Matter of Georgia Steel, Inc.

• Decision Date: 21 March 1984
• Docket Number: Adv. No. 83-5010.,Bankruptcy No. 81-50966-Mac
• Citation: 38 BR 829
• Parties: In the Matter of GEORGIA STEEL, INC., d/b/a Eastern Crane & Equipment, d/b/a Plate Services, d/b/a Georgia Structurals, and d/b/a Quickwork, Debtor. J. Coleman TIDWELL, Trustee, Plaintiff, v. ATLANTA GAS LIGHT COMPANY, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

38 B.R. 829 (1984)

In the Matter of GEORGIA STEEL, INC., d/b/a Eastern Crane & Equipment, d/b/a Plate Services, d/b/a Georgia Structurals, and d/b/a Quickwork, Debtor J. Coleman TIDWELL, Trustee, Plaintiff, v. ATLANTA GAS LIGHT COMPANY, Defendant.

Bankruptcy No. 81-50966-Mac, Adv. No. 83-5010.

United States Bankruptcy Court, M.D. Georgia, Macon Division.

March 21, 1984.

COPYRIGHT MATERIAL OMITTED

Duncan A. Roush, Kilpatrick & Cody, Atlanta, Ga., for trustee.

Mary Mendel Katz, Harris, Watkins, Davis & Chambless, Macon, Ga., for Atlanta Gas Light Co.

Ward Stone, Jr., Kaplan, Thomason & Stone, P.A., Macon, Ga., for debtor.

Ed S. Sell, III, Sell & Melton, Macon, Ga., for The Citizens & Southern Nat. Bank.

Lillian H. Lockary, Asst. U.S. Atty., Macon, Ga., for I.R.S.

MEMORANDUM OPINION ON COMPLAINT TO AVOID PREFERENTIAL TRANSFERS

ROBERT F. HERSHNER, Jr., Bankruptcy Judge.

STATEMENT OF THE CASE

On September 3, 1981, Georgia Steel, Inc., d/b/a Eastern Crane & Equipment, d/b/a Plate Services, d/b/a Georgia Structurals, and d/b/a Quickwork, Debtor, filed with this Court its petition under Chapter 11 of the United States Bankruptcy Code. On September 14, 1982, Atlanta Gas Light Company filed an application in Debtor's Chapter 11 case for the payment of an administrative expense in the amount of $12,823.82. Debtor objected to the application on the ground that Atlanta Gas had received certain preferential transfers from Debtor. By order dated October 26, 1982, the Court allowed Atlanta Gas' claim for an administrative expense in its entirety, but reserved ruling on disbursement of the administrative expense until ruling upon the alleged preferential transfers.

On October 29, 1982, Debtor's Chapter 11 case was converted by the Court to Chapter 7 of the United States Bankruptcy Code, and J. Coleman Tidwell was appointed trustee (hereinafter Trustee). Before the Court is the "Complaint to Avoid Preferential Transfers" filed by the Trustee on January 10, 1983. The complaint alleges that Atlanta Gas received preferential transfers in the total amount of $6,624.75, which transfers are avoidable under the provisions of 11 U.S.C.A. § 547 (West 1979). The complaint came on for trial, and the Court, having considered the evidence presented at trial and the briefs of counsel, now publishes its findings of fact and conclusions of law.

FINDINGS OF FACT

Debtor maintained three separate accounts with Atlanta Gas. Account number XXXXX-XXXX-X-X was maintained for Debtor's "plate division" (hereinafter plate division account). Account number XXXXX-XXXX-X-X was maintained for Debtor's "administrative division" (hereinafter administrative division account), and account number XXXXX-XXXX-X-X was maintained for Debtor's "crane division" (hereinafter crane division account).

On June 4, 1981, Debtor drew a check made payable to Atlanta Gas in the amount of $3,000.00. The check specified that $386.10 was for the crane division account, and that $2,613.90 was for the administrative division account. On June 5, 1981, Atlanta Gas credited Debtor's accounts in accordance with Debtor's instructions. The check was paid by Debtor's bank on June 9, 1981.

On July 7, 1981, Debtor drew a check made payable to Atlanta Gas in the amount of $1,000.00. The check specified that $369.66 was for Debtor's plate division account and $630.34 was for Debtor's administrative division account. The accounts were credited, as Debtor instructed, on July 8, 1981, and the check was paid by Debtor's bank on July 9, 1981.

On August 14, 1981, Debtor drew a check payable to Atlanta Gas in the amount of $2,624.75 and delivered the check to Atlanta Gas, specifying that the entire amount was for the administrative division account. The entire payment was credited to the administrative division account on August 17, 1981, and the check was paid by Debtor's bank on either August 18 or August 19, 1981.

It is the total of these three checks, $6,624.75, that the Trustee seeks to recover as preferential transfers.

Debtor's transactions with Atlanta Gas that are relevant to this adversary proceeding are set forth in Appendix A to this opinion.

