In re Hudson Valley Quality Meats, Inc.

• Decision Date: 09 December 1982
• Docket Number: Bankruptcy No. 79 BK 1878.
• Citation: 29 BR 67
• Parties: In re HUDSON VALLEY QUALITY MEATS, INC., Bankrupt. Fred PLOTKIN, Trustee in Bankruptcy, Plaintiff, v. SUNFLOWER BEEF PACKERS, INC., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of New York

29 B.R. 67 (1982)

In re HUDSON VALLEY QUALITY MEATS, INC., Bankrupt.

Fred PLOTKIN, Trustee in Bankruptcy, Plaintiff, v. SUNFLOWER BEEF PACKERS, INC., Defendant.

Bankruptcy No. 79 BK 1878.

United States Bankruptcy Court, N.D. New York.

December 9, 1982.

Edwards & Angell, New York City, for trustee; Thomas E. Pitts, Jr., Providence, R.I., of counsel.

Finley, Kumble, Wagner, Heine, Underberg & Casey, New York City, for defendant; Daniel A. Zimmerman, New York City, of counsel.

DECISION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JEREMIAH E. BERK, Bankruptcy Judge.

I. STATEMENT OF THE CASE

Plaintiff, trustee in bankruptcy of Hudson Valley Quality Meats, Inc. (hereinafter "Hudson Valley"), seeks to recover $175,000 as a voidable preference under § 60b of the Bankruptcy Act of 1898 (hereinafter "Act"),¹ 11 U.S.C. § 96(b), from defendant, Sunflower Beef Packers, Inc. (hereinafter "Sunflower"). Sunflower moves herein for summary judgment on the ground that the transfer made to it by Hudson Valley was not, as a matter of law, a preference as defined by the Act.

Bankruptcy Act § 60a(1), 11 U.S.C. § 96(a)(1), defines a preference as:

. . . 1 a transfer, as defined in this Act, of any of the property of a debtor 2 to or for the benefit of a creditor 3 for or on account of an antecedent debt, 4 made or suffered by such debtor while insolvent 5 and within four months before the filing by or against him of the petition initiating a proceeding under this Act, 6 the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.

Sunflower alleges that the transfer at issue (1) was not made to a "creditor," (2) nor was it for or on account of an antecedent debt, (3) nor did it deplete the bankrupt's estate such that creditors of the estate are unable to receive as great a percentage of their debt as they would otherwise. Sunflower contends that the transfer was part of a "money-management technique" employed by the two affiliated² corporations designed to enable Hudson Valley to elicit a short-term provisional credit from its depositary bank, Chemical Bank of New York (hereinafter "Chemical"), upon the deposit of checks drawn to Hudson Valley's order by Sunflower against insufficient funds on Sunflower's account at the York State Bank of Nebraska (hereinafter "York Bank").³ In this instance, Sunflower drew a check in the amount of $175,000, allegedly against insufficient funds, on its account at York Bank to the order of Hudson Valley. The check was not earmarked for any particular creditor of Hudson Valley. Upon depositing the check with Chemical, Hudson Valley and Sunflower hopefully intended to take advantage of two factors: first, that Chemical would immediately grant Hudson Valley a provisional credit in full upon the deposit of the check and, second, that three to five business days would be required for the check to reach York Bank for payment since, at a minimum, it would travel from Chemical to the New York Clearing House to the Omaha, Nebraska Regional Clearing House and only then to York Bank.⁴ Before Sunflower's check was presented for payment at York Bank by Chemical, Hudson Valley wire-transferred $175,000 derived from accounts receivable collections⁵ to Sunflower's account at York Bank in order that the check would be honored upon presentment.

Sunflower contends that because it received the wire-transfer before its check had been presented for payment to York Bank, and thus before Hudson Valley had obtained actual possession of any money from Sunflower, a debtor-creditor relationship never arose. It thus maintains that the only true creditor in this transaction was Chemical which gave an "involuntary loan to Hudson Valley" in the form of a provisional credit.⁶

Sunflower concedes that it received a "transfer" "within four months of the date of bankruptcy" but denies the existence of the "creditor," "antecedent debt" and "greater percentage" elements, and argues further that the transfer did not deplete the bankrupt's estate. The insolvency of Hudson Valley, and Sunflower's reasonable cause to believe at the time of the transfer that Hudson Valley was insolvent, are issues of fact not presented on this motion for summary judgment.

For the reasons discussed below, Defendant Sunflower's motion for summary judgment is denied.

II. STATEMENT OF AGREED FACTS

1. On May 25, 1979, Stuart Kirshner and Alan Moore were officers of both Hudson Valley and Sunflower and between them owned more than half of the voting stock of both corporations.⁷

2. On May 25, 1979, Sunflower drew a check for $175,000 against its account at York Bank payable to the order of Hudson Valley. The check was issued⁸ to Hudson Valley and deposited in its account at Chemical on the same day.

3. On May 28, 1979, the next business day following the deposit, Chemical provisionally credited Hudson Valley's account in the amount of Sunflower's check.

