Matter of Clark Pipe & Supply Co.
United States Court of Appeals for the Fifth Circuit
893 F.2d 693 (1990)
In September 1980, Clark Pipe & Supply Company, Inc. (Clark), which operated in the oil industry, entered into an agreement with Associates Commercial Corporation (ACC) (defendant) under which ACC would loan money to Clark on a revolving basis. The loans were secured by Clark’s accounts receivable, which were deposited into an account controlled by ACC, and a mortgage on inventory. Advances by ACC were determined according to a formula based on a percentage of accounts receivable plus a percentage of inventory cost. The contract gave ACC a unilateral, discretionary right to reduce the percentage advance rate at any time. In 1981 the oil industry faltered, and Clark was detrimentally affected. In February 1982, ACC began reducing the percentage advance rate. ACC intentionally reduced the rate to an amount that would allow Clark to keep operating sufficiently to pay back ACC—through the accounts receivable—but without any additional cash on top of that. ACC did not explicitly dictate to Clark which bills it should pay, however. Clark was able to keep the business open, selling inventory in order to pay back ACC. It was unable, however, to pay other creditors. In May 1982, after three such creditors initiated foreclosure proceedings against it, Clark filed for bankruptcy reorganization under Chapter 11. In August 1982, the case was converted to a Chapter 7 liquidation and a trustee (plaintiff) was appointed. The trustee filed an action for equitable subordination of ACC’s claims. The bankruptcy court decided in favor of subordination, and the district court affirmed. A panel of the United States Court of Appeals for the Fifth Circuit affirmed the district court but then granted ACC’s petition for rehearing.
Rule of Law
Holding and Reasoning (Jolly, J.)
What to do next…
Unlock this case brief with a free (no-commitment) trial membership of Quimbee.
You’ll be in good company: Quimbee is one of the most widely used and trusted sites for law students, serving more than 724,000 law students since 2011. Some law schools—such as Yale, Berkeley, and Northwestern—even subscribe directly to Quimbee for all their law students.Unlock this case briefRead our student testimonials
Learn more about Quimbee’s unique (and proven) approach to achieving great grades at law school.
Quimbee is a company hell-bent on one thing: helping you get an “A” in every course you take in law school, so you can graduate at the top of your class and get a high-paying law job. We’re not just a study aid for law students; we’re the study aid for law students.Learn about our approachRead more about Quimbee
Here's why 724,000 law students have relied on our case briefs:
- Written by law professors and practitioners, not other law students. 45,600 briefs, keyed to 983 casebooks. Top-notch customer support.
- The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
- Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
- Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.