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IN RE P & Z ISLAND FARMS

January 29, 1979

In Re P & Z ISLAND FARMS, INC., Bankrupt WILLIAM M. GRUNER, Trustee, Plaintiff against ABBOTT & COBB, INC., Defendant


The opinion of the court was delivered by: COOPER

This case is here on appeal from a Decision-Order of Bankruptcy Judge R. Lewis Townsend, dated August 10, 1978, entered in Gruner v. Abbott & Cobb, Inc.

The trial below, held on June 29, 1978, was an adversary proceeding under Part VII of the Bankruptcy Rules, 11 U.S.C. Rules of Bankruptcy Procedure 701 Et seq. Bankruptcy Judge Townsend held for the Plaintiff-Trustee, and the defendant below, Abbott & Cobb, Inc. appealed to this Court on November 14, 1978, in compliance with § 39c of the Bankruptcy Act, 11 U.S.C. § 67(c), and Part VIII of the Bankruptcy Rules.

 P & Z Island Farms, Inc. (P & Z), a produce-grower, originally filed a petition in Chapter XI on April 6, 1976; and was adjudicated bankrupt on October 20, 1976. Prior to bankruptcy, P & Z was continued by court order as debtor-in-possession. The transaction giving rise to this cause of action occurred as follows:

 Abbott & Cobb, Inc. (Abbott), the defendant-appellant, is a wholesaler of onion-seed, and was a regular supplier of the bankrupt in better days. Prior to the Chapter XI petition, P & Z was indebted to Abbott for the sum of $ 24,500, apparently for last year's delivery of onion-seed. On March 19, 1976, approximately a month before the Chapter XI petition was filed, Abbott delivered $ 8,885.00 worth of onion-seed to P & Z. Seven weeks later, on May 27, 1976, Abbott availed itself of the remedy of self-help by making demand for, and regaining possession of, $ 4,225.00 worth of onion-seed. Abbott credited this amount to P & Z's account in computing and filing its Proof of Claim. *fn1"

 This action was timely commenced by William Gruner, P & Z's Trustee in Bankruptcy (the Trustee), to recover the property or its value transferred to Abbott without the authority of the court or its representative. The court below held that the transfer was improper under § 70 of the Bankruptcy Act, 11 U.S.C. § 110, and ordered the creditor to pay over the value of the property plus interest from the date of the wrongful transfer.

 The defendant has appealed alleging: (1) that the Bankruptcy Judge was incorrect in deciding the case under § 70 since it was neither pleaded by the trustee nor responded to at trial by the defendant; (2) that the trustee had failed to meet its burden of proof at trial; and alternatively (3) that if the trustee prevails, interest be assessed from the time of commencement of the action, not from the time of the wrongful transfer; and finally (4) that the property taken should be restored, not its cash value.

 1. The Bankruptcy Court Correctly Decided the Controversy on the Grounds Set Forth Below.

 Both plaintiff and defendant addressed, in their trial papers and briefs, the issue whether or not the transfer in question was a preference under § 60 of the Bankruptcy Act, 11 U.S.C. § 96. It is apparent from the clear language of the Act and the uncontested facts presented by both parties, that this transfer could not be a preference. The focus of both parties, both below and on appeal, on this point was misguided.

 The parties agreed that the alleged wrongful transfer occurred on May 27, 1976, and that the petition in Chapter XI was filed on April 6, 1976. Section 60 of the Act provides the following:

 
§ 60a(1). A preference is a transfer . . . of any property of a debtor to . . . a creditor for or on account of an antecedent debt, made . . . by such debtor while insolvent and Within four months before the filing . . . Of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class. (emphasis supplied)

 Section 60 is a technical, complex provision of the Act requiring a high standard of proof of each and every element contained therein in order to establish a preference, which may then be voidable by the bankruptcy court. It is true that the burden of proof falls on the trustee under this section. 3 Collier on Bankruptcy (14th edition) P 60.61(1), p. 1116, P 60.62, p. 1123.

 However, this case does not in any way involve a preference, for the simple fact is that the transfer admittedly occurred After the petition had been filed.

 While the Trustee's complaint sought relief pursuant to § 60 of the Act, it also sought general relief as follows:

 
WHEREFORE, the plaintiff demands judgment against the defendant declaring the return of the merchandise was unauthorized, illegal and contrary to the Bankruptcy Act, and/or was a preference under § 60 of the Bankruptcy Act, and that the plaintiff have judgment against the defendant for the sum of $ 4,225.00 together with the costs and disbursements of this action.

 The court below properly dismissed the § 60 preference claim, but also properly granted relief under §§ 70a and 70d(5), which provide the general grounds for recovery by the trustee of property transferred after the filing of the petition, as occurred in this case. 3 ...


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