4. On May 31, 1979, before the check had been presented to York Bank for payment, Hudson Valley wire-transferred $175,000 in cash from its account with Chemical to Sunflower's account at York Bank.

5. The wire-transfer was a "transfer" within the meaning of Bankruptcy Act § 1(30), 11 U.S.C. § 1(30).⁹

6. On June 1, 1979, York Bank, the drawee, paid upon presentment the check drawn by Sunflower and issued to Hudson Valley.

7. On August 27, 1979, Hudson Valley filed a voluntary petition under Chapter XI of the Bankruptcy Act of 1898 and was adjudicated a bankrupt on April 18, 1980.

8. The purpose of the delivery and subsequent deposit of Sunflower's check into Hudson Valley's account at Chemical was to enable Hudson Valley to obtain from Chemical an immediate extension of credit with which it could satisfy current cash flow needs.

III. ISSUES

1. Was Sunflower a "creditor" of Hudson Valley at the time of the wire-transfer, such that the transfer was "to or for the benefit of a creditor"?

2. Was the wire-transfer from Hudson Valley to Sunflower "for or on account of an antecedent debt"?

3. Was the effect of the wire-transfer "to enable Sunflower to obtain a greater percentage of its debt than some other creditor of the same class"?

4. Did the wire-transfer deplete the bankrupt's estate?

IV. DISCUSSION

1. Was Sunflower a "creditor" of Hudson Valley at the time of the wire-transfer, such that the transfer was "to or for the benefit of a creditor"?

Sunflower contends that it was not a "creditor"¹⁰ at the time of the wire-transfer and therefore could not have received a preference from Hudson Valley. Sunflower reasons that since a check is not an assignment of funds (U.C.C. § 3-409 (McKinney 1964)) and since the provisional credit given by Chemical on Sunflower's check had neither "firmed up" nor become "available for withdrawal as of right,"¹¹ Hudson Valley was not, at the time of the wire-transfer, in possession of Sunflower's funds and was consequently under no obligation to "repay" Sunflower. Additionally, since payment of its check might have been refused upon presentment, either because of a stop-payment order or for insufficient funds, Sunflower believes that this demonstrates that it was not a creditor of Hudson Valley at the time it received the wire-transfer.

The existence of a debtor-creditor relationship prior to the transfer from the bankrupt is critical to the existence of a preference. Mandel v. Scanlon, 426 F.Supp. 519, 522 (W.D.Pa.1977). Sunflower maintains that since a check is merely an order to the drawee to pay a stated amount upon demand, and, since a "transfer" is considered to occur only upon the payment of a check, it could not have been a "creditor" when it received $175,000 from Hudson Valley because such "transfer" had not yet been made. See Fitzpatrick v. Philco Finance Corp., 491 F.2d 1288, 1293 (7th Cir. 1974); Klein v. Tabatchnick, 459 F.Supp. 707 (S.D.N.Y.1978), rev'd on other grounds, 610 F.2d 1043 (2d Cir.1979); Olsen-Frankman Livestock v. Citizens National Bank, 4 B.R. 809 (D.Minn.1980); In re Duffy, 3 B.R. 263, 265, 6 B.C.D. 88, 89 (Bkrtcy.S.D.N.Y. 1980). See also 3 Collier on Bankruptcy ¶ 60.14 at 822 (14th ed. 1977).

Sunflower's allegation that its check was drawn against insufficient funds is immaterial since the check was paid upon presentment. Sunflower did not therefore write a "bad check." For a check to be "bad" under N.Y. Penal Law § 190.05 (McKinney 1975), one who issues or passes it must intend or believe, at the time of issuance or passage, that the drawee will refuse payment upon presentment and in fact payment must be so refused. Sunflower issued and Hudson Valley passed a "good" check since the check was paid. There is no presumption in law that a check when issued has been drawn against sufficient funds. See N.Y. Penal Law § 190.10(1), (2). At best, there is a "common understanding" that checks are so drawn. However,

it would be equally plausible to suggest that many people understand a check to represent that the drawer will have sufficient funds deposited in his account by the time the check clears, or that the drawer will make good the face value of the draft if it is dishonored by the bank.

Williams v. United States, 458 U.S. ___, ___ n. 7, 102 S.Ct. 3088, 3092 n. 7, 73 L.Ed.2d 767, 774 n. 7 (1982).

U.C.C. § 3-413(2) provides simply that the drawer shall make good the payment of the face amount of the check if the drawee refuses payment and any necessary notice of dishonor is given. Sunflower's check was honored.

Sunflower has not contended that the delivery of its check was a gift to Hudson Valley or a payment on account of any obligation previously owing to Hudson Valley by Sunflower. On the contrary, it was agreed that Sunflower would transfer $175,000 to Hudson Valley and that Hudson Valley would transfer $175,000 to Sunflower. In the absence of circumstances indicating otherwise, it is inferred that a person who requests another to transfer...