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LARCON COMPANY v. WALLINGSFORD

December 13, 1955

LARCON COMPANY
v.
ROBERT C. WALLINGSFORD, PAN-AM SOUTHERN CORP.



The opinion of the court was delivered by: John E. Miller, District Judge.

The plaintiff, Larcon Company, is a corporation organized under the laws of the State of Delaware and authorized to do business in the State of Arkansas. The defendant, Wallingsford, is a citizen of Arkansas and a resident of the City of El Dorado in said State. The amount in controversy exceeds the sum of $3,000, exclusive of interest and costs.

The plaintiff seeks judgment against the defendant Wallingsford for the sum of $36,165.48, with interest at 4 percent per annum from May 1, 1954, until paid, the said sum being the deficiency adjudged to be due on the notes herein sued upon after application of the value of the security.

In his answer to the complaint, the defendant admits that the notes were executed on August 10, 1950, by Roberts Petroleum, Inc., and himself, and delivered to the payee, Anatel Corporation, but alleges that the notes were paid by the execution and delivery of two other notes dates December 8, 1950, and that it was the purpose and intention of the parties that the notes sued on herein would be destroyed or surrendered to Roberts Petroleum, Inc.

It is also alleged in the answer:

    "The defendant would further state that at the time
  of the execution and delivery of the notes on
  December 8, 1950, to Walter Bollenbacher and Louis L.
  Kelton, there was also an assignment made to them of
  certain oil, gas, and mineral interests which was
  accepted as full and complete payment of the notes of
  December 8, 1950, or with the full understanding that
  production from the assignments of the mineral
  interests was to be used in the retirement of the two
  said notes and in no wise would this defendant,
  Robert C. Wallingsford, be held personally
  responsible for the payment thereof.
    "Defendant states further that the notes sued on
  herein should have been destroyed or returned to the
  defendant or Roberts Petroleum, Inc., upon the
  execution of the two notes of December 8, 1950, or
  the assignment of the oil interests."

The plaintiff filed a reply to the answer on August 29, 1955, in which it denied the allegations of the answer and stated:

    "Plaintiff states that the Defendant, Robert C.
  Wallingsford, was a party to that certain proceeding
  in bankruptcy styled `In the Matter of Roberts
  Petroleum Inc., Bankrupt', being Civil No. 535 of
  this Court; that Walter Bollenbacher and Louis L.
  Kelton were parties thereto and that as alleged in
  the Complaint, the notes sued on herein were allowed
  in said proceeding as valid claims against the
  bankrupt, of which the Defendant was at all times the
  Vice President and principal executive officer; that
  the payment of said notes was an issue in said
  proceeding to which the Defendant was a participating
  party represented by counsel and a principal witness;
  that by reason of said proceeding and the Order of
  the Referee in Bankruptcy of this Court, dated
  January 26, 1954, the question of payment is res
  judicata and plaintiff specifically pleads res
  judicata as a bar to the defense alleged.
    "That the Defendant is now estopped to raise the
  issue of payment of said notes and plaintiff
  specifically pleads estoppel as a bar to the defense
  of payment."

On September 29 the plaintiff served and filed its motion for summary judgment and judgment on the pleadings. On November 23, the defendant, Robert C. Wallingsford, filed his response to the motion in which he alleged that he has a good and meritorious defense to the claim of plaintiff and should be allowed to defend the action on its merits.

The facts are not in dispute, and the question before the Court is whether the plaintiff is entitled to a judgment as a matter of law. The burden is on the moving party to show that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. See, Marion County Cooperative Association v. Carnation Co., D.C.W.D.Ark., 114 F. Supp. 58, and cases therein cited.

The attorneys for the respective parties have filed excellent briefs in support of their contentions, and the briefs have been considered along with the pleadings, the motion, response thereto, all exhibits, and the deposition of defendant, from all of which it appears that:

Roberts Petroleum, Inc., was incorporated under the laws of Arkansas in October 1948. Robert L. Schutter was president. The defendant at all times since the incorporation was vice president and general manager and principal executive officer. Edith Wallingsford, the wife of defendant, was at all times secretary of the corporation. The defendant and his wife owned 50 percent of the stock of the corporation, and defendant was in active charge of its affairs. Apparently the only other stockholder was Elizabeth Schutter, wife of Robert L. Schutter.

On August 10, 1950, the corporation and the defendant, Robert C. Wallingsford, executed and delivered two promissory notes, payable to the order of Anatel Corporation (a California corporation), each for the sum of $20,000. The notes are identical, and are as follows:

"$20,000.00                                 El Dorado, Arkansas,
                                            "August 10, 1950.

"Ninety days after date for value received, I, we, or either of us promise to pay to the order of Anatel Corporation (A California Corporation) Twenty Thousand and — no/100 — Dollars with interest at 4% per cent. per annum from date until paid. The makers and endorsers of this note hereby severally waive presentment for payment, demand, notice of non-payment, protest and consent that the time of payment may be extended without notice thereof.

"Payable at 945 No. La Cienega Blvd., Los Angeles, California.

