Source: https://www.legalcrystal.com/case/101289/bank-marin-vs-england
Timestamp: 2017-04-27 01:44:56
Document Index: 680060417

Matched Legal Cases: ['§ 70', '§ 110', '§ 70', '§ 11', '§ 70', '§ 110', '§ 110', '§ 70', '§ 70', '§ 3265', '§ 3409', '§ 67', '§ 70', '§ 63', '§ 70', '§ 70', '§ 70', '§ 70', '§ 70', '§ 70', '§ 70', '§ 70', '§ 70', '§ 70', '§ 8', '§ 274']

Bank of Marin Vs England - Citation 101289 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Bank of MarIn Vs. England - Court Judgment	LegalCrystal Citationlegalcrystal.com/101289CourtUS Supreme CourtDecided OnNov-21-1966Case Number385 U.S. 99AppellantBank of MarinRespondentEnglandExcerpt:
bank of marin v. england - 385 u.s. 99 (1966)
petitioner, a bank, honored checks drawn before, but presented for payment after, the depositor had filed a voluntary bankruptcy petition, the bank being unaware of the bankruptcy proceeding. on the trustee's application for a turnover order, the referee held the bank and the payee jointly liable to the trustee for the amount of the checks. the payee fully paid the joint judgment and served demand upon the bank for contribution. from the..... Judgment:
1. The payee's payment of the joint judgment does not moot the case, since the payee can still sue the petitioner for contribution. Pp.
385 U. S. 100
2. Absent revocation of its authority or knowledge of the bankruptcy, a bank cannot be held liable for honoring checks drawn before a depositor filed a voluntary bankruptcy petition. Pp.
385 U. S. 101
(a) The bank is the depositor's debtor and, unless there has been revocation giving the bank notice, must honor checks drawn upon it. P.
(b) The act of filing a voluntary bankruptcy petition does not
constitute notice to the bank. P.
385 U. S. 102
(c) It would be inequitable to hold the bank liable for an invalid transfer under §§ 70d(5) and 18f of the Act when the force of those provisions can be maintained by imposing liability on the payee of the checks, the creditor of the bankrupt which benefited from the transaction. Pp.
The question presented by this case is whether a bank which honored checks of a depositor drawn before its bankruptcy, but presented for payment after it had filed a voluntary petition in bankruptcy, is liable to the trustee for the amount of the checks paid where the bank had no knowledge or notice of the proceeding. The trustee applied to the referee for a turnover order requiring petitioner bank to pay to the trustee the amount of the checks and, in the alternative, asking the same relief against the payee. The referee determined that petitioner and the payee were jointly liable to the trustee. The District Court affirmed. Only petitioner appealed, and the Court of Appeals affirmed the District Court. 352 F.2d 186. We granted certiorari because of the importance of the question presented.
Cf. Rosenthal v. Guaranty Bank & Trust Co.,
139 F.Supp. 730;
We do not agree. Whatever might be the result if costs alone were involved (
cf. Heitmuller v. Stokes,
) this case should not be dismissed. We are advised that the payee has paid the joint judgment and has filed with the bankruptcy court and served on petitioner a demand for contribution from it respecting sums paid in satisfaction of the judgment. Thus petitioner is still subject to a suit because of the original judgment as to its liability. We would therefore strain the concepts of mootness if we required petitioner to start all over again when the payee sues it for contribution.
Section 70a of the Bankruptcy Act, 52 Stat. 879, 11 U.S.C. § 110(a), provides that a trustee in bankruptcy is vested "by operation of law" with the title of the bankrupt as of the date of the filing of the petition to described kinds of property "including rights of action." § 70a(5). But we do not agree with the Court of Appeals that the bankrupt's checking accounts are instantly frozen in the absence of knowledge or notice of the bankruptcy on the part of the drawee. The trustee succeeds only to such rights as the bankrupt possessed, and the trustee is subject to all claims and defenses which might have been asserted against the bankrupt but for the filing of the petition.
See Zartman v. First National Bank,
216 U. S. 134
216 U. S. 138
. The relationship of bank and depositor is that of debtor and creditor, founded upon contract. The bank has the right and duty under that contract to honor checks of its depositor properly drawn and presented (
Allen v. Bank of America,
58 Cal.App.2d 124, 127, 136 P.2d 345, 347;
Weaver v. Bank of America,
59 Cal.2d 428, 431, 30 Cal.Rptr. 4, 380 P.2d 644, 647;
and see Anderson National Bank v. Luckett,
), absent a revocation that gives the bank notice prior to the time the checks are accepted or paid by the bank.
