Accordingly, judicial interpretations of the old 11 U.S.C. § 104(a)(1) are relevant to the interpretation of the new 11 U.S.C. § 503(b)(1)(A). See, e.g., Matter of Jartran, Inc., 732 F.2d 584 (7th Cir. 1984); In re Baths International, Inc., 31 B.R. 143, 145 (Bankr., S.D.N.Y. 1983). They will be relied on throughout this opinion. Congress granted priority to administrative expenses in order to facilitate the efforts of the trustee or debtor in possession to rehabilitate the business for the benefit of all the estate's creditors.
In re Baths Intern., Inc., 25 B.R. 538, 540 (Bankr.S.D.N.Y.1982)("It is equally clear that a claimant who fully performs under a contract prior to the filing of the petition will not be entitled to first priority even though his services may have resulted in a direct benefit to the bankrupt estate after the filing."), aff'd, 31 B.R. 143 (S.D.N.Y.1983); In re World Fashions, Inc., 24 B.R. 452, 455 (Bankr.N.D.Ga.1982)("Since under Georgia law a sale consists of the passage of title from the seller to the buyer for a price, the court holds that a sale occurred and hence the debt was incurred on March 5, 1982, three days before the debtor filed its petition.
In re Mammoth Mart, Inc., supra, 536 F.2d at 954. See, Trustees of Amalgamated Insurance Fund v. McFarlin's Inc., supra, 789 F.2d at 101; In re Chateaugay Corporation, supra, 102 B.R. at 353; In re Baths International, Inc., 25 B.R. 538, 9 B.C.D. 1316 (S.D.N.Y. 1983), aff'd, 31 B.R. 143, 10 B.C.D. 1214, 8 C.B.C.2d 1130 (S.D.N.Y. 1983); In re Jartran, Inc., supra, 732 F.2d at 587. This test is premised upon two fundamental policies underlying federal bankruptcy law, equality of distribution and rehabilitation of the debtor's business.
The fact that the Second Circuit does not agree with the result reached in Mammoth Mart i.e., that severance pay is not an administrative expense ( See In re W.T. Grant Co., 620 F.2d 319, 321 (2d Cir.) (per curiam), cert. denied, 446 U.S. 983, 100 S.Ct. 2963, 64 L.Ed.2d 839 (1980)) does not detract from the authority of the First Circuit's discussion of the tests to be applied in determining whether an expense qualifies for priority, as was recognized by Bankruptcy Judge Galgay of the Southern District of New York in In re J.M. Fields, Inc., 22 B.R. 861 (Bankr.S.D.N.Y. 1982). See also, In re Baths International, Inc., 25 B.R. 538 (Bankr.S.D.N.Y. 1982), aff'd 31 B.R. 143 (S.D.N.Y. 1983); In re Jartran, 732 F.2d at 589-90 n. 6. For an expense to be entitled to administrative priority, the creditor's performance must be induced by the debtor-in-possession.
Accord, In re Boogaart of Florida, Inc., 23 B.R. 157, (Bankr.S.D.Fla. 1982) (overdraft amounts which were generated by checks written pre-petition but did not bounce until after the petition was filed are not entitled to administrative priority; the bank's claim was "against its depositor, Boogart-Florida as Debtor, and not against Boogaart-Florida as debtor-in-possession, a separate entity. . . .") The question of administrative priority for Yellow Pages debts pursuant to a pre-petition contract where performance by the publisher did not occur until after filing of the reorganization was raised, and resolved in identical fashion, in In re Baths International, 31 B.R. 143 (S.D.N.Y. 1983). While the Jartran court criticized the New York court's conclusion as to the characterization of the performance date, 732 F.2d at 587-88 n. 4, the policy considerations were resolved in the same manner.
Another court, faced with the identical issue raised in this case, has held that the closing date was the appropriate date of performance and thus denied administrative priority to all claims as to which the closing date accrued before filing of the petition. See In re Baths International, Inc., 31 B.R. 143 (D.C.S.D.N.Y. 1983), aff'g 25 B.R. 538 (Bkrtcy.S.D.N.Y. 1982). To call the closing date the date of performance is misleading, however, because Jartran was not obligated to pay for the ads unless and until the ads were successfully published in the Yellow Pages. Normally, the last conduct giving rise to contractual liability would be characterized as "performance."
