## Facts

- Jartran, Inc., a nationwide truck-leasing company, retained an advertising agency (Tinsley) to place Yellow Pages classified advertisements through Donnelley, which arranged publication with directory publishers.
- Under the parties’ agreement, Jartran and Tinsley were liable to Donnelley for advertising costs, and Donnelley was liable to the directory publishers.
- Each directory had a “closing date,” after which the advertisement could not be withdrawn; this closing date could occur up to six months before publication.
- Although the parties became irrevocably committed to pay by the closing date, Donnelley billed only after the advertisements were published.
- Jartran filed a Chapter 11 petition on December 31, 1981, and continued operating as debtor-in-possession; by then, closing dates for many yet-to-be-published directories had already passed.
- After the petition date, Tinsley and Donnelley continued activities associated with those advertisements (e.g., editing and communications with publishers).
- Tinsley and Donnelley sought administrative-expense priority under 11 U.S.C. § 503(b)(1)(A) for $1,311,695.50 in advertising charges tied to those prepetition-closed, postpetition-published directories.
- The bankruptcy court denied administrative priority, and the district court affirmed.

## Issues

1. Whether Yellow Pages advertising charges based on prepetition, irrevocably placed orders qualify as “actual, necessary costs and expenses of preserving the estate” entitled to administrative-expense priority under 11 U.S.C. § 503(b)(1)(A) when publication and billing occur postpetition.
2. Whether postpetition services incidental to performance of a prepetition advertising commitment can convert the resulting claim into a postpetition administrative expense.

## Decision

- The Seventh Circuit affirmed the denial of administrative-expense priority.
- The court held the advertising obligations were prepetition claims because the debtor’s binding commitment arose before the bankruptcy filing, at the closing dates.
- Postpetition publication and billing did not alter when the obligation was incurred for § 503(b)(1)(A) purposes.
- Postpetition activities were incidental to executing a prepetition contract and were not treated as a distinct, postpetition transaction necessary to preserve the estate.

## Legal Principles

- Administrative-expense priorities under § 503(b)(1)(A) are construed narrowly to avoid reducing recoveries for general unsecured creditors.
- For § 503(b)(1)(A), it is not enough that the estate may benefit from postpetition performance; the obligation must be incurred by the estate postpetition, rather than arising from a prepetition, irrevocable commitment.
- When a contract fixes a binding obligation before bankruptcy (here, at the closing date), later performance, publication, or billing generally does not recharacterize the claim as administrative.
- Liabilities treated as administrative under cases involving postpetition operation of the business (including certain postpetition tort liabilities) are distinguishable from debts rooted in prepetition contracts.

## Conclusion

The court denied administrative priority for Yellow Pages advertising charges because Jartran’s binding commitment to pay arose prepetition at the closing dates, and later postpetition publication, billing, and incidental services did not transform the claims into “actual, necessary” postpetition costs of preserving the estate under § 503(b)(1)(A).


In re Jartran, Inc., 732 F.2d 584 (7th Cir. 1984)