In re Mindy's, Inc., Bankruptcy No. 2-80-01385
| Decision Date | 11 January 1982 |
| Docket Number | Adv. No. 2-81-0308.,Bankruptcy No. 2-80-01385 |
| Citation | 17 BR 177 |
| Parties | In re MINDY'S, INC., Debtor. Daniel F. CARMACK, Trustee, Plaintiff, v. Samuel ZELL, Trustee, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Daniel F. Carmack, Columbus, Ohio, for plaintiff.
Lee C. Mittman, Columbus, Ohio, for debtor.
Thomas J. Bonasera, Columbus, Ohio, Albert E. Fowerbaugh, Cleveland, Ohio, for defendants.
Daniel F. Carmack (hereinafter "Trustee"), trustee in bankruptcy for the estate of Mindy's, Inc., has filed this action under the provisions of § 547 of the Bankruptcy Code (11 U.S.C. § 547), alleging that certain pre-petition payments received from the debtor by the defendants, Samuel Zell, Trustee ("Zell") and Equity Financial and Management Company ("Equity"), were preferential and thus recoverable by a trustee in bankruptcy. The Court makes the following findings.
Mindy's, Inc. was a clothing retailer operating at several locations. In each location relevant to this matter, Mindy's was a lessee on a long-term lease obligation originally incurred in 1976. The locations in question were retail outlets located at the Mentor Mall (Mentor, Ohio), the Westerville Mall (Westerville, Ohio), and the Canton-Gold Circle Mall (Canton, Ohio). Mindy's transferred money to the defendants, Zell and Equity, within ninety (90) days of the April 25, 1980, filing of an involuntary petition against Mindy's under Chapter 7 of Title 11 of the United States Code, in the following amounts and with other relevant facts noted:
Date
Rent Obligation Date
Date For First Sales
Amount of Date of Check Month Accrued Statement
Check Check Paid Of Under Lease Due
_________ _______ ______ _____ ___________ __________
Ex. #1 $ 755.96 2-5-80 2-25-80 Jan. 1-1-80 2-10-80
Ex. #2 1,518.10 1-7-80 2-1-80 Dec. 12-1-79 1-10-80
Ex. #3 1,469.41 2-5-80 2-20-80 Jan. 1-1-80 2-10-80
Ex. #4 1,469.41 3-18-80 3-25-80 Feb. 2-1-80 3-10-80
Ex. #5 992.82 2-5-80 2-20-80 Feb. 2-1-80 3-10-80
There is no dispute in the present case that four of the five elements of a preferential transfer exist. The defendants admit that there was a transfer of debtor funds within ninety (90) days of the petition in bankruptcy to or for their benefit, while the debtor was insolvent, which has enabled the defendants to obtain a greater percentage of their obligation than they would have received had the payments not been made and this case liquidated under the provisions of Chapter 7 of the Bankruptcy Code. The disputed issue is whether or not the payments made by the debtor were on an antecedent debt and whether the 45 day "ordinary course of business" exception should apply to bar the trustee's recovery.
The trustee argues that the lease obligations, which were originally incurred in 1976 when the leases were signed, create an antecedent debt from that time forward, and any subsequent payments made on the leases were payments on an antecedent debt. The defendants, however, argue that the rent obligation matures only on a monthly basis during the course of the leases, and thus payments on current monthly rent are not on account of antecedent debt, but rather are payments on current debts for contemporaneous consideration, namely, the continuation of the leasehold estate. The defendants further argue that the exception to the preference recovery statute contained in § 547(c)(2) applies in that the payments made by Mindy's to them were made in the ordinary course of business within forty-five (45) days after such debts were incurred and were made in accordance with ordinary business terms.
There was some disagreement as to whether or not the dates on the various checks would be deemed the date of transfer of the funds, or whether or not the date upon which such checks were paid by the debtor's bank would be deemed the time of transfer. The Court hereby finds that under the provisions of § 547(e)(1)(B) of the Bankruptcy Code, the time of transfer is deemed to be the time of the payment of the check, and thus, for purposes of this case, the date the check was paid will be deemed to be the date upon which a transfer of the debtor's property was made.
The Court declines to follow the rationale advanced by the trustee that the debt was incurred at the time of the original signing of the lease obligations. The total lease obligation, at that point in time, was not due and payable—it was only due and payable as the lease term progressed and as the lessee occupied the premises subject to the leasehold in accordance with the terms of the lease. Contrary to the suggestion of the trustee, this situation is not analogous to payments on a long-term unsecured note obligation. An unexpired lease on real estate is treated as an executory contract under the Bankruptcy Code (11 U.S.C. § 365), a recognition of the principle that such lease involves an exchange of rights and obligations by the parties to the lease throughout its term. The concept of adequate...
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