"Due ______ Address _______           Roberts Pet. Inc.

"No. ______ Address _______     "by /s/ Robt. C. Wallingsford, V.P.
           "Address _______"        /s/ Robt. C. Wallingsford

The payee of the notes was dissolved and one of the notes was assigned by the payee to Walter Bollenbacher. The other was assigned to Louis L. Kelton, he and Bollenbacher being the only stockholders of the payee corporation.

On December 8, 1950, Roberts Petroleum, Inc., assigned to the said Bollenbacher and Kelton an undivided one-fourth interest in and to a certain oil and gas lease from J.R. Winn et al., lessors, to Robert C. Wallingsford, lessee, said assignment being placed of record on the same day in Record Book 583 at page 95, of the Miscellaneous Mineral records of Union County, Arkansas.

On the same day, the defendant, Robert C. Wallingsford, and wife, Edith Wallingsford, assigned to the said Bollenbacher and Kelton 7/32nds of all of the oil, produced, saved, and marketed from a 50-acre tract of land in Section 14, Township 18 South, Range 13 West, in Union County, Arkansas, subject to certain other assignments previously made. This assignment was likewise recorded on the date of its execution, and appears of record in Book 583 at page 97 of the Miscellaneous Mineral records of Union County, Arkansas.

On May 16, 1952, the corporation filed a debtor's petition for arrangement under Chapter 11 of the Bankruptcy Act as amended, 11 U.S.C.A. § 701 et seq. On July 31, 1952, the corporation was adjudicated a bankrupt.

On October 16, 1952, the said Bollenbacher and Kelton filed proof of their individual claims as secured claims for the balance due on the notes in the sum of $19,751.47 each.

On October 27, 1952, the defendant, Robert C. Wallingsford, filed a claim as an unsecured creditor of the bankrupt corporation in the amount of $79,515.59.

In December 1952 the Harris Trust and Savings Bank and Franklin O. Mann, as trustee, filed their petition for an order marshalling liens and interest in certain property in the custody of the court and for other relief. In paragraph 19 of the petition it was alleged that the said Bollenbacher and Kelton, along with other persons, may have or claim to have some right, title, interest, or lien in and to certain leasehold estates, but that such rights, if any, were subject and inferior to the right, title, interest, or lien of the petitioners.

In subparagraph (E) of paragraph 20 it was alleged that the claims of Bollenbacher and Kelton upon the promissory notes for the total sum of $39,502.94 represented funds paid by Anatel Corporation to the bankrupt under and pursuant to a contract dated August 28, 1950, between Robert C. Wallingsford and Roberts Petroleum, Inc., as seller, and the said Bollenbacher and Kelton as buyers for the purpose of paying or reimbursing the bankrupt for the cost of drilling certain oil wells, and for the purpose of paying the consideration for an assignment to the said Bollenbacher and Kelton of an interest in said leasehold estate rather than a loan made by the Anatel Corporation to the bankrupt.

In paragraph 26 of the petition the last known mailing address of the persons who have, or may claim to have, some right, title, interest or lien in and to the leasehold estates, the personal property located thereon, and the rents, issues, and profits were set forth. Among the persons named and whose addresses were given were Bollenbacher and Kelton and the defendant, Robert C. Wallingsford.

The prayer of the petition as set forth in paragraph (A) thereof was that the court adjudicate and determine the right, title, interest, or lien of the petitioners and each of the persons, firms, and corporations named in paragraph 26 in and to the leasehold estate, the personal property located thereon, and the rents, issues, and profits thereof, and the relative priority of the right, title, interest, or lien of each of them over the others. In paragraph (J) the petitioners prayed, "that an order be entered herein directing each of the persons, firms, and corporations named in paragraph 26 hereof to show within a short day to be fixed by the court what right, title, interest, or lien they, or any one or more of them, have in and to the leasehold estates, the personal property located thereon, and the rents, issues, and profits thereof described in paragraph 17 hereof, or be forever thereafter barred from asserting any right, title, interest, or lien therein".

In paragraph (K), "that this court order and direct the manner and the time within which each of the persons, firms, and corporations named in paragraph 26 hereof shall be notified of the relief sought in and by this petition".

On December 30, 1952, the petition was presented to the Referee and he entered an order directing all claimants in and to the property in the custody of the court to show on or before January 15, 1953, what, if any, interest they may have in such property or be forever foreclosed thereafter from asserting any interest therein, and providing for other relief. The order specifically provided that Bollenbacher and Kelton and the defendant, Robert C. Wallingsford, should file any and all claims that they might have on or before said date of January 15, 1953.

On January 13, 1953, Bollenbacher and Kelton filed their answer to the petition and prayed that they be recognized as the owners of an undivided ¼th interest in the leasehold estate hereinbefore referred to, and that such interest be held to be paramount and superior of any claim or right, title, interest or lien of the petitioner or of any other person.

The trustee, Donald E. Bradham, made and filed objections to the claims of Bollenbacher and Kelton, and asked that the claim of each be disallowed. Among other objections the trustee alleged that the said claims, if any, had been fully paid and satisfied and that there was no consideration for said claims; that the claims should be disallowed and the assignments to secure the payment of said claims should be annulled and set aside.

