The opinion of the court was delivered by: PLATT
Plaintiff has moved for an order pursuant to Rule 56 of the Federal Rules of Civil Procedure (FRCP") granting summary judgment in his favor on counts 1 and 13 of the complaint predicating his motion "only on the preferential transfer allegations (in his complaint) and the terms of the Subordinated Loan Agreement."
Defendant has cross moved for an order pursuant to the same Rule granting it summary judgment on count 1 of the complaint on the ground that pursuant to Section 60(a)(2) of the Bankruptcy Act, 11 U.S.C. §§ 1 et seq., the transfer alleged in that count is deemed to have occurred more than four months prior to the filing of the petition in bankruptcy.
The Court has attempted to analyze plaintiff's statement of the material facts submitted pursuant to General Rule 9(g) of the Rules of this Court and the defendant's counter statement and has arrived at the following statements of undisputed facts herein:
On or about November 27, 1972, Walston & Company ("Walston"), predecessor of duPont Walston Incorporated, and Security National Bank ("SNB"), predecessor of defendant Chemical Bank, entered into a Subordinated Loan Agreement (the "Subordinated Loan Agreement") by which SNB loaned to Walston, and Walston agreed to repay, subject to the terms of the agreement, the sum of $5 million. The Subordinated Loan Agreement was approved by the New York Stock Exchange ("Exchange"). Under Rule 325, the Exchange required Walston to seek its approval of the terms before the loan proceeds could be counted in the "net capital" computation periodically prepared by brokerage firms.
Walston's obligation under the Subordinated Loan Agreement was evidenced by a Senior Subordinated Note which contained subordination provisions similar to those contained in the Subordinated Loan Agreement.
On or about July 2, 1973, Walston entered into a series of agreements constituting a "realignment" with duPont Glore Forgan Incorporated ("DGF"), at which time Walston changed its name to duPont Walston Incorporated (also "Walston").
At or about the time of the realignment, SNB required Walston to enter into a Pledge Agreement ("Pledge Agreement") and an Amendment and Agreement dated as of July 2, 1973 (the "Amendment") to the Subordinated Loan Agreement.
The final versions of the Amendment and the Pledge Agreement relied on by SNB were executed after the realignment.
In the realignment Walston received a subordinated debenture of DGF in the principal amount of $5,733,333 (the "DGF Debenture") which represented part of Walston's investment in DGF.
The DGF Debenture was delivered to SNB at or about the time of the realignment pursuant to the Pledge Agreement.
At or about the time of the realignment, a Pledge Agreement was also made with the Bank of America National Trust and Savings Association ("BOA") which had also entered into a Subordinated Loan Agreement with Walston. BOA also came into possession of a DGF Subordinated Debenture (the "BOA DGF Debenture") in the face amount of $2,866,667.
In January, 1974, Walston requested and DGF made prepayments totaling $3.5 million to Walston on the DGF Debenture thus reducing the outstanding amount of the Debenture to $2,233,333.
On or about February 26, 1974, Walston commenced an action in the New York State Supreme Court, New York County, the complaint for which had been drafted in mid-February.
On the evening of March 26, 1974, the day before the filing of the petition initiating Walston's bankruptcy proceeding, a series of transactions was consummated.
In connection therewith, Walston requested and DGF agreed, with Exchange approval, to pay the remaining $2,233,333 on the DGF Debenture. Walston requested that the payment be made to SNB rather than to Walston. SNB received a check for $2,233,333 on March 26 and SNB consented that the money so received be applied to the reduction of Walston's Senior Subordinated Note.
Walston also requested that a payment of $366,667 be paid to SNB by BOA. SNB received a check from BOA for this amount on March 26, 1974 "for the account of Walston" and applied it, with Walston's consent, to the reduction of Walston's Senior Subordinated Note.
On March 27, 1974, Walston filed a petition for an arrangement under the Bankruptcy Act stating that it was insolvent.
Plaintiff's motion for summary judgment challenges both these transfers as voidable preferences.
Defendant's cross-motion for summary judgment asks this Court to decide that the first transfer discussed above from DGF to SNB in fact occurred more than four months prior to the filing of the petition in bankruptcy pursuant to Section 60(a)(2) of the Bankruptcy Act and therefore to dismiss count 1 of plaintiff's complaint.
The defendant also maintains that the following issues are among those which preclude entry of summary judgment for plaintiff at this time:
I: whether the transfer from DGF to SNB occurred for the purpose of Section 60 of the Bankruptcy Act on March 26, 1977;
II: whether Walston was insolvent at the time the alleged voidable preferences took place, and whether SNB had reasonable cause to believe that Walston was insolvent; and
III: whether the payment by DGF to SNB was a transfer of Walston's and not DGF's property, whether the payment was for Walston's and not for DGF's benefit, whether the payment was in payment of Walston's debt and not in settlement of the claims against DGF, whether the payment by BOA to SNB was a transfer of Walston's and not BOA's property, and whether the payment was in payment of Walston's debt and not for some other purpose.
Section 60 of the Bankruptcy Act provides in pertinent part as follows:
" § 60. Preferred Creditors. (a)(1) A preference is a transfer, as defined in this Act, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the affect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.
" (b) Any such preference may be avoided by the trustee if the creditor receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent . . . ." 11 U.S.C. § 96 (1970).
Defendant correctly points out that to prevail the plaintiff must prove seven separate elements, viz.:
"Briefly stated the elements of a preference . . . . consist of the ...