Opinion ID: 559972
Heading Depth: 1
Heading Rank: 2

Heading: conformity with the u.c.c.

Text: 20 The legislative history of the Bankruptcy Code states that one purpose of the 1978 reforms was to make bankruptcy law generally more congruent with modern commercial practices, in particular the Uniform Commercial Code. H.R. No. 595, 95th Cong., 2d Sess. 5, reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 5966. Conformity with the Uniform Commercial Code was a particular goal of the revision of the preference provision. The legislative history states:This section is a substantial modification of present law. It modernizes the preference provisions and brings them more into conformity with commercial practice and the Uniform Commercial Code. 21 Id. at 372, U.S.Code Cong. & Admin.News at 6328. Furthermore, though the question of when a transfer is complete is a federal question, when there is no controlling federal statute [t]he state standards which control the effectiveness of a transfer likewise determine the precise time when a transfer is deemed to have been made or perfected. McKenzie, 323 U.S. at 369-70, 65 S.Ct. at 407-08. While the legislative history indicates that, for purposes of the Sec. 547(c) defenses, Congress intended a transfer to be complete when a check is delivered, see In re White River, 799 F.2d at 633; Official Unsecured Creditors' Comm. of Belknap, Inc. (In re Belknap, Inc.), 909 F.2d 879, 881-82 (6th Cir.1990), Congress has remained silent as to when a transfer occurs for Sec. 547(b). Thus, we refer to the U.C.C., which has been virtually unanimously adopted by the states, when formulating our answer. 22 The U.C.C. article governing commercial paper states in pertinent part, A check or other draft does not of itself operate as an assignment of any funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until he accepts it. U.C.C. Sec. 3-409(1), 2 U.L.A. 176 (1968). 3 Under this provision, no transfer of funds takes place when a check is given. Accord Klein v. Tabatchnick, 610 F.2d 1043, 1049 (2d Cir.1979) (check is merely request to drawee bank to pay funds to payee, not an assignment of funds); M. Bienenstock, Bankruptcy Reorganization 389 (1987) (uncertified check is not transfer of funds). As the Eleventh Circuit pointed out, until a check is actually accepted and paid by the drawee bank, another creditor could, for example, prevent the transfer by garnishing the bank account. Nicholson v. First Inv. Co., 705 F.2d 410, 413 (11th Cir.1983). Likewise, a drawer could stop payment or have insufficient funds. The giving of a check does not ensure that a transfer will ever, in fact, be made. Thus, our holding that, for purposes of section 547(b), a transfer does not occur until the drawee bank honors the check is consistent with the Uniform Commercial Code.