Notice to all of the persons named was given of a hearing on the petition, and answers or responses thereto, to be held beginning March 16, 1953. An extended hearing was had, and the Referee took the matter under advisement. While the proceedings were held under advisement by the trustee, Bollenbacher and Kelton, on December 4, 1953, for a valuable consideration assigned the promissory notes and interest in the oil and gas lease held as security for the payment of same to the plaintiff, Larcon Company. The assignment transferred to plaintiff all the right, title, and interest of said Bollenbacher and Kelton to each of the notes sued on herein; the proofs of claim and the security therefor; the oil and gas lease that had been assigned to them as security for the payment of the note; and all claims and demands that they might have against the estate of the bankrupt.

On January 26, 1954, the Referee entered an order declaring the rights and equities of each and every claimant. In paragraph 1 of the Findings of Fact it is recited that Bollenbacher and Kelton appeared by their attorneys, Messrs. Crumpler and O'Connor, and that the defendant, Robert C. Wallingsford, appeared by his attorney, C.E. Wright.

Paragraphs 20 and 21 of the findings are as follows:

    "20. That on or about August 10, 1950, Anatel
  Corporation loaned the bankrupt $40,000; that the
  bankrupt in order to evidence its indebtedness for
  said sum of $40,000 so loaned to it duly executed and
  delivered to Anatel Corporation its two promissory
  notes, each dated August 10, 1950, each payable to
  the order of Anatel Corporation, 90 days after the
  date thereof in the principal sum of $20,000, and
  with interest after date at the rate of 4 percent per
  annum; that shortly after August 10, 1950, Anatel
  Corporation duly endorsed one of said notes to the
  order of Bollenbacher and delivered the same to him,
  and duly endorsed the other of said notes to the
  order of Kelton and delivered the same to him; that
  Bollenbacher at all times since shortly after August
  10, 1950, has been the owner and holder of the said
  promissory note which was so endorsed to him; that
  Kelton at all times since shortly after August 10,
  1950, has been the owner and holder of said
  promissory note which was so endorsed to him; that
  there is presently due on each of said promissory
  notes the principal sum of $19,751.47; and that the
  total principal amount presently due on said
  promissory notes is the sum of $39,502.94.
    "21. That on December 8, 1950, the bankrupt
  executed and delivered to Bollenbacher and Kelton an
  assignment dated as of that date, and recorded in
  Book 583 at page 95 of the Miscellaneous Mineral
  Records of Union County, Arkansas, wherein and
  whereby the bankrupt sold, transferred, assigned, and
  conveyed to Bollenbacher and Kelton, share and share
  alike, the undivided ¼ interest in and to the said
  leasehold estate, which ¼ interest had theretofore
  been assigned to the bankrupt by Pontiac * * * that
  said assignment was made as security for the payment
  of said two promissory notes dated August 10, 1950,
  and Bollenbacher and Kelton as the owners and holders
  of said promissory notes are entitled to the benefit
  of such security; that the lien of Bollenbacher and
  Kelton on said ¼ interest in and to said leasehold
  estate to secure said two promissory notes

  is prior and superior to the right, title, or lien of
  any other party in and to the same, subject to the
  foregoing limitations of said assignment; that by
  virtue of such limitations Bollenbacher and Kelton
  are not entitled to 7/32nds of the proceeds of oil
  runs from said leasehold estate unless and until
  Pontiac has assigned and conveyed to the bankrupt an
  additional 3/8ths interest in and to said leasehold
  estate as set forth in such limitations and this has
  not yet been done by Pontiac; that Bollenbacher and
  Kelton in and by their respective answers herein have
  disclaimed any interest under and by virtue of said
  assignment insofar as the same covers the premises in
  Union County, Arkansas, described as follows, to-wit:
  that an order should be entered herein ordering and
  directing Bollenbacher and Kelton to execute and
  deliver to the Trustee of the bankrupt a good and
  sufficient release of their said lien in and to the
  premises last hereinabove described and adjudicating
  that Bollenbacher and Kelton have a first and prior
  lien on an undivided ¼ interest in and to said
  leasehold estate (effective upon the conveyance
  thereof to the trustee of the bankrupt) to secure the
  payment of said sum of $39,502.94."

In paragraph (U) of the conclusions and judgment it was adjudicated:

    "That the objections filed by Bradham as trustee to
  the proof of secured claim of Bollenbacher and Kelton
  in the total principal sum of $39,502.94, be, and the
  same are, hereby overruled and said claim is hereby
  allowed as a secured claim in the aforesaid sum, and
  Bollenbacher and Kelton have a lien as provided in
  paragraph 21 of the findings hereof and subject to
  the provisions of paragraph C hereof upon the
  bankrupt's interest in and to an undivided ┬╝th
  interest in the leasehold estate created in and by
  the lease described in paragraph 12 of said findings
  to secure the payment of said sum of $39,502.94,
  which said lien is inferior to the lien of Superior
  Lumber as set out in ...

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