Bank of Marin v. England

1966-12-05

Headline: Banks that pay a depositor’s checks after the depositor files bankruptcy are not held liable if they lacked notice; Court reversed and let trustees seek repayment from the payee who got the funds.

Holding: The Court held that a bank that honored checks drawn before but presented after a depositor’s voluntary bankruptcy filing is not liable to the trustee if the bank had no notice, and the payee must reimburse the estate.

Real World Impact:

Banks that pay checks without notice are protected from trustee recovery.
Payees who received funds after bankruptcy may have to reimburse the bankruptcy estate.
Trustees can pursue repayment from creditors who benefited from post-filing transfers.

Topics: banking rules, bankruptcy and creditors, checks and payment, trustee recovery

Summary

Background

A seafood company filed a voluntary bankruptcy petition, and checks the company had written before filing were presented to its bank after the filing. The bank paid those checks without knowledge or notice of the bankruptcy. The trustee in bankruptcy sought money from the bank (and alternatively from the payee) to recover the sums. Lower tribunals held both the bank and the payee liable, and the payee later paid the joint judgment and demanded contribution from the bank.

Reasoning

The Court addressed whether a bank that honored checks presented after a voluntary bankruptcy filing is liable to the trustee when the bank had no notice and no revocation. The Court said a trustee takes only the rights the bankrupt had and is subject to defenses the bankrupt could have raised. Because the bank had a contractual right and duty to pay properly presented checks and had no notice or revocation, it would be inequitable to hold the bank liable. The Court therefore reversed, explaining that the trustee can instead recover from the payee who benefited from the post-filing transfer.

Real world impact

Banks that pay checks presented after a voluntary bankruptcy filing without knowledge are generally protected from trustee claims. Creditors or payees who received funds after filing may have to reimburse the bankruptcy estate as a voidable preference. The case was not dismissed as moot despite the payee’s payment, because the bank still faced a claim for contribution.

Dissents or concurrances

Justice Harlan dissented, arguing the statute vests title at filing and the bank should be liable; Justice Fortas would have vacated for lack of an adversary dispute.