Source: http://openjurist.org/112/f3d/234
Timestamp: 2013-05-22 22:20:20
Document Index: 453285762

Matched Legal Cases: ['§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547', '§ 547']

112 F3d 234 Tennessee Chemical Company Brown v. Shell Canada Limited | OpenJurist
112 F. 3d 234 - Tennessee Chemical Company Brown v. Shell Canada Limited	Home112 f3d 234 tennessee chemical company brown v. shell canada limited
112 F3d 234 Tennessee Chemical Company Brown v. Shell Canada Limited 112 F.3d 234
30 Bankr.Ct.Dec. 942, Bankr. L. Rep. P 77,368,32 UCC Rep.Serv.2d 881
In re TENNESSEE CHEMICAL COMPANY, Debtor.Scott N. BROWN, Jr., Trustee, Plaintiff-Appellee, Cross-Appellant,v.SHELL CANADA LIMITED, Defendant-Appellant, Cross-Appellee.
Nos. 95-6053, 95-6102.
Argued Aug. 8, 1996.Decided April 23, 1997.Rehearing Denied May 13, 1997.Rehearing and Suggestion for RehearingEn Banc Denied May 27, 1997.
Three issues are presented on appeal: first, whether the bankruptcy court committed clear error by finding that TCC was insolvent during the preference period; second, whether the bankruptcy court erred in finding that payment made by TCC on two debts owed to Shell fell outside the ordinary course of business exception; and, third, whether a transfer by check occurs on the date of honor or the date of receipt for purposes of the new value exception to the trustee's preference avoidance power, 11 U.S.C. § 547(c)(4).
1. Solvency of TCC
By agreement of the parties, the bankruptcy court bifurcated the proceedings below. In the first of two opinions at issue on appeal, the bankruptcy court addressed the question whether TCC was insolvent when it transferred the security interest to Shell in March 1989. In re Tennessee Chem. Co., 143 B.R. 468 (Bankr.E.D.Tenn.1992). The bankruptcy trustee argued that, due to the insolvency of TCC at the time of the transfer, the transfer could be avoided under 11 U.S.C. § 547(b). The bankruptcy court agreed and entered an order finding that TCC was insolvent at the time of the disputed transfer to Shell. 143 B.R. at 480. The district court affirmed that decision on appeal.
On appeal to this court, we independently review decisions of the bankruptcy court. Factual findings are reviewed for clear error, while legal conclusions are subject to de novo review. In re Chavis, 47 F.3d 818, 821 (6th Cir.1995). A bankruptcy court's determination that a debtor was insolvent at the time of a transfer for purposes of § 547(b) is a factual finding that is reviewed for clear error. In re Lamar Haddox Contractor, Inc., 40 F.3d 118, 120 (5th Cir.1994).1
In re Tennessee Chem. Co., 159 B.R. 501, 512 (Bankr.E.D.Tenn.1993). The bankruptcy court applied similar reasoning in determining that the invoice fell outside the ordinary course of business exception. Id. The district court affirmed.
While the resolution of this issue represents a factual determination reviewable for clear error, In re Fulghum Const. Corp., 872 F.2d 739, 742 (6th Cir.1989), we have repeatedly urged bankruptcy courts to consider several factors in reaching a decision on the ordinary course question. In re Yurika Foods Corp., 888 F.2d 42, 45 (6th Cir.1989). These factors include the history of the parties' dealings with each other, timing, amount at issue, and the circumstances of the transaction. Id. Generally, the entire course of dealing is considered. In re White, 64 B.R. 843 (Bankr.E.D.Tenn.1986).
3. Date of Transfer by Check
The Bankruptcy Code includes a provision, commonly known as the "new value" exception, which prevents the bankruptcy trustee from avoiding transfers "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 the debtor." 11 U.S.C. § 547(c)(4). The parties stipulated that "Shell advanced $242,263.94 worth of additional new value to Tennessee Chemical Company during the period from February 7, 1989 through February 12, 1989, for which Shell is entitled to credit if the Court uses the date of delivery rule for purposes of 11 U.S.C. § 547(c)(4)." Whether Shell can obtain payment for this new value it provided to TCC hinges upon whether one considers the transfer by check completed on the date that it was delivered to Shell or on the date that the check was honored by the drawee bank.
The bankruptcy court relied in large part upon Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), in concluding that the transfer occurs on the date of honor. 159 B.R. at 514-15. The district court reversed the bankruptcy court on this issue, noting Barnhill concerned 11 U.S.C. § 547(b) and that the Court observed in a footnote, "Those Courts of Appeals to have considered the issue are unanimous in concluding that a 'date of delivery' rule should apply to check payments for purposes of § 547(c)." Barnhill, 503 U.S. at 402 n. 9, 112 S.Ct. at 1391 n. 9.
Congress identified the primary policy advanced by 11 U.S.C. § 547(b), "[M]ost important, the preference provisions facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor." H.R.Rep. No. 595, 95th Cong., 1st Sess. 177 (1977). The critical period in furthering this policy of equality of asset distribution occurs when an estate's funds are actually depleted. Since distributive equality for creditors is only endangered when the bank accepts a check and an enforceable interest against funds in the debtor's account is created, the time of honor instead of receipt should determine when a transfer occurs under § 547(b). Section 547(c), however, is generally interpreted to further "the goal of enabling debtors to rehabilitate themselves by insulating normal business transactions from the trustee's avoidance powers." Holding that a transfer occurs at the time of receipt encourages creditors to continue dealing with failing businesses because the transferred funds are protected from avoidance by the trustee. Unlike the date of honor, the date of receipt approach promotes § 547(c)'s primary policy of debtor rehabilitation and will therefore be applied in determining the time of transfer.
Mem. Op. at 11-12 (citations omitted). We believe that this reasoning correctly states the policy considerations that underlie § 547(c) and therefore adopt the date of receipt rule with respect to 11 U.S.C. § 547(c)(4) as the law of this circuit.
We recognize, of course, that where the bankruptcy court's fact finding arises from a misunderstanding of the law, it is reviewed for plain error of the law. In re Fulghum Const. Corp., 872 F.2d 739, 742 (6th Cir.1989) (citing Morgan v. K.C. Machine & Tool Co., 816 F.2d 238, 244 (6th Cir.1987))
Under 11 U.S.C. § 547(c)(2),
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