## Facts

- Tolona Pizza Products Corporation bought sausage from Rose Packing Co., Inc. on open-account trade credit.
- Rose’s invoices stated “net 7 days,” but Tolona typically paid about 21 days after invoice, sometimes up to 30 days.
- Within 90 days before Tolona filed for bankruptcy, Tolona paid Rose eight checks satisfying outstanding invoices, with payment lags of about 12 to 32 days.
- Tolona’s bankruptcy plan projected unsecured creditors would receive roughly 13% on their claims, making Rose’s full payment comparatively favorable.
- The bankruptcy estate sued to avoid the payments as preferences under 11 U.S.C. § 547(b).
- The bankruptcy court ruled for Tolona; the district court reversed, finding the payments protected by the § 547(c)(2) ordinary-course defense.

## Issues

1. Whether “made according to ordinary business terms” in 11 U.S.C. § 547(c)(2)(C) requires consistency with objective industry practices or only the parties’ historical course of dealing.
2. Whether, under the correct interpretation of § 547(c)(2)(C), Tolona’s payments to Rose were protected from avoidance as preferences.

## Decision

- The Seventh Circuit affirmed the district court.
- The court held § 547(c)(2)(C) is primarily an objective inquiry tied to terms ordinary in the relevant industry or market.
- The court adopted a flexible “range of ordinariness” approach: the requirement is met if the terms are not so unusual as to fall outside the industry’s accepted range.
- Applying that standard, the court concluded Rose satisfied § 547(c)(2), so the transfers were not avoidable preferences.

## Legal Principles

- Under § 547(b), certain prepetition payments to unsecured creditors within 90 days of bankruptcy may be avoided to prevent unequal distribution.
- Section 547(c)(2) protects ordinary trade-credit transactions when the creditor proves: (A) the debt was incurred in the ordinary course of both parties’ businesses; (B) the payment was made and received in the ordinary course of their businesses; and (C) the payment was made according to ordinary business terms.
- Section 547(c)(2)(A)–(B) focus on the parties’ relationship, while § 547(c)(2)(C) supplies an external, objective check to prevent idiosyncratic arrangements from being insulated as “ordinary.”
- “Ordinary business terms” under § 547(c)(2)(C) does not require conformity with the single most common industry practice; it requires consistency with a broad band of customary practices in the relevant industry.

## Conclusion

The court held that § 547(c)(2)(C) demands objective consistency with ordinary industry terms, measured flexibly as a permissible range, and that Rose’s receipt of payments 12–32 days after invoice fell within that range and therefore was protected by the ordinary-course defense.


Matter of Tolona Pizza Prods. Corp., 3 F.3d 1029 (7th Cir. 1993)