California Mercury Record Distributors, Inc. v. A. K. Phelps, as Trustee in Bankruptcy of Audio Fidelity, Inc.

This case was initiated by the trustee in bankruptcy, Phelps, to set aside and prevent a preferential transfer. California Mercury Record Distributors, Inc., (hereinafter sometimes called Mercury) answered, and counterclaimed for a balance due on an account with the bank rupt. The district court gave judgment for the plaintiff trustee for $1,436.42, and held that no debt was due and owing to Mercury from the bankrupt. From this judgment Mercury appeals. This court has jurisdiction on appeal. 28 U.S.C. § 1291 .

The bankrupt was a record retailer which sold in a market where it gave a twenty per cent discount on all records sold. Appellant Mercury is a wholesale distributing house. Until September 1957, Mercury sold records on open account to the bankrupt, at which time the account of bankrupt was substantially in arrears. At that time an arrangement was made whereby the arrearages could be paid off at the rate of $50.00 per week.

Mercury had a rule whereunder accounts which were more than two months in arrears could receive no further credit, and any further transactions were to be by exchange of old records in the stock of the dealer for new records. The implementation of this…