The Honorable Michael J. Melloy, Chief Judge, United Sta tes District Court for 1 the Northern District of Iowa, sitting by designation. United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 96-3006

___________ Stephen Anthony Bruening, Doing * Business as Bruening Holding * Company, and Nancy E. Bruening, * * Debtors. *

____________________________ * * David C. Stover, Trustee, * Appeal from the United States * District Court for the Western Appellee, * District of Missouri. * v. * * Jewett M. Fulkerson, * * Appellant. *

___________ Submitted: February 14, 1997 Filed: May 13, 1997

___________ Befor e HANSEN and MORRIS SHEPPARD ARNOLD, Circuit Judges, an d MELLOY, District Judge.

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___________ MORRIS SHEPPARD ARNOLD, Circuit Judge.-2-

Jewett M. Fulkerso n appeals a district court decision affirming the judgment of a bankruptcy court in favor of a trustee who brought an action to recover $13,700 that the trustee alleged was a preferential transfer under 11 U.S.C. § 547(b)(2). We fin d that only $ 13,000 of the payment that Mr. Fulkerson received was a preferentia l transfer and thus we affirm in part and reverse in part the judgment of the district court.

I. Sometime prior to February, 1993, Mr. Fulkerson transferred, pursu ant to an oral agreement, several dozen cattle to Stephen Bruening, who, with his wife, is the debtor in this cas e. Whether this transfer was pursuant to a sale of the cattle, or merely a bai lment accompanied by a series of option contracts, is, for reasons that we shal l explain, crucial to the case and is in dispute. There is no dispute, however, about the fact th at the agreement anticipated payments of $22,500 a year from Mr. Bruening to Mr. Fulkerson, because Mr. Bruening signed to Mr. Fulkerso n's order a series of notes.

Each note indicated a sum due, a due date, an interest rate, and a description , such as on th e note due February 10, 1995, which read "3rd Payment on 100 Bre d Heifers ." Mr. Fulkerson testified that these notes merely reflected the fact tha t Mr. Bruening was entitled to purchase twe nty-five cows a year from the hundred or so cattle for which he was caring. He s aid that the notes were drawn up on inappropriate forms that happened to be in his possession, a nd that the execution of the notes was an afterthought to provide their respective wives with some evidence of their agreement in the event some thing should happen to the two men. Mr. Fulkerson received a total of five payments in 1993 and 1994 that were consistent with the schedule indicated by the notes, the last of which, for $13,700, is the one at issue here. A second difficulty in this case arises from the fact that the $13,700 payment was drawn not on Mr. Bruening's personal accou nt but on the account of Bruening Holding Company ("BHC"), a company wholly owned by Mr. Brueningand his wife and which-3-

did not file bankruptcy. That payment f ollowed shortly on a transfer by Mr. Bruening of $13,000 from his personal accou nt into the BHC account. A related factual dispute has to do with whether it was BHC or Mr. Bruening who owned (or had a bailee' s interest in) the cattle.

There is no question that Mr. Bruening's interests were intermingled with th e co rporate interests in a very confusing way. He signed the notes personally, bu t testified that he thought that the company owned the cattle. He admitted, however, that "in the long run" the obligation on the debt was his personally. Mr. Fulkerson, although he argues on appeal that his dealings were with BHC alone, indicated in his testimony that he, in effect, equated BHC with Mr. Bruening. The cattle were listed o n Mr. Bruening's bankruptcy filing. They also, apparently, were included in the security interest granted to Kearney Trust Comp any ("Kearney") when that company lent BHC money for cat tle operations: It was Kearney that liquidated all of the livestock i n Mr. Bruening's possession, including the cattle that Mr. Fulkerson had transferred to him, when BHC defaulted on that note.

II. A. The bankruptcycode provides that a trustee may recover a transfer of property made "on account of an antecedent debt owed by the debtor before such transfer was made." 11 U.S.C. § 547(b)(2). No such recovery is allowed, on the other hand, when the tran sfer was "intended by the debtor and the creditor to or for whose benefit such tr ansfer was made to be a contemporaneous exchange for new value given to th e debtor." 11 U.S.C. § 547(c)(1)( A). The bankruptcy court had to determine, therefore, whether the $13,700 that Mr. Fulkers on received was a payment on a promissory note for catt le bought in the past or a cash purchase of the cattle pursuant to an optio n contract.-4-

The bankruptcy court found that it was the former. Mr. Fulkerson, contending that it was the latter, bases his appeal primarily on two related arguments: One, that because Mr. Bruening was permitted, under their agreemen t, to return cattle that he did not want, the arrangement must have been an option contract; and, two, that the sum of the evidence shows that the original intent of the parties was to create a bailment and option contract, not a sale.
The first point, Mr. Fulkerson appears to contend, establishes as a matter of law that the parties created an optio n contract and not a sale between them. We note, first of all, that the evidence is not conclusiv e that Mr. Bruening's ability to return the cattle
was in fact part of the original understanding; indeed, Mr. Bruening's testimon y su ggests that it became part of the understanding between the two parties only afte r Mr. Fulkerson became aware of Mr. Bruening's financial difficulties. But assuming , argue ndo , that this return provision was part of the original contract between th e pa rties, Mr. Fulkerson is still unable to point to any case that holds that the existence of such a contractual provisi on, by itself, requires a court to conclude that the relevant arrangement

was an option contract and not a sale. We do not think, moreover, that there is any such rule of law. On the second point, we agree with Mr. Fulkerson that the parties' intent wil l determine how this business arrangement ought to be characterized. See Mo. Ann