See Brook v. Jalbert (In re Servisense.com, Inc.), 382 F.3d 68, 72 (1st Cir. 2004) ("For a claim to be entitled to administrative priority in bankruptcy, it must arise after the bankruptcy petition has been filed."); In re Baths Int'l, Inc., 31 B.R. 143, 145 (S.D.N.Y. 1983) (administrative priority denied; "When [the closing date of a contract] falls before the filing of a Chapter 11 petition, the performance is rendered to a pre-petition company, not the debtor.") (internal quotation marks omitted). Further, even if the obligation to pay arose post-petition, there was no consideration for it supplied to or benefitting Texaco after its bankruptcy filing, so the second requirement for an administrative expense is also not met.
Isaac v. Temex Energy, Inc. (In re Amarex, Inc.), 853 F.2d 1526, 1530 (10th Cir. 1988); see also In re Boston Maine Corp., 600 F.2d 307, 312 (1st Cir. 1979) (claims are entitled to administrative priority as "post-filing" claims if consideration supporting them was received by trustee, not debtor); Cohen v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 138 B.R. 687, 695 n. 12 (Bankr.S.D.N.Y. 1992) (where debtor's obligations stem from prepetition contract, even postpetition breach will be treated as prepetition liability); In re Baths Int'l Inc., 25 B.R. 538, 540 (Bankr.S.D.N.Y. 1982) ("To gain priority status, performance must be given to the trustee or the debtor-in-possession, not the pre-petition debtor."), aff'd, 31 B.R. 143 (S.D.N.Y. 1983); Trapp v. R-Vec Corp., 359 N.W.2d 323, 327-28 (Minn.Ct.App. 1984) (where claimant's performance on contract is complete when debtor files petition, claim is treated as general unsecured claim even though debtor continues to benefit from contract and even if claimant's right to collect does not accrue until after debtor files petition). Second, the claim is entitled to administrative expense priority only to the extent the consideration supporting the claimant's right to payment was both supplied to the trustee or debtor-in-possession and necessary to preserve the assets of the estate or beneficial in the operation of the business.
Second, it must show that the transaction resulted in a direct benefit to the debtor-in-possession. In re Mammoth Mart, Inc., 536 F.2d 950, 954 (1st Cir. 1976); In re United Trucking Service, Inc., 851 F.2d 159, 161-62 (6th Cir. 1988) (citing In re White Motor Corp., 831 F.2d 106, 110 (6th Cir. 1987); In re Jartran, Inc., 732 F.2d 584, 587 (7th Cir. 1984); Trustees of Amalgamated Ins. Fund v. McFarlin's, Inc., 789 F.2d 98, 101 (2d Cir. 1986); In re Chateaugay Corp., 102 B.R. at 353; In re Bath's Int'l, Inc., 25 B.R. 538 (S.D.N.Y. 1982), aff'd, 31 B.R. 143, 145 (S.D.N.Y. 1983). Consideration is furnished to the estate only where the debtor-in-possession induces post-petition performance or where performance on a contract not rejected by the debtor-in-possession is rendered to the estate.
“If the consideration was supplied pre-petition, the claim is not entitled to administrative priority even where the right to payment arises post-petition.” In re WorldCom, Inc., 308 B.R. 157, 166 (Bankr.S.D.N.Y.2004) (citing Jartran );see also In re Baths Int'l, Inc., 25 B.R. 538, 540 (Bankr.S.D.N.Y.1982) (“It is equally clear that a claimant who fully performs under a contract prior to the filing of the petition will not be entitled to first priority even though his services may have resulted in a direct benefit to the bankrupt estate after the filing”), aff'd,31 B.R. 143 (S.D.N.Y.1983). Courts have viewed a real estate broker's obligation as having been performed when the parties to a deal are brought together, not when the broker receives or has a right to receive payment.