Case Summary:
The trustee sought to avoid certain payments as preferential. The debtor had made monthly payments on an obligation guaranteed by her son. The trustee argued that the payments were made “on behalf” of the son because they reduced his obligation on the guarantee. The defendant argued that he was not a “creditor” of his mother because he would never have sought to collect from her even if he had been forced to honor the guarantee. The Court concluded that the payments were made “on behalf of a creditor” because the son’s status was determined by the contractual relationship, not his statement about whether he would actually pursue his “contingent” right to payment (which constitutes a “claim” in bankruptcy and rendered him a “creditor” of his mother). Under § 550, the trustee could collect the avoided preference from either the initial transferee or the entity benefitted by the transfer. The defendant did not offer any evidence which supported the defense that the transaction had occurred in the ordinary course of business between the parties. As such, the trustee was entitled to judgment for the amount of the preference.

Statute/Rule References:
11 U.S.C. § 547 -- Preference
11 U.S.C. § 550 -- Recovery of Preferences

Key Terms:
Preferences