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KATZ v. FIRST NATL. BANK OF GLEN HEAD

October 19, 1976.

Donald KATZ, Trustee in Bankruptcy of Oakland Foundry Company of Belleville, Illinois, Inc., Plaintiff,
v.
FIRST NATIONAL BANK OF GLEN HEAD, Defendant.



The opinion of the court was delivered by: PRATT

MEMORANDUM AND ORDER

GEORGE C. PRATT, District Judge.

 On June 30, 1971, defendant bank exercised its right of set-off against a checking account having a balance in favor of Oakland Foundry of Belleville, Illinois, Inc. in the amount of $108,783.91. These funds were applied against Oakland's indebtedness to the bank in the amount of $125,000. Fifteen days later, on July 15, 1971, an involuntary petition in bankruptcy was filed against Oakland in the United States District Court for the Eastern District of Illinois. Plaintiff seeks to invalidate that set-off as a voidable preference under 11 U.S.C. § 96.

 The following facts are undisputed, having been expressly asserted by defendant for purposes of the motion under local rule 9(g) and expressly admitted by plaintiff in his answering papers:

 1. On or about January 16, 1969, in consideration of a loan from the Bank in the amount of $125,000, Oakland Foundry of Belleville, Illinois, Inc. ("Oakland") executed a promissory note in favor of the Bank for the sum of $125,000. The promissory note matured on April 16, 1969 and was thereafter renewed quarterly until June 18, 1970, when Oakland's obligation was made payable on demand. Affidavit of Anthony D. Famighetti, [*] 2, Exhibit A ("Affidavit"), sworn to June 23, 1976.

 2. Electronic Cabinets, Inc., Herman Brede and his wife, Betty D. Brede, guaranteed Oakland's indebtedness to the Bank. Affidavit, Exhibit B. The Bank ordinarily required a personal guaranty on a corporate borrowing by a small, individually held corporation such as Oakland. Without a personal guaranty, the Bank would not have made the loan to Oakland. Affidavit, [*] 3.

 3. In addition, Oakland secured its indebtedness and the guarantors secured their obligation by pledging with the Bank all of the stock of Electronic Cabinets, Inc. and H. W. Brede Co., Inc. Affidavit, [*] 4; Transcript of Testimony of Herman W. Brede, October 12, 1971 ("Brede Testimony"), at 7.

 4. Oakland was a wholly-owned subsidiary of Electronic Cabinets, Inc., and Mr. & Mrs. Brede were the sole stockholders of Electronic Cabinets, Inc. and of H. W. Brede Co., Inc. Brede Testimony, at 14-15. Mr. Brede was the president and chief executive officer of Oakland. Brede Testimony, at 5.

 5. On June 18, 1970, at the time the parties converted Oakland's promissory note to a demand note, Mr. & Mrs. Brede gave the Bank additional security in the form of a second mortgage on their residence. Affidavit [*] 6, Exhibit D.

 6. At the time of the Bank's loan to Oakland, Oakland opened a general checking account with the Bank (the "Glen Head Account"). Affidavit, [*] 7, Exhibits E and F. The Glen Head account was a general account, and there were no restrictions on Oakland's right to make withdrawals. Affidavit, [*7.

 7. Oakland maintained accounts at the St. Clair National Bank of Belleville, Illinois (the "St. Clair Account") and the Trade Bank & Trust Company of New York. Affidavit, $ 8; Brede Testimony, at 8-9.

 11. Oakland made deposits in the total amount of $47,738.56 in April of 1971, $48,105.05 in May of 1971, and $12,075.21 in June of 1971. Affidavit, Exhibit H.

 12. In "June or July", Herman W. Brede, President of Oakland, telephoned Anthony D. Famighetti at the Bank in order to advise that Oakland was in "financial trouble". In that conversation, Mr. Brede stated that he "was going to talk to the other creditors to tell them that [he] was in trouble * * * [and] was still trying to work [his] way out of it." Brede Testimony, at 10-12.

 13. The foregoing conversation between Mr. Brede and Mr. Famighetti, then the Bank's President (now Chairman of the Board and Chief Executive Officer), occurred on ...


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