Opinion ID: 479412
Heading Depth: 2
Heading Rank: 1

Heading: Repayment of Negative Balances

Text: 57 In order to establish that a creditor has received a preference, the trustee must establish that a transfer took place. Section 101(48) of the Bankruptcy Code defines transfer as follows: 58 transfer means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest.... 59 11 U.S.C. Sec. 101(48). Deposits into bank accounts clearly can be transfers under the new Bankruptcy Code. As the Senate Report stated, The definition of transfer is as broad as possible.... A deposit in a bank account or similar account is a transfer. S.Rep. No. 989. 95th Cong., 2d Sess. 27, reprinted in 1976 U.S. Code Cong. & Ad. News, 5787, 5813; Redmond v. Tuttle, 698 F.2d 414, 417 n. 8 (10th Cir.1983). However, under established caselaw, to the extent a deposit is made into an unrestricted checking account, in the regular course of business and withdrawable at the depositor's will, it is not avoidable by the trustee, Katz v. First National Bank of Glen Head, 568 F.2d 964, 969, (2d Cir.1977), cert. denied, 434 U.S. 1069, 98 S.Ct. 1250, 55 L.Ed.2d 771 (1978). This is because a deposit that is subject to withdrawal at the depositor's will does not deplete the bankruptcy estate. See 4 Collier on Bankruptcy p 547-16, at 547-59 (The reasoning has been that the ordinary deposit results in substituting for currency, bank notes, checks, drafts and other bankable items as corresponding credit with the bank which may be checked against or withdrawn, and which provide the depositor with the medium of exchange in the transaction of business); see also Citizens National Bank v. Lineburger, 45 F.2d 522 (4th Cir.1930). 60 The depositor does not have freedom to withdraw when the deposit is applied as payment for an antecedent debt. As the court said in Miller v. Wells Fargo Bank International Corp., 406 F.Supp. 452 (S.D.N.Y.1975): 61 If the deposit is accepted by the bank with an intent to apply it on a pre-existing claim against the depositor rather than to hold [it] subject to the depositor's checks in ordinary course, ... the deposit is viewed legally as a transfer in payment of the debt. As such, it may be recovered by the trustee where the elements of a voidable preference are otherwise satisfied. 62 Id. at 467, aff'd, 540 F.2d 548 (2d Cir.1976); see also Katz, 568 F.2d at 970. 63 Here, to the extent the deposits compensated for overdrafts, they were payments on an obligation. Prescott had no right to keep using the money deposited. Nor does it matter that the bank was tolerant of Prescott's overdrafts. That the bank had earlier allowed Prescott to maintain overdrafts does not mean that Prescott had a right to continue the practice. Therefore the trustee could avoid deposits that were applied against Prescott's March 16 overdrafts insofar as they preferred Marine and indirectly preferred Gateway over other creditors.