See Hiroshima v. Bank of Italy,
78 Cal.App. 362, 369, 248 P. 947, 950. The Court of Appeals held that the bankruptcy of a drawer operates without more as a revocation of the drawee's authority. 352 F.2d at 191. But that doctrine is a harsh one that runs against the grain or our decisions requiring notice before a person is deprived of property (
Mullane v. Central Hanover Bank & Trust Co., supra,
-318;
371 U. S. 208
), a principle that has been recognized and applied in proceedings under the Bankruptcy Act.
New York v. New York, N.H. & H.R. Co.,
344 U. S. 293
344 U. S. 296
-297. The kind of notice required is one "reasonably calculated, under all the circumstances, to apprise the interested parties of the pendency of the action."
. We cannot say that the act of filing a voluntary petition in bankruptcy
is reasonably calculated to put the bank on notice. Absent revocation by the drawer or his trustee or absent knowledge or notice of the bankruptcy by the bank, the contract between the bank and the drawer remains unaffected by the bankruptcy and the right and duty of the bank to pay duly presented checks remain as before. In such circumstances, the trustee acquires no rights in the checking account greater than the bankrupt himself.
Yet we do not read these statutory words with the ease of a computer. There is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction. Section 2a, 52 Stat. 842, 11 U.S.C. § 11(a);
308 U. S. 304
-305;
Securities & Exchange Commission v. United States Realty & Imp. Co.,
. We have said enough to indicate why it would be inequitable to hold liable a drawee who pays checks of the bankrupt, duly drawn but presented after bankruptcy, where no actual revocation of its authority has been made and it has no notice or knowledge of the bankruptcy. The force of §§ 70d(5) and 18f can be maintained by imposing liability on the payee of the checks if he has received a voidable preference or other voidable transfer. The payee is a creditor of the bankrupt, and to make him reimburse the trustee is only to deprive him of preferential treatment and to restore him to the category of a general creditor. To permit the trustee under these circumstances to obtain recovery only against the party that benefited from the transaction is to do equity.
The Court, in its haste to alleviate an indisputable inequity to the bank, disregards, in my opinion, both the proper principles of statutory construction and the most permanent interests of bankruptcy administration. I must dissent. [
U.S.C. § 110(a). Section 70d nonetheless sustains
transfers of the property made after filing and "before adjudication or before a receiver takes possession . . . , whichever first occurs. . . ." 52 Stat. 881, 11 U.S.C. § 110(d). Transactions excluded from the shelter of § 70d are, so far as pertinent, within § 70d(5), which provides that "no [such] transfer by or in behalf of the bankrupt . . . shall be valid against the trustee. . . ."
In the situation before us, the remaining issue is accordingly whether this transfer occurred before or after September 26, the day on which Seafoods filed its petition in bankruptcy and was perforce adjudicated bankrupt. I do not understand petitioner to contend, or the Court to suggest, that this occurred at a time other than presentment of the checks, October 2. Given the law of California, by which a check is not a
transfer of the drawer's rights until presentment, I cannot see that another moment is possible. California Civil Code § 3265e; California Commercial Code § 3409. In sum, I find it unavoidable that the Act's plain words hold the bank liable to the trustee for the value of its payment of Seafoods' behalf. [
The Court first intimates, without expressly deciding, that the bank is shielded by its contractual right to a seasonable revocation of its duty to honor checks drawn upon it. The Court vouches for this the doctrine that a trustee in bankruptcy takes rights no wider or more complete than his bankrupt had. It is doubtless true that a trustee is not a
purchaser or encumbrancer, and that he ordinarily assumes the bankrupt's property subject to existing claims, liens, and equities.
. Unfortunately, these maxims scarcely suffice to decide this case. They are interstitial rules, valid no further than the Act's positive requirements permit.
First National Bank of Baltimore v. Staake,
202 U. S. 141
. 4 Collier, Bankruptcy Ś 70.04 at 954.2. The Act in several respects clothes the trustee in powers denied to his bankrupt: a trustee may thus avoid, although his bankrupt may not, transactions deemed fraudulent under the Act, liens obtained and preferential transfers completed within four months of bankruptcy, and statutory liens within the prohibition of § 67c(2). 4 Collier, Bankruptcy Ś 70.04 at 957.
