Opinion ID: 479412
Heading Depth: 1
Heading Rank: 3

Heading: Marine's 547(c) Defenses

Text: 39 Marine next argues that, even assuming the bankruptcy court was correct in its valuation of Marine's collateral at the East Washington store, it failed to apply 11 U.S.C. Sec. 547(c)(1) and (4), which, Marine contends, limits its liability for the proceeds from the certificate of deposit. These provisions limit the trustee's avoiding power. Section 547(c)(1) provides: 40 (c) The trustee may not avoid under this section a transfer-- 41 (1) to the extent that such transfer was 42 (A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and 43 (B) in fact a substantially contemporaneous exchange; 44 The theory behind 547(c)(1) and (4) is that, to the extent new value is offered, the preference is repaid to the estate. Marine contends its receipt of the certificate of deposit from Prescott on March 17, 1983 constituted a contemporaneous exchange for new value because at that time Prescott had overdrafts in excess of $40,000. The certificate, Marine argues, was given to pay for the overdrafts. Marine has the burden of proof on all 547(c) defenses. 11 U.S.C. Sec. 547(g). The district court determined that Marine did not meet this burden. We agree. 45 The critical inquiry in determining whether there has been a contemporaneous exchange for new value is whether the parties intended such an exchange. In re Wadsworth Building Components, 711 F.2d 122, 124 (9th Cir.1983); In re Chemical Separations Corp., 38 B.R. 890, 897 (Bankr.E.D.Tenn.1984); 4 Collier on Bankruptcy p 547.37 at 547-124 (Whether the parties at the outset intended the exchange to be contemporaneous is determinative.). On December 15, 1982, Prescott pledged to deliver the certificate of deposit within 60 days as additional security for Marine's loan. When Prescott did not honor this commitment, Marine demanded and received the certificate of deposit. The evidence does not demonstrate that the parties intended this certificate of deposit to reduce what was owed on Prescott's overdrafts at that time, or that they departed from their original intention that the certificate of deposit would act as additional security for Marine's loan. 46 Marine also argues that the transfer of the certificate of deposit is at least partially not avoidable under section 547(c)(4). That section provides: 47 (c) The trustee may not avoid under this section a transfer-- 48 .... 49 (4) 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-- 50 (A) not secured by an otherwise unavoidable security interest; and 51 (B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor; 52 Marine contends that this subsequent advance rule should operate in its favor because of overdrafts incurred after the certificate of deposit transfer. Marine argues that after it received the certificate of deposit it continued to allow overdrafts in Prescott's accounts totaling $17,320.35, and it contends this amount should be deducted from what the court determined was its avoidable preference. The three requirements for a section 547(c)(4) defense were set forth in In re Saco Local Development Corp., 30 B.R. 859 (Bankr.D.Me.1983): 53 Section 547(c)(4) establishes a subsequent advance rule whereby a preferential transfer is insulated from a trustee's avoiding powers to the extent that a creditor extends new value, which is unsecured and remains unpaid, to a debtor after the preferential transfer. 54 Id. at 867 (emphasis in original). See also In re Formed Tubes, Inc., 46 B.R. 645, 646 (Bankr.E.D.Mich.1985); In re Bishop, 17 B.R. 180, 183 (Bankr.N.D.Ga.1982). Again, Marine has the burden of proof in establishing this defense. The district court determined that Marine failed to meet this burden because it never showed that any overdrafts went unpaid. By April 4, 1983, all of the Prescott accounts had positive balances. 55