Matter of Duffy, Bankruptcy No. 79 B 20022
| Decision Date | 21 March 1980 |
| Docket Number | 80 Adv. 2001.,Bankruptcy No. 79 B 20022 |
| Citation | 3 BR 263 |
| Parties | In the Matter of Peter L. DUFFY, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Sidney Turner, Mount Kisco, N.Y., for Trustee.
Herbert Epstein, Franklin Square, N.Y., for Avis.
DECISION ON COMPLAINT OF THE TRUSTEE TO RECOVER THE SUM OF $400 FROM AVIS RENT A CAR SYSTEM, INC.
The trustee in bankruptcy has invoked the voidable preference provisions under the Bankruptcy Reform Act of 1978, 11 U.S.C. § 547(b) to set aside and recover from Avis Rent A Car System, Inc. ("Avis") a $400 payment made by the bankrupt, as a lessee of an Avis vehicle, pursuant to a postdated check delivered by the debtor more than 90 days before the filing of the petition for relief, but which was cashed within the 90-day period.
In its answer to the trustee's complaint in this adversary proceeding Avis denies the preferential payment and affirmatively alleges that the payment was made more than 90 days before the filing of the petition. Avis also contends that the payment was made by the debtor for new value and was a substantially contemporaneous exchange within the meaning of this exception under Code § 547(c)(1).
For venue purposes under 28 U.S.C. § 1473, this is a proceeding arising in or related to a case under title 11 U.S.C. to recover a money judgment of or property worth less than $1,000, namely $400, and may be commenced only in the Bankruptcy Court for the district in which the defendant resides. There having been no objections, venue in this district is deemed to be appropriate. Accordingly, this court has jurisdiction of the subject matter and the parties in this case.
The undisputed facts established at the trial are as follows:
FINDINGS OF FACT
1. The debtor filed his voluntary petition for relief under Chapter 7 of the Bankruptcy Reform Act of 1978 on November 2, 1979. The commencement of this case for relief constituted an order for relief under Chapter 7, as prescribed under 11 U.S.C. § 301.
2. Prior to such petition the debtor had been a lessee of an automobile from Avis on a long term basis at a monthly rental charge of $209.27 per month, including tax, pursuant to a written lease dated January 24, 1979. There is no proof that the debtor ever made any payments under this lease other than the $400 payment in question.
3. Apparently some time in July, 1979, the debtor had a conversation with one Howard Krebs, an Avis representative, with regard to the debtor's arrears in rental payments, which resulted in the debtor's forwarding to Avis a $400 check postdated to August 3, 1979, enclosed in a letter dated July 30, 1979 (Exhibit "A").
4. This letter reads as follows:
5. The check cleared and was honored by the drawee bank on August 6, 1979, which was 88 days before the debtor filed his petition for relief (Exhibit "1").
6. There is no evidence that Avis ever declared that the debtor was in default under its rental agreement with the debtor or that it ever requested the debtor to surrender possession of the leased vehicle.
7. The $400 payment by the debtor to Avis was on account of an antecedent debt owed by the debtor before such payment was made.
8. Avis presented no evidence to rebut the presumption of the debtor's insolvency for the 90 days preceding the filing of the petition for relief, as prescribed under 11 U.S.C. § 547(b)(4).
9. The $400 payment to Avis enabled Avis to receive more than it would receive if the payment had not been made and Avis received payment of its debt by way of distribution in this case, as specified in 11 U.S.C. § 547(b)(5).
From the foregoing facts, this court must first determine whether or not the $400 payment by the debtor to Avis accrued within the proscribed 90-day period so as to trigger the voidable preference provisions under 11 U.S.C. § 547(b). If the 90-day requirement has been met, reference must then be made to the exception to the trustee's avoiding power referred to by Avis in its answer, namely, a substantially contemporaneous exchange for a new value given to the debtor, as delineated under 11 U.S.C. § 547(c)(1).
That a payment of a debt by check is a transfer of property is manifestly expressed in the broad definition of "transfer" under the Bankruptcy Code, 11 U.S.C. § 101(40). It is clear that payment of the debt did not occur when the debtor delivered the postdated check to Avis. A check itself does not vest in the payee any title to or interest in the funds held by the drawee bank. See U.C.C. § 3-409. The check is simply an order to the drawee bank to pay the sum stated and does not constitute a transfer and delivery of the fund until it is paid. The date of payment, and not the date of delivery is crucial in determining when the preferential transfer occurred. Klein v. Tabatchnick, 610 F.2d 1043 2d Cir. 1979; In re Lyon, 121 F. 723 2d Cir. 1903. The Second Circuit Court of Appeals, in In re Lyon, stated at page 726:
". . . the mere giving of the postdated checks was not payment, certainly not such as would constitute a transfer of property, within the language of section 60a, 30 Stat. 562."
Avis argues that once the check is paid, payment should revert to the date the check was delivered, citing Flint v. United States, 237 F.Supp. 551 D.C.Idaho 1964 and Clark v. Commissioner of Internal Revenue, 253 F.2d 745 3rd Cir. 1958. These tax cases are inapposite since they address the issue of when a cash basis taxpayer is entitled to deduct a business expense. For income tax purposes, the delivery of a check is treated in the same manner as a cash payment. The concept of the timing of a transfer of property within the framework of the preference provisions requires a different focus.
"CONTEMPORANEOUS...
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