The Honorable Michael J. Melloy, Chief Judge, United States 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. *

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Submitted: February 14, 1997

Filed: May 13, 1997

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Before HANSEN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and

MELLOY, District Judge. 1

___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.
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Jewett M. Fulkerson 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 find

that only $13,000 of the payment that Mr. Fulkerson received was a preferential

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, pursuant to an oral

agreement, several dozen cattle to Stephen Bruening, who, with his wife, is the debtor

in this case. Whether this transfer was pursuant to a sale of the cattle, or merely a

bailment accompanied by a series of option contracts, is, for reasons that we shall

explain, crucial to the case and is in dispute. There is no dispute, however, about the

fact that the agreement anticipated payments of $22,500 a year from Mr. Bruening to

Mr. Fulkerson, because Mr. Bruening signed to Mr. Fulkerson's order a series of notes.

Each note indicated a sum due, a due date, an interest rate, and a description,

such as on the note due February 10, 1995, which read "3rd Payment on 100 Bred

Heifers." Mr. Fulkerson testified that these notes merely reflected the fact that

Mr. Bruening was entitled to purchase twenty-five cows a year from the hundred or so

cattle for which he was caring. He said that the notes were drawn up on inappropriate

forms that happened to be in his possession, and that the execution of the notes was an

afterthought to provide their respective wives with some evidence of their agreement

in the event something 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 account but on the account of Bruening Holding

Company ("BHC"), a company wholly owned by Mr. Bruening and his wife and which
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did not file bankruptcy. That payment followed shortly on a transfer by Mr. Bruening

of $13,000 from his personal account 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 the

corporate interests in a very confusing way. He signed the notes personally, but

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 on

Mr. Bruening's bankruptcy filing. They also, apparently, were included in the security

interest granted to Kearney Trust Company ("Kearney") when that company lent BHC

money for cattle operations: It was Kearney that liquidated all of the livestock in

Mr. Bruening's possession, including the cattle that Mr. Fulkerson had transferred to

him, when BHC defaulted on that note.

II.

 A.

The bankruptcy code 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 transfer was "intended by the debtor and the creditor to or for whose benefit such

transfer was made to be a contemporaneous exchange for new value given to the

debtor." 11 U.S.C. § 547(c)(1)(A). The bankruptcy court had to determine, therefore,

whether the $13,700 that Mr. Fulkerson received was a payment on a promissory note

for cattle bought in the past or a cash purchase of the cattle pursuant to an option

contract. 
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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 agreement, 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 option contract and not a sale between them. We note, first

of all, that the evidence is not conclusive that Mr. Bruening's ability to return the cattle

was in fact part of the original understanding; indeed, Mr. Bruening's testimony

suggests that it became part of the understanding between the two parties only after

Mr. Fulkerson became aware of Mr. Bruening's financial difficulties. But assuming,

arguendo, that this return provision was part of the original contract between the

parties, Mr. Fulkerson is still unable to point to any case that holds that the existence

of such a contractual provision, 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 will

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

not 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. Fulkerson occurred because "we owed him for

the cattle and we were due [to make] a payment." Mr. Bruening also listed, when he

filed for bankruptcy, 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
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that Mr. Bruening had purchased the cattle, and in his filings with the court he asserted

"cattle sold" as the basis for his claim. On the basis of this record, we are hardly in a

position to disturb the holding of the bankruptcy court on the factual question of

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 Rohweder

court had before it a case that, like ours, required a decision on the question of whether

a transfer of cattle was a bailment or a sale. On a record much 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 the district court, holding that the transfer was

a sale, had to be reversed. Rohweder, then, for our purposes, merely stands for the

unexceptionable proposition that factual disputes are to be resolved by the trier of facts.

B.

Having concluded that the bankruptcy court did not err in holding that the

transfer of cattle to Mr. Bruening 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 that

debt, and not Mr. Bruening personally, stands in the way of the trustee's recovery. 

The answer to this question depends on whether the $13,700 payment can

correctly be said to be a transfer "of an interest of the debtor in property." 11 U.S.C.

§ 547(b). The bankruptcy code defines a transfer broadly to include "every mode,

direct or indirect ... of disposing of or parting with property or with an interest in

property." 11 U.S.C. § 101(54). It is undeniable that the $13,700 that Mr. Fulkerson

received belonged, 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, would have no effect on the estate of the
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debtor. Brown v. First Nat'l Bank of Little Rock, Ark., 748 F.2d 490, 491 (8th Cir.

1984) (per curiam).

 

To reach the $13,700 payment, then, requires that the corporate form be

overlooked, or that the interests of the corporation and the principal be somehow

equated. We are not persuaded that the law supports such an outcome. There seems

to be nothing in the bankruptcy code itself that touches on the question. Under

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 itself. 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 record shows that BHC kept separate accounts and records, and that it had

corporate funds apart from the $13,000 that Mr. Bruening put in the account. There is

no evidence that BHC was anything other than a legitimate 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 corporate

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 of

$13,000 was not on account of an antecedent debt. This argument, if successful, might

well lead, as the bankruptcy 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 BHC, there is no question that the obligation to Mr. Fulkerson was

Mr. Bruening's personally. Receivables Fin. Corp. v. Hamilton, 408 S.W.2d 44, 46

(Mo. 1966); see also United Sav. & Loan Ass'n v. Lake of the Ozarks Water Festival,
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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 that

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 therefore reverse the judgment of the district court as to the $700 of the

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.