CONCLUSIONS OF LAW

The Trustee asserts that the payments by Debtor to Atlanta Gas are preferential transfers within the meaning of section 547(b) of the Bankruptcy Code and, as such, are subject to the avoidance power of the Trustee. Section 547(b) provides:

(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made—

(A) on or within 90 days before the date of the filing of the petition; or

(B) between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer—

(i) was an insider; and

(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

11 U.S.C.A. § 547(b) (West 1979).

The parties do not dispute that the July and August payments satisfy all of the requirements of section 547(b) and therefore are preferential transfers within the meaning of that section. Atlanta Gas, however, contends that the check dated June 4, 1981, does not fall within the ninety-day preference period of section 547(b)(4). It is stipulated that the June check satisfies all other requirements of a preference under section 547(b).

Debtor's Chapter 11 case was filed on September 3, 1981, and the ninety-day preference period thus starts on June 5, 1981. Atlanta Gas argues that the June 4, 1981, check was written and delivered to Atlanta Gas on June 4, 1981, and that June 4, 1981, is the controlling date for purposes of section 547(b)(4). The Trustee asserts that the day the check was paid by the drawee bank should control.

The majority of courts faced with the situation where, as in this case, the check was delivered outside the preference period, and subsequently honored during the preference period, have concluded that it is the date that the drawee bank honors the check which determines when the transfer was made for purposes of section 547(b)(4). See, e.g., Artesani v. Travco Plastics Co. (In re Super Market Distributors Corp.), 25 B.R. 63, 9 Bankr.Ct. Dec. 1155 (Bkrtcy. D.Mass.1982); Itule v. Luhr Jensen & Sons, Inc. (In re Sportsco, Inc.), 12 B.R. 34, 7 Bankr.Ct. Dec. 1025 (Bkrtcy.D.Ariz. 1981). See also Nicholson v. First Investment Co., 705 F.2d 410 (11th Cir.1983) (under the Bankruptcy Act, a preference occurs when a check is honored by the drawee bank, not when it is delivered); Harris v. Harbin Lumber Co. (In re Ellison), 31 B.R. 545 (Bkrtcy.M.D.Ga.1983).

This majority view is based upon section 547(e) of the Bankruptcy Code and section 3-409(1) of the Uniform Commercial Code.¹ 11 U.S.C.A. § 547(e)(1)(B) (West 1979) provides: "A transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." O.C.G.A. § 11-3-409(1) (Michie 1982) provides: "A check or other draft does not of itself operate as an assignment of any funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until he accepts it." Since funds in the drawee bank could be garnished by a contract creditor prior to the honoring of the check, a transfer under section 547(e)(1)(B) does not occur until the check is honored by the drawee bank. See Nicholson, 705 F.2d at 413; In re Super Market Distributors Corp., 25 B.R. at 64-65, 9 Bankr.Ct. Dec. at 1156; In re Duffy, 3 B.R. 263, 265, 6 Bankr.Ct. Dec. 88, 89, 1 Collier Bankr.Cas.2d 641, 643 (Bkrtcy.S.D. N.Y.1980). Moreover, the date that the check was honored should control in determining whether there was a preferential transfer because that is when the debtor's estate is depleted. Nicholson, 705 F.2d at 413. See also Gilbert v. First National Bank, 633 F.2d 686 (5th Cir.1980), cert. denied, 454 U.S. 825, 102 S.Ct. 114, 70 L.Ed.2d 99 (1981); 4 Collier on Bankruptcy ¶ 547.21 (15th ed. 1983).

Atlanta Gas cites to the Court the case of Shamrock Golf Co. v. Richcraft, Inc., 680 F.2d 645 (9th Cir.1982), in which it was held that a preferential transfer under the former Bankruptcy Act² is determined as of the date the check is delivered to the transferee. In Shamrock, the court relied on the legislative history of section 547 of the Bankruptcy Code, which provides: "Contrary to language contained in the House report, payment of a debt by means of a check is equivalent to a cash payment, unless the check is dishonored. Payment is considered to be made when the check is delivered for purposes of sections 547(c)(1) and (2)." 124 Cong.Rec. H11,097 (Sept. 28, 1978), reprinted in 1978 U.S.Code Cong. & Admin.News, 5787, 6436, 6457 (remarks of Rep. Don Edwards). The Shamrock court noted that this legislative history addresses the contemporaneous exchange and ordinary course of business exceptions found in subsections (c)(1) and (c)(2) of section 547, but concluded there was no reason why the same reasoning should not be determinative of whether a transfer occurred within the four-month preference period of the Bankruptcy Act. For the reasons previously and hereinafter stated, this Court declines to follow Shamrock.

The legislative history of section 547 further states:

The first exception is for a transfer that was intended by all parties to be a contemporaneous exchange for new value, and was in fact substantially contemporaneous. Normally, a check is a

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