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91-159.ZS
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1993-11-06
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NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
BARNHILL v. JOHNSON, TRUSTEE
certiorari tot he united states court of appeals for
the tenth circuit
No. 91-159. Argued January 14, 1992-Decided March 25, 1992
The debtor's check in payment of a bona fide debt was delivered to
petitioner Barnhill in New Mexico on November 18 and honored by
the drawee bank on November 20, the 90th day before the debtor
filed a Chapter 11 bankruptcy petition. Respondent Johnson, the
trustee of the debtor's estate, filed an adversary action against
Barnhill, claiming that the payment was recoverable under
11 U.S.C. 547(b) as a transfer of the debtor's property made on
or within 90 days of the bankruptcy filing. Johnson asserted that the
transfer occurred on the date that the bank honored the check, but
Barnhill claimed that it occurred on the date that he received the
check. The Bankruptcy Court agreed with Barnhill and denied
recovery, and the District Court affirmed. The Court of Appeals
reversed, holding that a date of honor rule should govern 547(b)
actions.
Held:For the purposes of 547(b), a transfer made by check is deemed
to occur on the date the check is honored. Pp.3-9.
(a)``What constitutes a transfer and when it is complete'' is a
matter of federal law. McKenzie v. Irving Trust Co., 323 U.S. 365,
369-370. The Bankruptcy Code defines ``transfer'' as ``every mode,
. . . absolute or conditional, . . . of disposing of . . . property or . . .
an interest in property.'' 11 U.S.C. 101(54). In the absence of any
controlling federal law, ``property'' and ``interests in property'' are
creatures of state law. McKenzie, supra, at 370. Under the Uniform
Commercial Code, which has been adopted by New Mexico, a check
is simply an order to the drawee bank to pay the sum stated on
demand. If the check is honored, the debtor's obligation is dis-
charged, but if it is not honored, a cause of action against the debtor
accrues to the check recipient ``upon demand following dishonor.''
Pp.3-5.
(b)An unconditional transfer of the debtor's interest in property
did not occur before November 20, since receipt of the check gave
Barnhill no right in the funds the bank held on the debtor's account.
No transfer of any part of the debtor's claim against the bank
occurred until the bank honored the check, at which time the bank
had the right to ``charge'' the debtor's account and Barnhill's claim
against the debtor ceased. Honoring the check left the debtor in the
position that it would have occupied had it withdrawn cash from its
account and handed it over to Barnhill. Thus, it was not until the
debtor directed the bank to honor the check and the bank did so,
that the debtor implemented a ``mode . . . of disposing . . . of property
or . . . an interest in property'' under 101(54) and a ``transfer'' took
place. Pp.5-7.
(c)Barnhill's argument that delivery of a check should be viewed
as a ``conditional'' transfer is rejected. Any chose in action against
the debtor that he gained when he received the check cannot be
fairly characterized as a conditional right to ``property or . . . an
interest in property,'' since, until the moment of honor, the debtor
remained in full control over the account's disposition and the
account remained subject to a variety of actions by third parties. In
addition, the rule of honor is consistent with 547(e)(2)(A), which
provides that a transfer occurs at the time it ``takes effect between
the transferor and the transferee,'' particularly since the debtor here
retained the ability to stop payment on the check until the very last.
Barnhill's appeal to legislative history is also unavailing. Pp.7-9.
931 F.2d 689, affirmed.
Rehnquist, C. J., delivered the opinion of the Court, in which White,
O'Connor, Scalia, Kennedy, Souter, and Thomas, JJ., joined.
Stevens, J., filed a dissenting opinion, in which Blackmun, J., joined.