Note: While reorganizing under local insolvency law, applicant River Oaks Furniture, Inc. ordered custom-sized furniture components, providing for payment by a commercial LC for US$ 86,000 issued by the Bank of New York. Beneficiary initiated shipment of applicant's order and forwarded the proper documents to the issuer and demanded payment. The beneficiary then informed the applicant that the shipments had arrived and were ready for delivery. Beneficiary requested that the applicant arrange for it to deliver the shipments to the applicant's warehouses. Pending delivery to the applicant, Beneficiary transferred the shipments into storage in California. Upon learning that the ultimate buyer had backed out of the sale, the applicant told the issuer not to honor the beneficiary's demand on the LC. the issuer dishonored and the applicant never took physical delivery of the shipment. The beneficiary sued the applicant in bankruptcy court seeking an allowance as an administrative expense, payment for the shipments, and demurrage incurred by storing the shipments. The United States Bankruptcy Court for the Northern District of Mississippi awarded the beneficiary an administrative claim which the applicant appealed. The U.S. District Court for the Northern District of Mississippi, Eastern Division, Davidson, J., affirmed the award. The appellate court ruled that allowance of an administrative claim was appropriate even though the applicant never took delivery of the goods since the debtors benefited from the shipments in that they enabled it to continue to function as a growing concern.


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