Citations
- 3 F.3d 1029
Full opinion text
POSNER, Circuit Judge.
When, within 90 days before declaring bankruptcy, the debtor makes a payment to an unsecured creditor, the payment is a “preference,” and the trustee in bankruptcy can recover it and thus make the creditor take pot luck with the rest of the debtor’s unsecured creditors. 11 U.S.C. § 547. But there is an exception if the creditor can show that the debt had been incurred in the ordinary course of the business of both the debtor and the creditor, § 547(c)(2)(A); that the payment, too, had been made and received in the ordinary course of their businesses, § 547(e)(2)(B); and that the payment had been “made according to ordinary business terms.” § 547(c)(2)(C). The first two requirements are easy to understand: of course to defeat the inference of preferential treatment the debt must have been incurred in the ordinary course of business of both debtor and creditor and the payment on account of the debt must have been in the ordinary course as well. But what does the third requirement — that the payment have been “made according to ordinary business terms” — add? And in particular does it refer to what is “ordinary” between this debtor and this creditor, or what is ordinary in the market or industry in which they operate? The circuits are divided on this question, compare In re Fred Hawes Organization, Inc., 957 F.2d 239, 243-44 (6th Cir.1992), and WJM, Inc. v. Massachusetts Dept. of Public Welfare, 840 F.2d 996, 1011 (1st Cir.1988), with Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 499 (8th Cir.1991); J.P. Fyfe, Inc. v. Bradco Supply Corp., 891 F.2d 66, 71 n. 5 (3d Cir.1989), and In re Craig Oil Co., 785 F.2d 1563, 1565 (11th Cir.1986) (per curiam), the scholarly literature inconclusive, 4 Collier on Bankruptcy ¶ 547.10 at p. 547-50 (Lawrence P. King 15th ed. 1993); Vern Countryman, “The Concept of a Voidable Preference in Bankruptcy,” 38 Vand.L.Rev. 713, 772-73 (1985); David J. DeSimone, “Section 547(c)(2) of the Bankruptcy Code: The Ordinary Course of Business Exception Without the 45 Day Rule,” 20 Akron L.Rev. 95, 123-28 (1986); Lissa Lamkin Broome, “Payments on Long-Term Debt as Voidable Preferences: The Impact of the 1984 Bankruptcy Amendments,” 1987 Duke L.J. 78, 86, our court undecided, In re Xonics Imaging, Inc., 837 F.2d 763, 766 (7th Cir.1988); In re Excello Press, Inc., 967 F.2d 1109, 1114 (7th Cir.1992), the bankruptcy judges divided. Id.
Tolona, a maker of pizza, issued eight checks to Rose, its sausage supplier, within 90 days before being thrown into bankruptcy by its creditors. The checks, which totaled a shade under $46,000, cleared and as a result Tolona’s debts to Rose were paid in full. Tolona’s other major trade creditors stand to receive only 13