Based on Kaufman, it has long been the rule in this circuit that a trustee in bankruptcy is entitled to prejudgment interest on preference recoveries. In White Co. v. Wells, 42 F.2d 460 (6th Cir. 1930), the United States Court of Appeals for the Sixth Circuit affirmed, with a modest remittitur, the recovery of money garnished from a bankrupt's bank account within the four month preference period then applicable. The lower court awarded interest on the preference judgment from the date the defendant obtained funds by garnishment.
While there appears to be some difference of opinion as to this (see Remington on Bankrupty, 4th Ed., Vol. 5, sec. 2310), the weight of authority appears to support the rule that interest may be allowed from the date of demand, or, if there be no such demand, then from the date of commencement of the action. See Kaufman v. Tredway, 195 U.S. 271, 25 S.Ct. 33, 49 L.Ed. 190; Larkin v. Welch, 7 Cir., 86 F.2d 442; White Co. v. Wells, 6 Cir., 42 F.2d 460; Elliotte v. American Sav. Bank Trust Co., 6 Cir., 18 F.2d 460. We do not find the Illinois statute, Chap. 74, sec. 2, relating to Interest, relied upon by appellee, authority for a contrary ruling.
Objection is also urged that the decree allowed interest from April 6, 1931. Appellee suggests that no error is assigned upon this point, but in this he is in error. It does not appear that any demand was ever made upon appellants in this case, and under such circumstances interest should have been allowed from the date of the institution of suit — April 10, 1933. Kaufman v. Tredway, 195 U.S. 271, 25 S.Ct. 33, 49 L.Ed. 190; White Co. v. Wells (C.C.A.) 42 F.2d 460. To summarize: 1. The District Court correctly decided that the transfers on April 6 were voidable preferences and correctly ordered them vacated and set aside.
The plaintiff, trustee in bankruptcy, is entitled to judgment for $2,286.67 under his first and second causes of action; and for $2,259.70 under his third cause of action; or a total judgment of $4,546.37, together with 6% interest thereon from January 28, 1952, the date of the commencement of this action. Kaufman v. Tredway, 195 U.S. 271, 25 S.Ct. 33, 49 L.Ed. 190; White Co. v. Wells, 6 Cir., 42 F.2d 460. The Court's Findings of Fact and Conclusions of Law are contained in the above opinion.
In an action to set aside a preferential transfer of money, interest runs from the date of remand upon the defendant, and where, as here, no demand is made prior to institution of suit to avoid the transfer, the commencement of the action is itself a demand, and interest runs from the date of such commencement of action. Kaufman v. Tredway, 1904, 195 U.S. 271, 25 S.Ct. 33, 49 L.Ed. 190, 192; White Co. v. Wells, 6 Cir., 1930, 42 F.2d 460. 7. The legal rate of interest in Michigan upon an unwritten obligation is 5% per annum.
Prejudgment interest in preference litigation has been permitted but not mandated since 1904 by the case of Kaufman v. Tredway, 195 U.S. 271, 25 S.Ct. 33, 49 L.Ed.2d 190 (1904). See, also, Smith v. Mark Twain Nat'l Bank, 805 F.2d 278 (8th Cir. 1986); Palmer v. Radio Corp., 453 F.2d 1133 (5th Cir. 1971); Salter v. Guaranty Trust Co., 237 F.2d 446 (1st Cir. 1956); Waite v. The Second Nat'l Bank, 168 F.2ds 984 (7th Cir. 1948); Larkin v. Welch, 86 F.2d 442 (7th Cir. 1936); and White Co. v. Wells, 42 F.2d 460 (6th Cir. 1930). This Court sees no reason to deviate from granting prejudgment interest in a successful preference action.
The only remaining issue to address is the entitlement of the Trustee to prejudgment interest. It has long been the rule in this circuit that "where the action is to recover the pecuniary value of the property transferred, that is, damages, interest should be computed from the date of the demand; lacking such demand, interest may be computed from the commencement of the action." DuVoisin v. Anderson (In re Southern Industrial Banking Corporation), 87 B.R. 518, 521 (Bankr. E.D. Tenn. 1988), quoting White Co. v. Wells, 42 F.2d 460 (6th Cir. 1930). The Trustee avers that he sent a demand letter to First Tennessee on June 15, 1995.
Indeed, the departure from the rule which the Trustee now advocates has been held to be reversible error. Smith v. Mark Twain National Bank, 805 F.2d 278, 291 (8th Cir. 1986) (reversing award of prejudgment interest granted from transfer date); Waite v. Second National Bank of Belvidere, Ill., 168 F.2d 984, 987-88 (7th Cir. 1948) (same); White Company v. Wells, 42 F.2d 460 (6th Cir. 1930) (same). The basis for this universally accepted rule is explained by the Court of Appeals for the Eighth Circuit, reversing an award of prejudgment interest which accrued from the date of the transfer instead of the date of demand:
However, the interest upon a voidable preference recovered by a trustee in bankruptcy should be computed from the date of demand for its return. Kaufman v. Tredway, 195 U.S. 271, 49 L.Ed. 190, 25 S.Ct. 33 (1904); White Co. v. Wells, 42 F.2d 460 (CA6 Ohio 1930); Feinblatt v. Block, 456 F. Supp. 776 (1978, FC Md.). If no evidence was introduced as to the date of demand by the trustee, then interest should only accrue from the date of the commencement of the suit to recover the item. The trustee filed such suit on November 12, 1985.
Although the parties' pretrial statement refers to correspondence in July and December of 1982 requesting payment, no such correspondence or other evidence was introduced in this proceeding, and where no demand for payment had been made prior to the commencement of the case, the filing of the complaint constitutes such a demand, and interest is to run therefrom. E.g., Kaufman v. Tredway, 195 U.S. at 273, 25 S.Ct. at 34; White Co. v. Wells, 42 F.2d 460 (6th Cir. 1930); Elliotte v. American Sav. Bank Trust Co., 18 F.2d 460, 462 (6th Cir. 1927); In re Four Seasons Sporting Goods, Inc., 46 B.R. at 530-31; In re Independent Clearing House Company, 41 B.R. at 1015; 3 Collier On Bankruptcy, supra. The final matter for determination by this court is what rate of interest constitutes fair compensation for the estate's deprivation of the use of the property transferred and withheld.