Opinion ID: 542394
Heading Depth: 2
Heading Rank: 2

Heading: The Voidable Preference Issue

Text: 14 As noted above in Part I, the bankruptcy court found that the Creditor Trustee had established the statutory elements under section 547(b) as to the two loan payments which the Creditor Trustee contends are voidable. See Bkr.Ct.Op. at 4, 10-11. This finding was affirmed by the district court. See Dist.Ct.Op. at 12-13 & n. 8. ABC argues, however, that Chase & Sanborn's loan payments were not for or on account of an antecedent debt under section 547(b)(2) because Chase & Sanborn's guarantee obligation to ABC was contingent upon Duque's default and had not matured at the time the payments were made. 14 This contention is frivolous. It is established that debt is to be given a broad and expansive reading for purposes of the Bankruptcy Code, and that when a creditor has a claim against a debtor--even if the claim is unliquidated, unfixed, or contingent --the debtor has incurred a debt to the creditor. In re Energy Cooperative, Inc., 832 F.2d 997, 1001 (7th Cir.1987) (emphasis added). Chase & Sanborn's payments on Duque's loan were obviously made in anticipatory satisfaction of its contingent obligation to ABC under the guarantee agreement; that the payments were clearly intended to help prevent Duque from defaulting and thereby forestall maturation of the guarantee obligation does not render them any less for or on account of that debt. 15 The bankruptcy court found that Chase & Sanborn's payments on Duque's loan obligation were nevertheless not voidable under 11 U.S.C.A. Sec. 547(c)(1), because Chase & Sanborn received contemporaneous new value in exchange for the payments, in the form of partial satisfaction of Chase & Sanborn's guarantee obligation. 15 The bankruptcy court held, without discussion or analysis, that [n]ew value includes credit toward an outstanding and nonavoidable account. Bkr.Ct.Op. at 4 (citing 11 U.S.C.A. Sec. 547(a)(2)). This holding is erroneous as a matter of law, and suggests a fundamental misconception of the nature and purpose of the Bankruptcy Code's prohibition on preferential pre-petition transfers. New value is defined as 16 money or money's worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation[.] 17 11 U.S.C.A. Sec. 547(a)(2) (West Supp.1990). Credit toward an outstanding and nonavoidable account does not fall within this definition. That a payment be for or on account of an antecedent debt is one of the necessary elements for voidability of a transfer under section 547. See 11 U.S.C.A. Sec. 547(b)(2). If new value included credit toward such debts, thus rendering such transfers categorically nonavoidable, section 547 would be rendered a tautological nullity. See, e.g., In re Air Conditioning, Inc. of Stuart, 845 F.2d 293, 298 (11th Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 557, 102 L.Ed.2d 584 (1988); Energy Cooperative, 832 F.2d at 1002-03. 18 The district court reached the same conclusion as the bankruptcy court on the basis of In re Dick Henley, Inc. (LaRose v. Crosby & Son Towing, Inc.), 38 B.R. 210 (Bkr.M.D.La.1984) (LaRose ). See Dist.Ct.Op. at 13-14; see also Matter of Advanced Contractors (Cooley v. General Elevator Corp.), 44 B.R. 239 (Bkr.M.D.Fla.1984) (Cooley ) (following LaRose ). LaRose and Cooley each involved debtor-contractors who made preferential pre-petition payments to subcontractors on debts arising from construction contracts. The subcontractors in each case had perfected liens on the properties of the third-party owners of the construction sites, and the owners in turn had unsecured rights of indemnification regarding such liens against the debtor-contractors. LaRose and Cooley found the debtor-contractors' payments to the subcontractors to be exchanged for new value in the form of the subcontractors' release of the liens against the owners and the consequent constructive release of the owners' rights of indemnification against the debtor-contractors. See LaRose, 38 B.R. at 213-14; Cooley, 44 B.R. at 241-42. 19 We find the analogy to LaRose rather weak. 16 In any event, it is apparent that LaRose 's reasoning constitutes a circular and ill-founded evasion of the policy against preferential transfers. If the debtor-contractors in LaRose and Cooley had not made the payments to the subcontractors, the subcontractors would presumably have foreclosed their liens on the owners and the owners would then have asserted their unsecured rights of indemnification against the debtor-contractors. Thus, by making the payments, the debtor-contractors gained nothing more than release of a contingent obligation--an antecedent debt--owed to an unsecured creditor. For reasons discussed above, such a release cannot constitute new value under section 547. The present Fifth Circuit recognized the infirmity of LaRose in Matter of Fuel Oil Supply & Terminaling, Inc. (Gulf Oil Corp. v. Fuel Oil Supply & Terminaling, Inc.), 837 F.2d 224, 230 (5th Cir.1988) (Gulf Oil ). Gulf Oil held that the principle underlying Sec. 547(c)(1) was offended by the [LaRose ] court's holding because the released right of indemnity provided nothing of tangible value to the debtor's estate. Therefore, the estate was depleted by the debtor's payment to the detriment of the unsecured creditors. Id. The court noted that 20 [LaRose ] essentially held that any time a debtor makes a pre-bankruptcy transfer to a creditor whose debt is guaranteed by a third party, there is no preference because the release of the debtor from contingent liability to the guarantor would constitute new value. This holding vitiates the purpose of the preference section. 21 Id. at 230 n. 17. We agree fully with the Fifth Circuit's reasoning in Gulf Oil on this issue, and we therefore reject LaRose and Cooley. 17 22 Finally, the district court held, and ABC argues, that Chase & Sanborn received new value for the loan payments in the form of certain rights of subrogation, reimbursement, indemnification, and contribution which Chase & Sanborn possessed under the guarantee agreement and which matured upon Chase & Sanborn's partial payment of Duque's debt. 18 While such contingent rights may have value, however, see, e.g., Matter of Ollag Construction Equipment Corp., 578 F.2d 904, 908 (2d Cir.1978), they could not be said to constitute new value received in exchange for Chase & Sanborn's loan payments. Any rights existing under the guarantee agreement were part and parcel of that agreement from the outset. They came into existence as contingent rights at the same time as did the contingent obligation represented by the guarantee itself; thus, they simply defined the nature and extent of that obligation. Treating the maturation of such contingent rights as new value would disserve the policies underlying section 547, because a debtor's preferential payment of actual monetary value to a creditor under a guarantee agreement, in return for nothing more than the pre-existing right to assert a claim for reimbursement against the party whose debt was guaranteed, 19 depletes the tangible assets of the estate to the detriment of the other creditors. 20 23 For the foregoing reasons, we conclude that the March 3 and March 31, 1983 loan payments by Chase & Sanborn are voidable preferences under section 547.