Matter of Planes, Inc., Bankruptcy No. 83-01037A

• Decision Date: 05 May 1983
• Docket Number: Adv. No. 83-1070A.,Bankruptcy No. 83-01037A
• Citation: 29 BR 370
• Parties: In the Matter of PLANES, INC., Debtor. PLANES, INC., Plaintiff, v. FAIRCHILD AIRCRAFT CORPORATION, f/k/a Fairchild Swearingen Corporation and Landmark First National Bank of Ft. Lauderdale, Florida, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

29 B.R. 370 (1983)

In the Matter of PLANES, INC., Debtor PLANES, INC., Plaintiff, v. FAIRCHILD AIRCRAFT CORPORATION, f/k/a Fairchild Swearingen Corporation and Landmark First National Bank of Ft. Lauderdale, Florida, Defendants.

Bankruptcy No. 83-01037A, Adv. No. 83-1070A.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

May 5, 1983.

William F. Welch, John T. Ruff, Neely & Player, Atlanta, Ga., for Planes, Inc.

Paul H. Anderson, Jr., Mitchell, Clarke, Pate, Anderson & Wimberly, Atlanta, Ga., John D. Briggs, Howrey & Simon, Washington, D.C., for Fairchild Aircraft Corp.

Karen F. White, Zusmann, Small & Stamps, Atlanta, Ga., for Landmark First Nat. Bank of Ft. Lauderdale, Fla.

MEMORANDUM OF OPINION AND ORDER

A. DAVID KAHN, Bankruptcy Judge.

The Debtor filed the above-styled adversary complaint seeking to enjoin Defendant Fairchild from drawing down on a letter of credit in the amount of $500,000 issued by Defendant Landmark First National Bank of Ft. Lauderdale (hereinafter Landmark). Although named as a defendant, the Debtor seeks no relief against Landmark. A hearing was held on May 4, 1983. All parties were represented by counsel except Landmark. After considering arguments of counsel and legal authority cited to the Court, the Court declines to enter the injunctive relief sought by the Debtor.

The Debtor relies upon the case of In re Twist Cap, Inc., 1 B.R. 284 (Bkrtcy.D.Fla. 1979), in which the Court held that the automatic stay was applicable to letters of credit. In that case, Judge Paskay entered a temporary restraining order to preserve the status quo so that the rights of the parties could be determined. The Court reasoned, in part, that to permit the beneficiary to draw down on a letter of credit would be tantamount to an impermissible preference and would be "counterproductive to the debtor's efforts to obtain rehabilitation." Id. at 285. For the reasons stated below, this Court declines to follow the rationale of Twist Cap.

An issuing bank honors a letter of credit and pays the beneficiary with its own funds; property of the estate is not involved. In re M.J. Sales & Distributing Co., Inc., 25 B.R. 608, 614 (Bkrtcy.S.D.N.Y.1982). The automatic stay under 11 U.S.C. § 362 is not violated since no new liens are created when the letter of credit is drawn upon. Landmark's lien against the Debtor's property was created at the time the letter of credit was issued. See In re Page, 18 B.R. 713, 716 (D.C.D.C.1982).

The Debtor argues that if Fairchild is permitted to draw down on the letter of credit,...