ESTRATEGIAS DE MERCADO

Section 550(a)(1) is no fount of avoidance wisdom. What then is its function? Have I rendered it superfluous? Superfluity is supposed to be a sign of bad statutory interpretation.207 _{Fortunately for the}

strong-arm theory, section 550(a) retains a utility in the scope and compass of my theory. It is avoided-but-preserved, as it were. Section 550(a) contributes to voidable preference jurisprudence (as well as to fraudulent transfer jurisprudence) by making clear that nontransfer-

203. SeeMcLean 3, 184 B.R. 10, 16 (Bankr. S.D.N.Y. 1995). 204. See id.

205. See 11 U.S.C. § 506(d) (1994).

206. In this regard, it may be noted that contingent suretyship claims are not allowed.

See id. § 502(e)(1). If that same claim becomes fixed after bankruptcy, the claim is allowed, even though its fixity is a postpetition event. See id. § 502(e)(2). Section 506(d)(1) takes care to single out section 502(e) claims as immune from its effect, but it does not likewise refer to section 502(d), thereby suggesting that section 506(d) has the effect of knocking out the principal lien of an undersecured creditor who has received a minor preference.

207. See, e.g., United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assoc. (In re

ees can be held liable if they are merely benefited by a transfer to someone else.

The fact that initial transferees (of voidable preferences) could be held liable was always well understood under the old Bankruptcy Act. According to section 60(b):

Any such preference may be avoided by the trustee if the credi- tor receiving it or to be benefited thereby . . . has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent. Where the preference is voidable, the trustee may re- cover the property or, if it has been converted, its value from any person who has received or converted such property . . . .208

According to this statute, the trustee could only recover from a “transferee.” Yet section 60(a) condemned transfers for the benefit of nontransferees. In order to explain how “beneficiaries” might be held liable, when section 60(b) only made transferees liable, courts in- vented the fiction that the mere benefit emanating from a transfer was itself a transfer. Thus, as Judge Easterbrook explained in De- prizio, the “two transfer” theory was “an heuristic device to explain how recoveries could be had from indirect beneficiaries under the 1898 Act.”209

At the turn of the century, the Supreme Court made clear (in dic- tum) that preferences might be recovered from a person not actually the initial transferee of a preference. In National Bank of Newport v. National Herkimer County Bank,210 _{Justice Charles Evans Hughes}

wrote:

To constitute a preference, it is not necessary that the transfer be made directly to the creditor. It may be made to another for his benefit. If the bankrupt has made a transfer of his property, the ef- fect of which is to enable one of his creditors to obtain a greater percentage of his debt than another creditor of the same class, cir- cuity of arrangement will not avail to save it . . . . It is not the mere form or method of the transaction that the act condemns, but the appropriation by the insolvent debtor of a portion of his property to the payment of a creditor’s claim, so that thereby the estate is de-

208. Bankruptcy Act of 1898, ch. 541, § 60(b), 52 Stat. 840, 870 (1938) (emphasis added). Deprizio was impossible under the 1898 Bankruptcy Act for the simple reason that insiders were not subject to any different time period than were ordinary creditors. De- prizio only arises because the initial transferees had 90-day periods, while insiders had a one-year period.

209. Levit v. Ingersoll Rand Fin. Corp. (In re V.N. Deprizio Constr. Co.), 874 F.2d 1186, 1196 n.6 (7th Cir. 1989). A “heuristic” is, basically, a damnable lie. It does not give us any information respecting the constitution of an object. It merely indicates how we ought to

investigate the constitution and the relations of objects in the world of experience. See

IMMANUEL KANT, CRITIQUE OF PURE REASON 376 (J.M.D. Meiklejohn trans., 1990). 210. 225 U.S. 178 (1912).

pleted and the creditor obtains an advantage over other credi- tors.211

The “two transfer” theory arose to describe this dictum. According to Judge Jerre Williams, who endorsed the theory:

To combat such circuity, the courts have broken down certain transfers into two transfers, one direct and one indirect. The direct transfer to the third party may be valid and not subject to a pref- erence attack. The indirect transfer, arising from the same action by the debtor, however, may constitute a voidable preference as to the creditor who indirectly benefitted from the direct transfer to the third party.212

If the “two transfer” theory were necessary to explain why benefici- aries could be sued under old section 60(b), this is no longer true. Section 550(a)(1) extends liability to “the entity for whose benefit such transfer was made.”213 _{This is the true function of section}

550(a). It displaces the “two transfer” theory by creating in personam

liability in nontransferees. Transferees can be held to in personam

liability on a conversion theory. Section 550(a) is not necessary to hold a transferee liable because the various avoidance powers (cou- pled with the strong-arm power) suffice to convict transferees of the tort of conversion.