In re Global Distribution Network, Inc.
| Decision Date | 10 May 1990 |
| Docket Number | Adv. No. 88 A 0665.,Bankruptcy No. 87 B 03274 |
| Citation | 114 BR 157 |
| Parties | In re GLOBAL DISTRIBUTION NETWORK, INC., Debtor. GLOBAL DISTRIBUTION NETWORK, INC., Plaintiff, v. STAR EXPANSION CO., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Timothy O'Donovan, Chicago, Ill. for Infasco Division of Ivaco.
John V. Del Gaudio, Jr., Chicago, Ill. for Global Distribution Network.
This is an adversary proceeding to avoid and recover numerous preferences.1 This opinion disposes of the cross-motions for summary judgement filed by the Debtor/Plaintiff, Global Distribution Network, Inc., and the Defendant, Infasco Division of Ivaco, Inc. This Court disposed of similar motions for summary judgement by Global against several other defendants in this adversary proceeding in Global Distribution Network v. Star Expansion Co., et al., (In re Global Distribution Network, Inc.), 103 B.R. 949 (Bankr.N.D.Ill.1989). Infasco's only defense that requires discussion is that some of the transfers Global seeks to avoid were made before the 90 day pre-petition preference period.
Infasco has asserted two other defenses to portions of Global's original claim for $51,477.23. First, Infasco contends that $10,977.97 was transferred to IMF, Inc. and not Infasco. Second, Infasco asserts that it gave Global $19,429.28 worth of new value. Global does not quarrel with these two assertions and is no longer seeking to recover those amounts (totalling $30,407.25) from Infasco. Global is now seeking only $21,069.98 from Infasco. Infasco has not asserted a defense to certain transfers totalling $11,821.38 and Global is entitled to judgement as to those transfers. There are, however, two transfers totalling $9,248.60 that remain the subject of dispute. It is those two transfers that Infasco argues were made outside the preference period. For the reasons set forth below, Global's motion for summary judgement against Infasco will be granted, and the defendant's cross-motion for summary judgement against Global will be denied, with respect to those two transfers.
The Debtor filed its Chapter 11 bankruptcy petition on March 3, 1987. In 1986, the Defendant provided goods related to the Debtor's industrial fastener business. The two transfers in question were checks dated October 27, 1986, which were deposited into Infasco's account on November 28, 1986 and honored by Global's bank on December 3, 1986.
There is no dispute that the Debtor has shown that all but one of the section 547(b) requirements have been satisfied.2 Specifically, the Debtor has shown that 1) transfers of the Debtor's property were made, 2) to or for the benefit of creditors, 3) for or on account of antecedent debts, 4) while the Debtor was insolvent, and that 5) the defendants received more than they would have in a Chapter 7 liquidation. The only dispute is about one of the elements of a preference, whether the transfers were made within 90 days before the bankruptcy petition was filed.3
The Debtor's checks to Infasco for $4,000.00 and $5,248.60 were deposited by Infasco ninety-five days before the petition was filed, but were paid by the Debtor's bank only ninety days before the petition was filed. If the transfers were made when the checks were deposited, as Infasco argues, then the transfers may not be avoided. If the transfers were made when the checks were honored, as the Debtor contends, then all elements of section 547(b) would be satisfied.
In this Court's earlier opinion, it held that a transfer was deemed "made" at the time the check was honored by the debtor's bank. The Court stated:
As a matter of state law, the issuance of a check does not operate as an assignment of funds held by the drawee bank, and the funds in the maker\'s checking account are not transferred until the check is honored. Ill.Rev.Stat. ch. 26 § 3-409. See Tri-State Bank v. Blue Ribbon Saddle Shop, Inc., 76 Ill.App.3d 445, 32 Ill.Dec. 230, 233 395 N.E.2d 177, 180 (1st Dist.1979); Leavitt v. Charles R. Hearn, Inc., 19 Ill.App.3d 980, 312 N.E.2d 806, 809 (1st Dist.1974). A third party may acquire rights superior to those of the payee until a check is honored by the drawee bank, and the maker can stop payment on a check until it is honored. In re Foreman, 59 B.R. 145, 148 (S.D.Ohio 1986). A transfer of the Debtor\'s property for purposes of section 547(b), therefore, occurs when the debtor\'s bank honors the check rather than upon issuance of the check by the debtor. Foreman, 59 B.R. at 148; In re Almarc Mfg., Inc., 52 B.R. 582, 585 (Bankr.N.D. Ill.1985).
Infasco now wants the Court to abandon its previous holding and declare that a transfer is "made" for the purposes of section 547(b)(4)(A) when the creditor deposits the check rather than when the check clears the debtor's account. Infasco is located in Canada. After Infasco received the checks from Global, it deposited them in its bank in Montreal. The checks were then processed through a United States clearing house bank in accordance with international banking regulations before being honored by Global's bank in Oakbrook Terrace, Illinois. Infasco asserts that because of its location and international banking regulations the checks took longer to clear the Debtor's bank.
Infasco argues that by holding that a "transfer" occurs when the check is honored, this Court treats apparently similarly situated creditors differently. If a local creditor had deposited a check in a local bank on November 28th it would probably have cleared in fewer than five days. But because Infasco is Canadian, it took longer for the check it deposited to clear. The result of requiring Infasco to return the proceeds...
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