In re Ramy Seed Co.
Decision Date | 16 August 1985 |
Docket Number | Bankruptcy No. 3-82-1023,Adv. No. 3-84-0190. |
Citation | 57 BR 425 |
Parties | In re RAMY SEED COMPANY, Debtor. RAMY SEED COMPANY and Committee of Unsecured Creditors of Ramy Seed, Plaintiffs, v. HABSTRITT FARMS, INC., Defendant. |
Court | U.S. Bankruptcy Court — District of Minnesota |
Stephen F. Grinnell, Minneapolis, Minn., for plaintiffs.
T. Chris Stewart, Warroad, Minn., for defendant.
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT
The above-captioned matter came on before the undersigned United States Bankruptcy Judge on April 25, 1985, at St. Paul, Minnesota, upon cross-motions for summary judgment. Plaintiffs appeared by Stephen F. Grinnell, attorney for the Unsecured Creditors Committee. Defendant appeared by its attorney, T. Chris Stewart. Upon the motions and their supporting documents, the arguments of counsel, and all of the other files and records herein, the Court makes the following Findings of Fact, Conclusions of Law, and Order for Judgment.
1. That Debtor is a Minnesota corporation which did business as a wholesaler, distributor and broker of agricultural seed products at Mankato, Minnesota. Debtor filed its Petition under Chapter 11 of the Bankruptcy Code in this Court on June 1, 1982. Its Committee of Unsecured Creditors was appointed by the office of the United States Trustee on June 10, 1982. Pursuant to Debtor's Plan of Reorganization, as confirmed by this Court on November 22, 1983, Debtor assigned the right to avoid all pre-petition preferential or fraudulent transfers to its Committee of Unsecured Creditors.
2. That Defendant Habstritt Farms, Inc. (hereinafter "Defendant") is a producer of agricultural seed products with its principal place of business in Roseau County, Minnesota.
3. That, prior to December 23, 1981, Debtor, acting as a broker, received an order from Peterson Seed Company of Savage, Minnesota, for 800 fifty-pound bags of grass seed (hereinafter "the seed").
4. On December 23, 1981, Debtor ordered the seed from Defendant at an agreed rate of $23.50 per bag. Under the terms of the order, Debtor instructed Defendant to ship the seed directly to Peterson Seed Company.
5. That Defendant shipped the seed directly to Peterson Seed Company on or about December 23, 1981.
6. That Debtor's purchase statement dated December 23, 1981, shows that on that date Debtor debited its purchases account for $18,800.00 and credited its accounts payable account for $18,800.00 as a result of the Peterson-Habstritt transaction.
7. That Debtor issued its check number 10985 on February 26, 1982, in the amount of $18,800.00 to Defendant. This check was issued on Debtor's regular business account at National Bank of Commerce, Mankato, Minnesota. This check was issued in full payment of Debtor's obligation to Defendant arising out of the Peterson seed order of December 23, 1981.
8. That Defendant deposited Debtor's check at Defendant's bank on March 3, 1982.
9. That Debtor's check was paid by Debtor's bank on March 5, 1982.
10. That, under the brokering arrangement and the terms of Peterson Seed Company's Order of December 23, 1981, Debtor, Peterson Seed Company, and Defendant created a relationship in which Peterson Seed Company became obligated to Debtor for its purchase price for the seed and Debtor became obligated to Defendant for the sum of $18,800.00.
Plaintiffs' cause of action against Defendant is premised upon 11 U.S.C. § 547.1 The language of that statute applicable to this case is as follows:
The party seeking to avoid a preferential transfer under this section must prove the existence of all five of the listed elements, though he may initially rely upon the presumption of insolvency under § 547(f) to establish the third element. 4 COLLIER ON BANKRUPTCY, ¶ 547.52, at 547-178 (1985).
11 U.S.C. § 547(c) creates several exceptions limiting the trustee's power to avoid a transfer which is otherwise preferential under the definition of § 547(b). Those portions of § 547(c) which are relevant to this case are as follows:
Defendant's Answer and Cross-Motion for Summary Judgment raise three defenses to Plaintiffs' cause of action, which may be summarized as follows:
Defendant does not dispute the existence of several of the elements of a preferential transfer under § 547(b). At least from argument, there is no dispute that the transfer, if any, was made to or for the benefit of a creditor of Debtor, for or on account of an antecedent debt.2 Further, Defendant does not dispute that Debtor was insolvent at all relevant times; nor does it dispute that this sequence of events enabled it to receive more than it would have received in a hypothetical distribution to creditors under a Chapter 7 liquidation.
Counsel for both parties submitted well-written and carefully reasoned memoranda of law. The Court concludes, however, that Defendant's positions are not supported by law and that summary judgment must be granted in favor of Plaintiffs.
On Defendant's first defense, the Court concludes that the delivery and negotiation of Debtor's check was a transfer of Debtor's property. Debtor did not segregate any funds received by it from Peterson Seed Company in a separate account or, apparently, by any bookkeeping method other than the debiting and crediting of general "purchases" and "accounts payable" accounts. The funds paid to Defendant came from a general account maintained by Debtor in the ordinary course of its business activity, in which it pooled its receipts. There is no evidence of any agreement among the parties that Debtor was to handle the funds involved in any manner other than that which it actually used. All of the evidence compels the conclusion that Debtor, with the consent of all parties, commingled funds it received from Peterson Seed with its own general funds, and became generally liable to Defendant on the transaction. Defendant apparently does not deny that Debtor would have been liable at law to Defendant had Debtor not paid Defendant for the seed as agreed. The fact that Debtor never took ownership of the seed is, indeed, irrelevant.
In its second defense, Defendant argues that, even if a transfer of Debtor's property took place, the transfer did not occur within the ninety days immediately prior to the filing of Debtor's Petition as required under § 547(b)(4)(A). The parties do not dispute that Debtor issued its check on February 26, 1982; that Defendant deposited Debtor's check at its bank on March 3, 1982; and that Debtor's bank paid the check on March 5, 1982. The significant question on this defense is a legal one: When did the transfer of Debtor's funds take place? Defendant argues that, as a matter of law, the transfer of Debtor's funds took place upon Debtor's issuance of the check, or at the latest upon Defendant's receipt and physical acceptance of the check. The question of when a transfer of a Debtor's funds takes place for preference purposes is a federal question, which the federal courts are to decide by reference to state law. McKenzie v. Irving Trust Co., 323 U.S. 365, 65 S.Ct. 405, 89 L.Ed. 305 (1945); Olsen-Frankman Livestock Marketing Serv., Inc. v. Citizens National Bank, 4 B.R. 809, 812-13 (D.Minn.1980). 11 U.S.C. § 101(41) defines "transfer" as:
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