Conard Corp., In re, 86-2559

Citation806 F.2d 610
Decision Date24 December 1986
Docket NumberNo. 86-2559,86-2559
PartiesBankr. L. Rep. P 71,579 In re CONARD CORPORATION and Virgil Conard, Debtors, Ronald J. SOMMERS, Trustee, Plaintiff-Appellee, v. Jim B. BURTON, Patty S. Burton, Pizza Hut of McKinney, Inc., Pizza Hut of Greenville, Inc. and Pizza Hut of Plano, Inc., Defendants-Appellants. Summary Calendar.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Brian S. Book, Dallas, Tex., for debtor.

Richard W. Simmons, Houston, Tex., for Ronald J. Sommers, Trustee.

Robert M. Noblitt, Houston, Tex., for Pizza Hut of Memphis, et al.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, WILLIAMS, and JONES, Circuit Judges.


In this case, we AFFIRM the bankruptcy court's avoidance of a preferential transfer subject to 11 U.S.C. Sec. 547(b).

On or about January 16, 1981, Conard Corporation as purchaser and Virgil Conard as guarantor executed an asset purchase agreement with Pizza Hut of McKinney, Inc., Pizza Hut of Greenville, Inc., Pizza Hut of Plano, Inc. as sellers and Jim and Patty Burton as guarantors (the selling parties are hereafter called "the Burtons"). Pursuant to the agreement, the purchaser acquired six Pizza Hut restaurants as going concerns, including leases, equipment, furniture and fixtures, inventory and certain other property rights. Payment was to be made to the Burtons, following a down payment, on a promissory note calling for 120 monthly installments of $6,742.20 commencing March 16, 1981. The Burtons retained no vendor's lien or security interest in the assets sold to purchaser.

Effective February 29, 1984, Pizza Hut of Memphis, Inc. and Texas Pizza Hut Partnership (collectively called "PHMI") purchased from Virgil Conard, Conard Corporation and Statewide Foods, Inc. as sellers all of sellers' right, title, and interest in and to 25 Pizza Hut restaurants and all of their assets. Consideration for this purchase included, inter alia, the assumption by Texas Pizza Hut Partnership of Conard Corporation's obligation to make the then-remaining 84 monthly installment payments to the entities owned by the Burtons. The contract evidencing this transaction was called the Assumption of Debt Agreement between Texas Pizza Hut Partnership and Conard Corporation. Shortly thereafter, Howell W. McCoy and/or his wife, Nancy S. McCoy, assumed the obligation of Texas Pizza Hut Partnership to pay the Burton debt.

Conard Corporation and Virgil Conard sought relief under Chapter 7 of the Bankruptcy Code on or about May 10, 1984, following the filing of an involuntary petition, and the appellee trustee was appointed.

The McCoys or their entities (PHMI) made eight payments to the Burtons on the debt owed to them. In October, 1984 the trustee demanded that further payment on the Burton debt be forwarded to the debtors' estates, and when counsel for the Burtons objected, PHMI ceased making payments on the Burton debt and began to place such payments in a special interest-bearing escrow account.

The bankruptcy court concluded that payments already made and to be made in the future by PHMI and its owners on the Burton debt constituted indirect preferential transfers pursuant to 11 U.S.C. Sec. 547(b). The bankruptcy court further "absolved and discharged" PHMI and its owners of any and all liability to any person or entity in connection with the transaction, except their obligation to pay the trustee under the Assumption of Debt Agreement. Other collateral relief awarded in the judgment was not appealed. The district court affirmed the bankruptcy court's judgment.

The Burtons first contend that the payments made and to be made by PHMI under the Assumption of Debt Agreement are not "property of the debtors' estate" and therefore not subject to recovery under the statutory provision which permits the trustee to recover preferential payments made for or on account of antecedent debt within 90 days prior to the debtor's filing for relief under the Bankruptcy Code. See 11 U.S.C. Sec. 547(b). The Burtons contend that their contractual right to receive payments directly from the McCoys rather than the debtors insulates the assumption transaction from the preference provision. This facet of the Burtons' case is controlled adversely to them by Palmer v. Radio Corporation of America, 453 F.2d...

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