In re Jartran

Jartran, Inc. (defendant) operated a consumer truck-rental business. In September 1979, it arranged for the placement of ads in Yellow Pages directories nationwide. Jartran entered into a contract with Sandra C. Tinsley, Inc. (Tinsley) (plaintiff) and Reuben H. Donnelley Corporation (Donnelley) (plaintiff) whereby Tinsley would place Jartran’s orders with Donnelley, and Donnelley would then contract with individual Yellow Pages publishers. Each directory had a “closing date” at which point an ad could not be withdrawn. The actual publication of ads occurred several months after the closing date. The obligation to pay for ad space was irrevocably incurred upon the closing date, but Jartran was not billed until an ad was actually published. In December 1981, Jartran filed for reorganization under Chapter 11 and continued operation as the debtor-in-possession. When Jartran’s petition was filed, the closing dates for a number of ads had passed but publication had not yet occurred. Tinsley and Donnelley continued to perform services related to those ads, such as editing and communicating with publishers, in accordance with their contract with Jartran. The amount that Jartran owed for such ads was claimed to be $1,311,695.50. Tinsley and Donnelley applied to the bankruptcy court for treatment of that amount as a postpetition administrative expense. The court denied their request, and the district court affirmed. Tinsley and Donnelley appealed.