#### In re HOWE.

(District Court, D. Massachusetts.

August 30, 1916.)

No. 21674.

Bankruptcy <§^>152—Recovery by Trustee—Check Given Before and Paid After Filing of Petition.

Bankrupt’s check given a.n<5 deposited for collection before the filing of his voluntary petition in bankruptcy not having been paid till thereafter, though before any of the parties, except bankrupt, knew of the facts, the trustee can recover the money of the payee, though the payment was not a recoverable preference; delivery of the check not operating as a.n assignment or segregation of the funds on deposit, nor impressing them with any trust in favor of the payee, and, the adjudication, which is considered as immediately following the filing of the petition, *909placing the deposit in the complete custody of the bankruptcy court, after which it is no longer bankrupt’s property.

*908<gc»For other oases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

*909LEd. Note.—For other cases, see Bankruptcy, Cent. Dig. § 191; Dee. Dig. <g=>152.]

In Bankruptcy. In the matter of Francis Howe, bankrupt.

Order of referee vacated.

See, also, 229 Fed. 854.

Barton & Harding, of Boston, Mass., for trustee.

Burdett, Wardwell & Ives, of Boston, Mass., for creditor.

MORTON, District Judge.

The check for $502.68 was delivered to the Edison Electric Eight Company by the bankrupt, in good faith, and in order to prevent the light from being shut off in his hotel, two days before his voluntary petition in bankruptcy. It was not presented by the Edison Company directly to the drawee bank, but was deposited in another banking institution for collection and was presented through the clearing house. It was paid by the bank after the petition and adjudication, but before any of the parties, except the alleged bankrupt, knew of those facts. The institutions through which the collection was made acted, in so doing, as agents of the Edison Company.

In legal effect the case is the same as if the Edison Company itself had retained the check and had not presented it for payment until after the drawer had been adjudicated bankrupt, and had then done so in good faith and without knowledge, either on its part or on that of the drawee hank, of such bankruptcy. Upon such facts, is the payee entitled as against the trustee in bankruptcy to retain the sum received on the check ? The delivery of the check did not operate as an assignment, or segregation of the funds on deposit, nor impress those funds with any trust in favor of the payee. The check was a draft which it was the duty of the drawee to pay upon presentation as long as it had funds available therefor. Fourth Street Bank v. Yardley, 165 U. S. 634, 643, 17 Sup. Ct. 439, 41 L. Ed. 855; Holbrook v. Payne, 151 Mass. 383, 385, 24 N. E. 210, 21 Am. St. Rep. 456; Negotiable Instruments Act, Mass. Rev. Laws, c. 73, § 206. The delivery of the check was not a completed transfer of the debtor’s property. By the general law it did not extinguish his liability to the Edison Company until it was paid. Downey v. Hicks, 14 How. 240, 14 L. Ed. 404; Segrist v. Crabtree, 131 U. S. 287, 9 Sup. Ct. 687, 33 L. Ed. 125; cf. Houghton v. Boston, 159 Mass. 138, 34 N. E. 93. The Edison Company acquired no rights in the money received on the check until the actual payment thereof. The effect of the transaction is to be determined as of that time.

Upon the adjudication—which in voluntary cases like this is to be considered as immediately following upon the filing of the petition (In re Hurley [D. C. Mass.] 185 Fed. 851)—the bankrupt’s deposit came into the complete custody of the bankruptcy court. Thereafter it was no longer his property. 2 Remington on Bankruptcy, § 1274. The legal title was still in him, but he held it only for the trustee when one should be qualified; and he was unable to effect any valid transfer *910of it, except possibly for full value, in the ordinary course of business. Certainly the estate could not be diminished by any act of his after that time. Everett v. Judson, 228 U. S. 474, 33 Sup. Ct. 568, 57 L. Ed. 927, 46 L. R. A. (N. S.) 154; Pratt v. Bothe, 130 Fed. 670, 65 C. C. A. 48 (C. C. A. 6th Cir.); In re Waite-Robbins Motor Co. (D. C. Mass.) 192 Fed. 47; 1 Remington on Bankruptcy (2d Ed.) §§ 1120, 1121. If, instead of having delivered the check before the petition and adjudication, he had not done so until afterward, and the payee, in ignorance of the facts, had collected it, it is clear that the payee could not, as against the trustee in bankruptcy, retain the money so received. State Bank v. Cox, 143 Fed. 91, 74 C. C. A. 285, 16 Am. Bankr. Rep. 32 (C. C. A. 7th Cir.). The prior delivery of the check did not enlarge the payee’s rights. The contrary view would open such a broad avenue of fraud that I should hesitate to take it unless compelled to do so. In Laclede Bank v. Schuler, 120 U. S. 511, 30 L. Ed. 704, a somewhat similar controversy between the holder of a check and a common-law assignee was resolved in favor of the assignee. The rights of a trustee in bankruptcy in the debtor’s property as of the date of adjudication are at least as great as those of an assignee in possession. The money which the Edison Company received belonged to the trustee in bankruptcy, no consideration was at that time givén for it, and it must be returned to him.

It may be that, as between the trustee and the bank, the latter would be protected by reason of the agreement under which deposits are customarily accepted. See In re Zotti, 186 Fed. 84, 108 C. C. A. 196; Reed v. Mattapan Del. & Tr. Co., 198 Mass. 306, 84 N. E. 469. No such question arises between the trustee and the Edison Company.

The learned referee’s finding that the payment was not a recoverable preference is affirmed, but his further conclusion that the trustee was not entitled to recover seems to me to have been erroneous. The order of the referee dismissing the petition is vacated. The petitioner may present a draft decree in accordance with this opinion.