In re TERMINAL MOVING AND STORAGE CO., INC. PUTNAM REALTY, INC., Appellee, v. TERMINAL MOVING AND STORAGE CO., INC., and Gene O‘Daniel, Trustee, Appellants.
No. 79-1426
United States Court of Appeals, Eighth Circuit
July 28, 1980
631 F.2d 547
Submitted June 11, 1980.
The Government seeks to distinguish these cases on the ground that right of invasion of principal is based on some notion of need, whereas in the present case invasion is permitted for the widow‘s “happiness.” The prerequisites for invasion of corpus in these cases do not seem to differ significantly from the language of Beatrice Brantingham‘s life estate. Yet even assuming that “happiness” is so broad a term to distinguish the above cases, Dana v. Gring, 374 Mass. 109, 371 N.E.2d 755 (1971), resolves any doubt that the Massachusetts Courts would construe Beatrice Brantingham‘s power of invasion as limited by an ascertainable standard. In that case the trustees were authorized to invade principal as they deemed “necessary or desirable for the purpose of contributing to the reasonable welfare or happiness of [the settlor‘s] daughter or her immediate family.” Id. at 759. While recognizing that happiness is a broad term the Massachusetts Court did not consider it evidence of intent to establish a trust for the decedent‘s daughter with fee simple powers. Rather, in looking at the entire instrument, the Court concluded that the settlor‘s intent was to preserve the principal of the fund for his lineal descendants alive at the time of his death. The Court found the trustee‘s right to distribute principal was limited by “an objective, ascertainable standard.” Id. at 761.
The language found in Alan Brantingham‘s Will also reflects an intent to preserve the principal of his estate for his children. The first clause of the bequest provides: “I hereby give, devise and bequeath unto my children ... all of my property and estate” ... The testator then provided for the life use by his widow, with the power to invade principal as necessary for her maintenance, comfort and happiness. The bequest in the instant case is virtually indistinguishable from that in Dana v. Gring.
We conclude, as we believe that any Massachusetts Court would conclude, that Beatrice Brantingham‘s power to invade the principal of the life estate was limited by an ascertainable standard. The Massachusetts cases discussed herein leave no doubt that the Section 2041(b)(1)(A) exception to a general power of appointment applies, and that the corpus of the life estate was erroneously included in Beatrice Brantingham‘s gross estate. Since there is no dispute as to the facts of this case, we see no need for further fact finding in the Court below. Accordingly, the entry of summary judgment is Reversed and Remanded to the District Court with instructions to enter judgment for plaintiff in accordance with the views expressed herein.
Before LAY, Chief Judge, HEANEY, BRIGHT, ROSS, STEPHENSON, HENLEY, MCMILLIAN and ARNOLD, Circuit Judges.
The trustee in bankruptcy of Terminal Moving and Storage Co., Inc. appeals the decision of the district court finding Putnam Realty to have a valid security interest in the assets of Terminal Moving and Storage, a bankrupt corporation. We affirm the order of the district court.1
On January 19, 1973, Herbert E. Walker purchased all of the shares of Terminal
On March 22, 1978, Terminal filed a chapter XI plan for corporate reorganization. Putnam then filed a complaint seeking relief from an automatic stay on all lien foreclosures which had been issued by the bankruptcy court when the chapter XI proceeding began. Putnam sought relief from the stay in order to pursue its interests under the security agreement. The bankruptcy plan and complaint for relief were joined, and on December 1, 1978, the bankruptcy judge issued a memorandum decision stating that Putnam had no valid security interest in Terminal‘s assets, because the security interest was given without any consideration passing to the bankrupt. Putnam then appealed to the United States District Court for the Eastern District of Arkansas. The district court reversed the bankruptcy judge and found Putnam to have a valid security interest in the assets of Terminal.
The trustee argues on appeal that appellee‘s security interest is invalid because: (1) Walker‘s pledge of Terminal Moving‘s assets to secure a promissory note was an ultra vires act void under
Ultra Vires Act.
The Arkansas legislature‘s committee report states: “Section 6 (§ 64-106) is a verbatim copy of the Model Act provision, except for the insertion of the words ‘or derivative’ (in subsection B).” The committee observed:
The Model Act (followed as to this Section) [§ 64-106] eliminates ultra vires as a defense or cause of action except to the following extent.