. Stat. § 400.2-401(1). But Mr. Fulkerson's testimony with regard to his intent in placing his cows with Mr. Bruening, although it is certainly credible on its face, is nevertheless
no t the only evidence for the trier of fact on this point. Evidence in conflict with Mr. Fulkerson's testimony included the existence of the notes, as well as the testimony of Mr. Bruening, who said that he had signed the notes in order "to purchase cattle," and that the payment of $13,700 to Mr. Fulker son occurred because "we owed him for the c attle and we were due [to make] a payment." Mr. Bruening also listed, when he filed for ban

kruptcy, a debt to Mr. Fulkerson that was consistent with the schedule of the executed notes. Mr. Fulkerson himself mentioned in a letter to the bankruptcy court-5-

that Mr. Bruening had purchased the cattle, and i n his filings with the court he asserted "cattle so ld" as the basis for his claim. On the basis of this record, we are hardly in a posit ionto disturb the holding of the bankruptcy court on the factual question o f whether the transfer was a sale or a bailment.

Mr. Fulkerson's reliance on our decision in Rohweder v. Aberdeen Prod. Credit Ass' n , 765 F.2d 109 (8th Cir. 1985), misses the mark. It is true that the Rohwede r court had before it a case that, like ours, required a de cision on the question of whether a transfer of cattle was a bailment or a sale. On a record mu ch stronger than that in our case for the proposition that the transfer was a bailment, we held that a factual question existed and that a summary judgment in th e district court, holding that the transfer was
a s ale, had to be reversed. Rohweder , then, for our purposes, merely stands for th e unexceptionable proposition that factual disputes are to be resolved b y the trier of facts.

B. Having co ncluded that the bankruptcy court did not err in holding that th e transfer of cattle to Mr. Bruen ing by Mr. Fulkerson was a sale and gave rise to a debt, the second question is whether the fact that BHC made the relevant payment on tha t debt, and not Mr. Bruening personally, stands in the way of the trustee's recovery. The an swer to this question depends on whether the $13,700 payment ca n correctly be said to be a transfer "of an interest of the debtor in property." 11 U.S.C. § 5 47(b). The bankruptcy code defines a transfer broadly to include "every mode , dire ctor indirect ... of disposing of or parting with property or with an interest i n prop erty." 11 U.S.C. § 101(54). It is undeniable that the $13,700 that Mr. Fulkerson received belong ed, if only for the short interlude between Mr. Bruening's transfer and BHC's payment, to BHC. The trustee, of course, has no right to recover a payment by a co-obligor of a debtor on a note, or a payment by any third party for that matter, that pays down a debt of the debtor. That is because these payments, which would decrease the sum of the creditors' claims on the debtor, wo uld have no effect on the estate of the-6-

debtor. Brown v. First Nat'l Bank of Little Rock, Ark. , 748 F.2d 490, 491 (8th Cir

. 1984) ( per curiam ).

To reac h the $13,700 payment, then, requires that the corporate form b e over looked, or that the interests of the corporation and the principal be someho w equated. We are not persu aded that the law supports such an outcome. There seems to be nothing in the bankruptcy code itself that touches on the question. Unde r Missouri law, to ignore the corporate form under an "alter ego" theory requires not just
a showing of complete control but at least some element of mischief in the corporate undertaking it self. In re B. J. McAdams, Inc. , 66 F.3d 931, 937 (8th Cir. 1995), cert. denied , 116 S. Ct. 2546 (1996) (corporate entity may be rejected when "used as a subterfuge to defeat public convenience, to justify wrong, or to perpetuate a fraud")

. The rec ord shows that BHC kept separate accounts and records, and that it ha d corporate funds apart from the $13,000that Mr. Bruening put in the account. There is no evidence that BHC was anything other than a legit imate enterprise set up to manage Mr. Bruening's cattle interests. The payment from BHC is therefore not recoverable by the trustee.

C. We find, nevertheless, that the payment by Mr. Bruening into the corporat e account is itself a voidable preference under 11 U.S.C. § 547(b) . Mr. Fulkerson argues that the debt was BHC's and not Mr. Bruening's and therefore that the payment o f $13,000 was not on account of an antecedent debt. This argument, if successful, might well lead, as the ba

nkruptcy court indicated, to the conclusion that the payment was a fraudulent transfer for less than equivalent value under 11 U.S.C. § 548(a)(2)(A). But
we think that the argument fails as a matter of law on the record before us. Because Mr. Bruening signed the relevant notes without any indication that he was doing so on behalf of B HC, there is no question that the obligation to Mr. Fulkerson wa s Mr

. Bruening's personally. Receivables Fin. Corp. v. Hamilton , 408 S.W.2d 44, 4 6 (Mo. 1966); see also United S av. & Loan Ass'n v. Lake of the Ozarks Water Festival,-7-

Inc. , 805 S.W.2d 350, 354-57 (Mo. Ct . App. 1991). We think that the record is clear, moreover, that the funds were earmarked from the first for Mr. Fulkerson, and tha t BHC was a mere conduit for them. The $13,000 payment to BHC is therefore voidable as a preferential transfer under 11 U.S.C. § 547(b)(2).

III. We t herefore reverse the judgment of the district court as to the $700 of th e transfer that constituted corporate funds. We remand the case to the district court for entry of a judgment consistent with this opinion.
A true copy.

Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.