Opinion
No. 280-0036
January 21, 1981
Bankruptcy Reform Act — Preferences — Antecedent Debt — Transfer of Equal Value
Although a debtor failed to make payments on a leased photocopier, his subsequent payment and purchase of the machine within 90 days of filing his petition did not constitute a voidable preference since the effect of the transaction revealed that it was not "for or on account of an antecedent debt." While the creditor's book listed the payment as part for the past due rental payments and part for the purchase price, the payment enabled the debtor to take title to the equipment which was worth the entire price paid of it. There was no showing of favoritism or inequality of distribution; nor, was the debtor's estate diminished. See Sec. 547(b)(2) at ¶ 9529.
[Digest of Opinion]
The parties entered into a one year lease agreement for a photocopier with the debtor agreeing to pay a monthly rental, payable in advance on the first day of each month. Since he failed to remit funds for four months, the creditor's treasurer demanded payment in full or return of the machine. An agreement was worked out whereby the debtor paid $300.40 — representing four monthly payments, a late charge and the purchase price of the machine — and received title to the machine.
Approximately four months later, the debtor filed a voluntary petition under Chapter 7 of the Code. The trustee argued that the payment of the four monthly payment and late charge constituted a preferential transfer within the meaning of Section 547 and should be recovered by him in his capacity as trustee.
A careful analysis of the entire transaction revealed that the transfer was not in fact made "for or on account of an antecedent debt" — an essential element of a voidable preference. Rather, the debtor paid the $300.40 in cash to obtain title to the machine; the true nature of the transaction being a sale of the machine for its fair value.
The court concluded that "the object of the prohibition of preferences is to prevent favoritism and to assure equality of distribution." There was no showing of favoritism or inequality of distribution here; nor, was the debtor's estate diminished.