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The Seventh Circuit affirmed, disagreeing with the creditor's position that the definition of 'new value' in the Code does not include existing contractual obligations. 'New value,' the court stated, 'does not include an obligation substituted for an existing obligation.' The particular contract between these two parties was one unified contract, for the delivery of a single complex equipment manufacturing line. 'The fact that the parties structured both payment and delivery obligations under the contract to extend over a period of time does not transform each payment, or each delivery of goods, into an independent transaction.' If the creditor furnished something outside the confines of the contract within the preference period, and the debtor paid for it, or if the parties had agreed to a straightforward installment contract, the court stated its analysis would have been different. Under the actual contract, however, the creditor's 'delivery during the preference period of equipment components it was obliged to furnish does not constitute 'new value.”

New Value

The Seventh Circuit has ruled that a machinery manufacturer's pre-contracted delivery of component parts to a customer during the preference period did not constitute 'new value' for purposes of ' 547(c)(4)(B). Gouveia v. RDI Group (In re Globe Building Materials Inc.), No. 05-4749 (5/4/07).

A roofing products manufacturer contracted with the debtor to provide a custom-built equipment line for use in the debtor's manufactured product. The line used a number of component machines which, when linked together, created a single machine suitable for making the product. The contract stated a single price for the assembled machine of $4,210,745 to be paid in stages, according to a schedule set forth in the contract. The debtor, however, filed for bankruptcy just prior to the completion of the final component and the trustee sought to recover payments made during the preference period. The creditor took the position that the payment was made for a debt incurred in the ordinary course of the debtor's business, or, in the alternative, it was for 'new value.' Both the bankruptcy court and the district court rejected these arguments. On appeal, the creditor pressed only its new value argument.

The Seventh Circuit affirmed, disagreeing with the creditor's position that the definition of 'new value' in the Code does not include existing contractual obligations. 'New value,' the court stated, 'does not include an obligation substituted for an existing obligation.' The particular contract between these two parties was one unified contract, for the delivery of a single complex equipment manufacturing line. 'The fact that the parties structured both payment and delivery obligations under the contract to extend over a period of time does not transform each payment, or each delivery of goods, into an independent transaction.' If the creditor furnished something outside the confines of the contract within the preference period, and the debtor paid for it, or if the parties had agreed to a straightforward installment contract, the court stated its analysis would have been different. Under the actual contract, however, the creditor's 'delivery during the preference period of equipment components it was obliged to furnish does not constitute 'new value.”