UNITED STATES SUPREME COURT DECISIONS ON-LINE

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 District Court's affirmance of the referee's order, only the bank appealed. The Court of Appeals affirmed, holding that regardless of whether the bank knew of the bankruptcy the bankrupt's checking account became frozen when the bankruptcy petition was filed by virtue of § 70a of the Bankruptcy Act, which "by operation of law" as of the date of the filing of the petition vests the trustee with the bankrupt's title to described kinds of property "including rights of action."

Held:

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. 100-101.

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. 101-103.

(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. 385 U. S. 101.

(b) The act of filing a voluntary bankruptcy petition does not per se 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. 385 U. S. 102-103.

352 F.2d 186, reversed. clubjuris

Page 385 U. S. 100