Matter of Isis Foods, Inc., 84-0101-CV-W-1.
| Citation | 39 BR 645 |
| Decision Date | 30 March 1984 |
| Docket Number | No. 84-0101-CV-W-1.,84-0101-CV-W-1. |
| Parties | In the Matter of ISIS FOODS, INC., Bankrupt. VALLEY CANDLE MFG. CO., INC., Appellant, v. John R. STONITSCH, Appellee. |
| Court | U.S. District Court — Western District of Missouri |
Russell S. Jones, Kansas City, Mo., for appellant.
Jonathan A. Margolies, Kansas City, Mo., for appellee.
This bankruptcy appeal presents questions regarding the bankruptcy court's construction and application of section 547(c) of the Bankruptcy Code to the undisputed factual circumstances involved in Counts V, VI, and VII of an adversary proceeding initiated by the appellee Trustee in Bankruptcy against the appellant Valley Candle Mfg. Co.
The appellee alleged in Count V of his complaint that the debtor, within 90 days prior to the filing of bankruptcy, while insolvent, made a $571.83 payment to appellant by Check No. 57312 dated November 25, 1981 and that said transfer constituted a preference and was voidable under section 547 of the Bankruptcy Code. Count VI made similar allegations in regard to a $3,301.04 payment by Check No. 57163 dated November 19, 1981. Count VII made similar allegations in regard to a payment of $2,150.00 by check No. 57033 dated November 16, 1981. The parties agree that all of the checks involved in Counts V, VI, and VII cleared for payment prior to the filing of bankruptcy.
Count VIII, however, was based on a different theory. That count, involving check No. 6497 in the amount of $3,530.25 dated December 8, 1981, admittedly cleared after the filing of debtor's petition in bankruptcy on January 22, 1982 and was accordingly subject to being adjudged a voidable preference under section 549 of the Bankruptcy Code. Appellant agreed in both the bankruptcy court and in this Court that the post-petition payment involved in Count VIII should properly be adjudged a preference under section 549.
Appellant's answer to appellee's complaint pleaded a separate affirmative defense under section 547(c)(4) to appellee's Counts V, VI, and VII, alleging respectively in regard to each count, that after receipt of the $571.83 payment involved in Count V; that after the receipt of the $3,301.04 payment involved in Count VI; and that after the receipt of the $2,150.00 payment involved in Count VII, the appellant shipped new goods to the debtor and that under section 547(c)(4), the appellee could not avoid any of the transfers involved in Counts V, VI, and VII.
Appellant proposed, and the bankruptcy court adopted as its own finding of fact, the following:
After check No. 57033 in the sum of $2,150.00 was received by Valley Candle on November 23, 1983, invoice 282300 dated 12/08/81 in the amount of $3,530.25 was sent to the debtor. After check No. 57163 in the sum of $3,301.04 was received by Valley Candle on December 1, 1981, invoice 284589 dated 12/10/81 in the amount of $1,549.75 was sent to the debtor. After check No. 57312 in the sum of $571.83 was received by Valley Candle on January 5, 1982, invoice 287909 dated 1/14/82 in the amount of $1,797.90 was sent to the debtor.
While the above findings of fact accurately stated that particular shipments were made after particular checks were received by the appellant, those findings of fact did not reflect the highly relevant and precise sequence of the dates on which the checks were received and the dates on which particular shipments were made. Accordingly, we set forth in Table A the sequence of the dates of the checks received and the dates the shipments were made.
Table A
Date Alleged Preference New Value Shipment
(11 U.S.C. § 547(b)) (11 U.S.C. § 547(c)(4))
(1) 11/23/81 $2,150.00 check received (Count
VII of complaint)
(2) 12/1/81 $3,301.04 check received (Count
VI of complaint)
(3) 12/08/81 $3,530.25 shipment per Invoice
No. 282300
(4) 12/10/81 $1,549.75 shipment per Invoice
No. 284589
(5) 1/5/82 $571.83 check received (Count
V of complaint)
(6) 1/14/82 $1,797.90 shipment per Invoice
No. 287909
(7) 1/22/82 Bankruptcy petition filed
(8) 1/27/82 $3,530.25 check paid (Count VIII of complaint)
Conceded by appellant to be a preference under
section 549 of Bankruptcy Code
Although the appellee's claims under Counts V, VI, and VII were based on section 547(b) and appellee's claim under Count VIII was based on section 549, the bankruptcy court lumped all of the claims together and proceeded on the theory that "the total amount of payments by debtor to Valley Candle which the trustee seeks to recover is $9,553.12." In its construction and application of section 547(c)(4), the bankruptcy court noted that the appellant "has been paid for all but the last two invoices referring to the (4) 12/10/81 invoice of $1,549.75 and the (6) 1/14/82 invoice of $1,797.90 in the above table which total $3,347.65." The bankruptcy court, without the citation of any legal authority, concluded that "It thus appears that $3,347.65 is the correct amount to set off against the $9,553.12 sought by the plaintiff as claimed in all four counts of the complaint".
The bankruptcy court accordingly adjudged that appellee recover $6,205.47 from appellant, a figure it arrived at by subtracting the total of the "unpaid invoices" from the total of all four of appellee's claims as alleged in Counts V, VI, VII and VIII of the complaint.
The parties are in agreement in regard to the questions presented on appeal. Appellant contends that: "The court below has made an erroneous conclusion of law as to the application of Section 547(c)(4) to its findings of fact"; that "the determination that that section applied only to unpaid invoices to set off against the preferential payments under Section 547(b) is not the proper interpretation of the law"; and that "the proper application of Section 547(c)(4) to the facts of Counts V, VI, and VII would allow the appellant to retain all the payments in these counts made by the debtor during the 90 days preceding the filing of the debtor's petition." Appellee, on the other hand, contends that "The bankruptcy court correctly concluded that only the unpaid invoices could constitute `new value' under 11 U.S.C. § 547(c)(4)."
As above noted, the parties agree that appellee is entitled to judgment on Count VIII, involving Check No. 6497 in the amount of $3,530.25, which cleared on January 27, 1982, a date after the filing of bankruptcy. It should be further noted that neither party contends that the bankruptcy court's findings of fact were clearly erroneous.
The judgment of the bankruptcy court will be reversed and appropriate orders will be entered sustaining appellant's separate section 547(c)(4) defenses to Counts V, VI, and VII. A further order will be entered in favor of appellee in regard to the uncontested section 549 claim alleged in Count VIII for the reasons we now state.
The files and records in the bankruptcy court show that on November 3, 1983, the bankruptcy judge entered an order requiring the parties to show cause why attached "findings of fact, conclusions of law and final judgment for plaintiff in the sum of $6,205.47 plus interest at the legal rate from January 14, 1982" should not be entered. Appellee filed no response to the order to show cause, thus indicating that he had no objection to the bankruptcy court's tentative findings of fact and tentative conclusions of law. Appellant did not complain about any of the bankruptcy court's findings of fact. As will be noted in detail, however, appellant stated its objections to the conclusions of law tentatively stated by the bankruptcy court.
In its tentative conclusions of law, the bankruptcy court quoted the portion of section 547(c)(4) of the Bankruptcy Code which provides that "The Trustee may not avoid under this section a transfer . . . to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of a debtor (A) not secured by an otherwise unavoidable security interest; and (B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor." The bankruptcy court then properly stated that "
The bankruptcy court, however, added the following, which, as a practical matter, ruled the case:
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