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RE: Legal stuff I will never understand - Preferred Payment Claim

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I am not sure, I believe I would have been in breach of my agreement by denying service to them.


It is bizarre, new work is not the problem.

If we did any new work and received payment within that 90 day period, it is new value and not ?preferred payment?

The PP claim is for the overdue invoices that were paid within 90 days before the bankruptcy date.

It is aimed to protect the other creditors that did not receive anything.

Go figure, I just got caught in this and was wondering if anybody else had at least heard of it.

Thank you


Ralph Tavares, PE

R&S Tavares  Associates, Inc.

T: (858) 444-3344

M: (209) 765-5592



From: Michel Blangy [mailto:mblangy(--nospam--at)]
Sent: Thursday, May 27, 2010 2:55 PM
To: seaint(--nospam--at)
Subject: RE: Legal stuff I will never understand - Preferred Payment Claim


I am the least qualified to help you here, sorry. But let me ask, hypothetically did you even have the option to deny services because they eventually did catch up on payments and thus the contract was back in force?



-----Original Message-----
From: Ralph Tavares [mailto:ralph(--nospam--at)]
Sent: Thursday, May 27, 2010 2:29 PM
To: seaint(--nospam--at)
Subject: Legal stuff I will never understand - Preferred Payment Claim

I thought I could share this with the group, and I appreciate any input that you may have about this situation.


Here is my problem in a nut shell:

In 2008 a good client of mine filed for bankruptcy.

We wrote off their debt, and went ahead with them COD, until they finally closed their doors.

At the beginning of this year we received a claim for  ?Preferred payment??

Because we received payments 90 days before their bankruptcy filing, the creditors who did not receive anything can sue us to give the money back.

It is up to us to prove that what we received was under ?normal course of business?


Now the facts are:

We were demanding on receiving our late payments from them so they would get current on their past due invoices.

We have in our contract, as well as any AIA standard contract, the clause if the client is late we can stop performing services.

So we would stop servicing them and they actually paid us on their old invoices to get us going.

Our attorneys are telling me that this is not good for our cause because we basically forced them to pay us, and other creditors did not have this same condition.

Well, my point is? if we have a contract stating they need to be current on payments, we covered our interest well. I cannot speak for the others that did not have the same pull.

My argument does not seem to work, I have been told that I have to settle or spend 3 times more to go to court.


It seems to me that this ?preferred payment? is an attorney?s dream  (let?s say a trap) and a design professional?s nightmare.

Is there any former case establishing jurisprudence on this situation?

ASCE does not provide any attorney support in this situation to their members, so I am reaching out to our list to feel what you know.

If anyone out there can provide me an insight of their experience or hearsay, it would be deeply appreciated.

Thank you.


Ralph Tavares, PE

R&S Tavares  Associates, Inc.

9815 Carroll Canyon Road, suite 206

San Diego, CA, 92131

T: (858) 444-3344