The Act of 1898 vested title to the bankrupt's property in the trustee at adjudication, but contained nothing to prevent its dissipation in the interval after filing. [
] The courts were therefore left free to devise protective rules to reconcile the competing interests of the estate and of those who dealt with the bankrupt in this period. The fulcrum of those rules was the proposition that a "petition [in bankruptcy] is a caveat to all the world, and in effect an attachment and injunction."
. The courts softened its severity by a series of exceptions, either employing or distinguishing it as equity or convenience suggested. The result, as a principal draftsman of the Chandler Act reforms described it, was that "no consistent theory of protected transactions has been developed," and the situation was "conducive to confusion and uncertainty, with potentialities for argument, "bluffing," litigation, expense and delay." [
The law consisted essentially of "nebulous vagarities." [
The Chandler Act stemmed chiefly from a sustained investigation of these and other problems by the National Bankruptcy Conference. [
] Its members were the Act's principal draftsmen. The revisions they made to § 70 entirely restructured the basis both of the trustee's title and of the protection given to transactions which occur after filing. Their purpose, as one of them explained to the Chandler subcommittee, was to provide "a clear statutory basis" to the issues of title and protected transactions, in "lieu of a crazy quilt of contradictory judicial statements." [
] The effect of their revisions was to define "the full extent to which
transactions with the bankrupt, after bankruptcy, will be protected." [
Adjudication and receivership were plainly expected to mark the perimeters of this protection. Various factors determined this choice. First, none of the several exceptions to
reached transactions
which occurred after adjudication. [
] More important, once the draftsmen had elected to vest title in the trustee from filing, they were chiefly anxious to shield debtors from the consequences of unwarranted involuntary petitions. [
] They feared that such a petition might ruin a debtor by inducing others to avoid dealings with him. Section 70d was expected to immunize
transactions after filing, and thus to encourage dealings with the solvent debtor. There is no need for such protection after adjudication. Finally, adjudication and receivership signal the beginning of bankruptcy administration, and they are therefore both appropriate moments at which to forbid all further meddling with the estate. [
confined to involuntary petitions. [
] Further, the protection offered by § 63b, which closely supplements § 70d, extends only to involuntary proceedings. [
] Finally, the draftsmen must surely have known that the adjudication of voluntary petitions ordinarily followed quickly and routinely after filing. [
] It was certainly not unknown for adjudication to occur on the day of filing. [
] The draftsmen could only have intended that any protection given in voluntary proceedings by § 70d be fleeting and minimal. [
In short, § 70 was tailored to provide carefully measured protection to
transfers. It was intended to preclude further confusion and uncertainty. There is every indication that its terms faithfully reflect its purposes.
Congress has done. [
] The Court has not found § 70 constitutionally impermissible. [
] It has simply measured the statute by the standard of its own conscience, and concluded that equity requires a result which the statute forbids. I had thought it well settled that equity may supplement, but may never supersede, the Act. 1 Collier Bankruptcy 2.09 at 171-172. The Act's language is neither imprecise nor infelicitous; I can therefore see no room for the interposition of equity.
Like the Court, I believe that this case is not moot. In addition to what has been said by the majority,
and Aeronautical Industrial Dist. Lodge v. Campbell,
It is true that the negotiability proviso to § 70d(5) has once been held to protect a bank in analogous circumstances.
Rosenthal v. Guaranty Bank & Trust Co.,
139 F.Supp. 730. The proviso's legislative history throws little light on its intended scope. It appears inapplicable here. First, presentment is not strictly a negotiation. Second and more important, other constructions are more consonant with the balance of § 70d.
. 70 Harv.L.Rev. 548, 550. 4 Collier, Bankruptcy 70.68 at 1502, n. 3 (14th ed. 1964). I do not understand the Court to rely upon the proviso.
This Court had held that, despite the cleavage at adjudication, the trustee took the title as it was at filing.
. The situation is summarized in McLaughlin, Aspects of the Chandler Bill to Amend the Bankruptcy Act, 4 U.Chi.L.Rev. 369, 383.
Hearing before the House Committee on the Judiciary on H.R. 6439, 75th Cong., 1st Sess., 212. Professor McLaughlin quoted from his article in 40 Harv.L.Rev. 341. He subsequently acknowledged that § 70 would permit an area in which the courts could continue to balance the competing interests of the parties.
In light of the importance attached to adjudication at a line of cleavage, and the comparative insignificance intended for § 70d in voluntary proceedings,
I do not believe that this acknowledgment can be taken to reach this case.