(i) It permits a shareholder to sue to enjoin the performance by the corporation of an ultra vires contract, the court having power to award damages (other than anticipated profits) resulting from such nonperformance; and (ii) It permits a stockholder to bring a derivative suit for damages in favor of the corporation against officials who have diverted its business into unprofitable ultra vires channels; and
(iii) It authorizes the filing of a suit by the Attorney-General to enjoin the ultra vires act or to dissolve the corporation under Section 87 of the Model Act [see § 64-905]. See also Sec. 89 [§ 64-907].
The committee gives a clear indication that the Arkansas legislature intended to follow the Model Act and thereby eliminate ultra vires as a defense to an action brought against the corporation under an existing agreement. See also 7A W. Fletcher, Cyclopedia of the Law of Private Corporations § 3447 (rev.ed.1978). As stated by Fletcher:
Creditors of the corporation, whose rights are not infringed by the ultra vires contract, cannot attack it. They cannot attack a corporate transaction as ultra vires unless its intent or effect is to fraudulently divert the corporate assets from their debts. It follows that ordinarily a subsequent creditor cannot object. So a trustee in bankruptcy ordinarily has no greater rights, as the representative of creditors, to attack a corporate transaction as ultra vires, than he has as a representative of the corporation.
Id. at § 3452 (footnotes omitted).
There is no allegation of fraud here. It is undisputed that on June 27, 1978, the financing statement covering office and plant equipment was executed and filed with the County Clerk and the Secretary of State. Subsequent creditors were on notice, therefore, of the pledge of assets. The secured party took possession of the stock, the shares of Allied Van Lines owned by Terminal Moving, on January 19, 1973, and it maintained possession from that time. Therefore, no creditor could have looked to any of those assets. It should be clear that the trustee in bankruptcy lacks standing under the controlling Arkansas law to assert an ultra vires defense against Putnam. In any event, the assent of all the stockholders to the security agreement bars any claim, in the right of the corporation, to defeat it. Widett v. Pilgrim Trust Co., 336 Mass. 738, 148 N.E.2d 167 (1958). Therefore, we agree with the district court that the trustee‘s argument that Walker‘s pledge of corporate assets was an ultra vires act is not valid.
The Giving of “Value.”
The trustee alternatively attacks the validity of the security interest because Terminal did not receive any consideration for the pledge of corporate assets. Under the Arkansas law a security interest is not enforceable unless “value” has been given.
Consideration has been defined by the Arkansas Supreme Court as either a benefit accruing to a party or a detriment sustained by a party. First Nat. Bank v. Hasty, 183 Ark. 519, 36 S.W.2d 967 (1931); Nakdimen v. First Nat. Bank, 177 Ark. 303, 6 S.W.2d 505, cert. denied, 278 U.S. 635, 49 S.Ct. 32, 73 L.Ed. 552 (1928). Consideration for a contract may be found not only in benefits moving to the promisor but also in legal detriment suffered by the promisee. United States v. Westmoreland Manganese Corp., 134 F.Supp. 898, 910 (E.D.Ark.1955). It is a detriment in the legal sense if the promisee at the request of the promisor and upon the strength of that promise performed any act which occasioned him any trouble or inconvenience and which he was not obliged to perform. 1 Williston, A Treatise on the Law of Contracts § 102A (3rd ed. W. Jaeger 1957).
In this case we hold that there was consideration sufficient to support a simple contract and therefore the security interest
There is no requirement under the U.C.C. that the entity whose assets are pledged must receive consideration. See generally J. White & R. Summers, Uniform Commercial Code § 23-4 (1972). Under the U.C.C., it is even permissible for a debtor who does not own the collateral to use it for security.
The security interest in this case did not interfere with the rights of those who were creditors prior to the existence of the security interest and, of course, subsequent creditors were on notice. Under these circumstances it is particularly appropriate that the security interest be held valid. In re Southern Laundry, Inc., 101 F.Supp. 664 (S.D.Fla.1951); see generally Miller‘s Shoes & clothing v. Hawkins Furniture & Appliances, Inc., 300 Minn. 460, 221 N.W.2d 113 (1974); Widett v. Pilgrim Trust Co., 336 Mass. 738, 148 N.E.2d 167 (1958).
JUDGMENT AFFIRMED.
MCMILLIAN, Circuit Judge, concurring.
I concur in the result, but write separately to emphasize the absence of any fraud in the facts presented in this case.