Highway Commission as obligee on the Stringtown Road contract in Coos County, Oregon.

On June 28, 1961, the plaintiff and the bankrupt executed the Joint Control Agreement mentioned in the original Opinion, and thereafter on the 10th of August, 1961, pursuant to the terms of said agreement, opened a checking account known as the Andersson-United Pacific Construction Account in the North Bend Branch of The First National Bank of Oregon.

On December 16, 1961, the Bureau of Public Roads, issued to the bankrupt what is designated as a Purchase Order for the removal of certain slides and the bankrupt proceeded to perform the requirements of such order in accordance with the terms thereof. This order was issued without any requirement for a bond. On January 25, 1962, the United States issued a check to Andersson in the sum of $18,291.04 on said Purchase Order and said check was deposited and the proceeds added to the aforesaid "Andersson-United Pacific Construction Account". As of March 6, 1962, the date of the adjudication in bankruptcy, the United States owed bankrupt on account of the aforesaid slide job the sum of $26,453.75. On September 6, 1962, the United States, acting through its General Accounting Office, offset against the said sum of $26,453.75, then due to bankrupt, the sum of $15,165.44 for bankrupt's taxes then due and owing, leaving $11,288.31 owing to the bankrupt on said slide job.

On September 6, 1962, plaintiff, commenced an action in the Court of Claims of the United States for the said sum of $11,288.31, which it alleged had been assigned to it by the bankrupt on January 2, 1962, pursuant to the provisions of 41 U.S.C. § 114(b) and Rule 19 of the Court of Claims. The Trustee¹ filed a petition in the said Court of Claims alleging that the purported assignment was invalid for various reasons and that subject is now at issue in the Court of Claims.

On June 28, 1961, and as a part of the transaction involving the said Joint Control Agreement, the bankrupt executed and delivered to plaintiff an Assignment of certain funds due under the City of Medford Contract. Subsequent to that date and prior to March 6, 1962, all funds derived from the Medford job were paid by checks payable to "United Pacific Insurance Co., assignee of Sig Andersson" and were deposited in said joint control account. At the time of the bankruptcy there was due on account of said contract from the City of Medford, the sum of $1,789.06, which sum has been deposited with the Clerk of this Court, pursuant to Order.

On June 28, 1961, and as part of the same Joint Control Agreement transaction, the bankrupt executed and delivered to plaintiff an Assignment of Claims for all monies due or which might thereafter become due from the State of Oregon under the State Highway contract in Coos County. Subsequent to June 28, 1961, and prior to March 6, 1962, all funds derived from said job were deposited in said joint control account. At the time of the petition in bankruptcy there was due from the State of Oregon the sum of $12,516.94, which, pursuant to Order, has been deposited with the Clerk of this Court.

The First National Bank of Oregon, the bank in which the deposits were made, had full notice and knowledge of the establishment of the Andersson-United Pacific Construction Account and of the terms of the agreement between the plaintiff and the bankrupt pursuant to which the deposits were made and at all times had in its possession a copy of said agreement to which it indicated its assent. The balance of the account held by The First National Bank of Oregon under the designation "Andersson-United Pacific Construction Account", on March 6, 1962, the date of the filing of the Petition in Bankruptcy, was, and now is, $13,500.43. At the time of said adjudication, the bankrupt was indebted to the bank in the sum of $10,000.00, together with interest thereon at the rate of 7% per annum from May 29, 1961, until paid. No part of the indebtedness has been paid with the exception of the sum of $548.33 to apply on interest from May 29, 1961, to March 6, 1962, and $1,238.52 to apply on principal, there being now due and owing a principal balance of $8,761.48.

The record discloses and I find that the plaintiff, as surety for the bankrupt, paid, prior to bankruptcy, under its obligation as said surety, sums so as to leave deficits and credit balances as follows:

(1) Medford Claim No. 60-35180, Net Deficit $34,524.04.

(2) Coos County-Stringtown Road, Claim No. 60-35186, Net Deficit $18,906.06.

(3) Smith River Bridge, Claim No. 60-35187, Net Credit, $5,275.05.

(4) Baker Creek Bridge, Claim No. 60-35181, Net Credit $3,633.38.

(5) Baker Slide, Force Account, Net Deficit $13,550.83.

In passing on the rights of the parties to the funds which were deposited in Court and the item which was paid directly by the State to the plaintiff, it must be kept in mind that it was the Trustee, rather than the plaintiff, who insisted on this Court litigating the rights of the respective parties in and to such funds. Under the issues created by the Pre-Trial Order, and the facts as I find them, and even assuming that the Trustee might be entitled to the funds in the first instance, it would be a futile gesture to release the funds on deposit in Court to the Trustee. This Court has jurisdiction to decide the priorities to the funds in question. The Trustee, having invited the Court to decide these issues, is in no position to complain.

The parties have agreed that the bank is entitled to the allowance of a reasonable sum as attorney fees for services rendered by its attorneys in this proceeding and that the Court may affix an amount to be allowed as attorney fees.

CLAIM OF INSOLVENCY

One of the Trustee's principal contentions is that the bankrupt was insolvent at the time of the execution and delivery of the various instruments and that the plaintiff knew, or by the exercise of reasonable diligence should have known, of such insolvency. Actual knowledge of insolvency is not required in order to create a preference which would be avoidable under the bankruptcy act. It is sufficient that a state of facts has been brought to the creditors attention concerning the affairs and financial condition of the debtor that would lead a prudent businessman to conclude that the debtor was insolvent and the debtor is charged with knowledge which a reasonable, diligent inquiry would disclose. Collier on Bankruptcy, 14th Ed., Vol. 3, § 60.53, p. 969. C. A. Swanson & Sons Poultry Co. v. Wylie, 237 F.2d 16 (9 Cir., 1956); Dudley v. Eberly (D.C.Or.1962) 201 F.Supp. 728. The question of whether a particular transfer is preferential is determined under Federal law, Collier on Bankruptcy, 14th Ed., Vol. 3, § 60.39.

In this case, the record shows that plaintiff, at and prior to the time it secured the Joint Control Agreement, had reason to believe that the bankrupt was not able to meet his obligations in the usual and normal course of business and as early as July, 1961, the plaintiff had in its...