4 Collier, Bankruptcy Ś 70.67 at 1500.
4 Collier, Bankruptcy Ś 70.66 at 1498. In the one apparent exception,
226 U. S. 148
Hearing before the House Committee on the Judiciary on H.R. 6439, 75th Cong., 1st Sess., 211. Professor McLaughlin described this to the subcommittee as "the next most pressing problem." He concluded that "[w]e have put in a provision [70d] to cover that [the problem of unwarranted petitions]." His explanation to the subcommittee of § 70d was based entirely on this problem. There is, of course, evidence that the draftsmen also expected to alleviate unfairness which § 70a might otherwise produce.
Analysis of H.R. 12889, House Committee on the Judiciary, 74th Cong., 2d Sess., 230 (Comm.Print 1936).
See, e.g., New York County National Bank v. Massey,
192 U. S. 138
Judge Soper's reasoning in
Lake v. New York Life Insurance Co.,
218 F.2d 394, 399, seems entirely persuasive:
See also Kohn v. Myers,
266 F.2d 353.
I cannot in any event accept petitioner's contention that these provisions have denied it due process. In exercise of its express constitutional authority over bankruptcy, Art. I, § 8, Congress has attached great importance to swift and efficient administration; to this purpose, it devised a statutory scheme by which it balanced the competing rights of the interested parties. Congress' purposes are permissible, and the scheme it has adopted is reasonably calculated to achieve those purposes. In this context, I cannot say that the Constitution requires that all whose rights may be reached by bankruptcy proceedings must first have actual notice of them.
Cf. Hanover National Bank of City of New York v. Moyses,
Respondent, the trustee in bankruptcy, has no substantial stake in the outcome of this litigation, and is not an adversary in the usual sense. On February 24, 1964, the referee in bankruptcy ruled that both the petitioner bank and the payee on the bankrupt's checks were liable to the trustee. On May 19, 1964, the payee paid the trustee in full, and has not been a party to this litigation since that time. Having received full payment, the trustee has no interest in the litigation except professional curiosity as to the question of law -- and he so apprised the District Court, the Court of Appeals, and this Court.
Brief for Respondent, p. 2.
Petition for Certiorari, p. 4. Nevertheless, the bank, also eager for an answer to this intriguing legal problem and facing a claim from the payee for contribution, continued the litigation against the trustee, and the trustee obligingly went along. The respondent trustee's only financial interest is admittedly confined to the question of court costs, [
] incurred as a volunteer.
There are two reasons of substance why the Court should not, in this case, decide the important statutory question presented. First, this is not an adversary proceeding, and has not been one since respondent received full payment in 1964. It is basic to our adversary system to insist that the courts have the benefit of the contentions of opposing parties who have a material, and not merely an abstract, interest in the conflict. Adverse parties -- adverse in reality, and not merely in positions taken -- are absolutely necessary.
See, e.g., Muskrat v. United States,
219 U. S. 361
-363 (1911);
149 U. S. 313
-314 (1893);
South Spring Hill Gold Min. Co. v. Amador Gold Co.,
-302 (1892).
Cf. Aetna Life Ins. Co. v. Haworth,
300 U. S. 242
-242 (1937) (Hughes, C.J.);
Second, this is a peculiar case in which to depart from the settled rule. The effect of the decision today is to strip the payee of its asserted right to contribution, although the payee is not before this Court, and was not before the Court of Appeals or the District Court. The question of the relative rights and obligations of the payee and the bank ought to be resolved in litigation in which both participate. [
Cf. Mullane v. Central Hanover Bank & Trust Co.,
(1950). The impact of today's decision upon a party not present confirms the wisdom of the rule
134 U. S. 557
See also Lord v. Veazie,
8 How. 251,
49 U. S. 255
I would vacate the judgment below and remand with direction to dismiss.
See Mechling Barge Lines v. United States,
368 U. S. 324
368 U. S. 329
-330 (1961);
An unbroken line of cases establishes the rule that controversy as to costs alone does not salvage an otherwise moot case.
See, e.g., Walling v. James V. Reuter Co.,
321 U. S. 677
279 U.S. 812 (1929);
271 U. S. 533
-536 (1926);
-363 (1921); Robertson & Kirkham, Jurisdiction of the Supreme Court of the United States § 274 (Wolfson & Kurland ed.); 6 Moore, Federal Practice 54.70(5) at 1311 (2d ed. 1956).
Upon vacation of the judgment below, the bank would be free to relitigate with the payee the question of its own liability, since the bank was in no respect responsible for the manner in which this case became a nonadversary proceeding.
See United States v. Munsingwear,
-40 & note 1 (1950).