Bankruptcy courts have discretion to award prejudgment interest in 11 U.S.C.S. § 547 preferential transfer actions, and to compute that interest from the date of demand for the return of the transferred funds.
Royal Cake Company, Inc. entered into a conditional sales agreement to purchase four carton-packer machines from Cybermech, Inc. The Vice President of Cybermech wrote a letter to Royal setting forth the price, the delivery date, and the payment terms for the four machines that Royal could order. But later on the President of Cybermech, sent a letter to Royal stating that Cybermech could no longer deliver because of the current business climate. Enclosed with the letter was a cashier's check for $ 33,306.67 representing the down payment previously received on the subject purchase order. Soon after Cybermech filed a voluntary Chapter 7 Bankruptcy Petition. Bankruptcy trustee for Cybermech, filed a suit in bankruptcy court to recover the money that Cybermech had transferred to Royal. The transfer was found to be made for the benefit of a creditor, and Royal was ordered to pay back the funds plus interest. Royal appealed the ruling.
Whether a debtor-seller corporation's return of a buyer corporation's down payment on a contract for the purchase of machines constituted a preferential transfer under 11 U.S.C. § 547(b)?
The court affirmed the judgment for the bankruptcy trustee because Royal was a creditor of debtor, as defined by 11 U.S.C.S. § 101(10)(A), and the transfer of funds was made to and for the benefit of a creditor under 11 U.S.C.S. § 547(b)(1). Royal had a "claim" against Cybermech when Cybermech received Royal's payment check and deposited it into its own account. Cybermech's acceptance of Royal's payment gave rise to a duty on the part of Cybermech to deliver the machines. Correspondingly, the payment gave Royal the right to demand either performance or a refund. In other words, Royal had either (1) a restitutionary "right to payment" or (2) a "right to an equitable remedy for breach of performance" contingent upon Cybermech's failure to deliver the four machines. Royal's rights against Cybermech, albeit contingent and remote, fell within the Bankruptcy Code's definition of "claim" and thereby rendered Royal a "creditor" of Cybermech.