No. 91-159
Argued: January 14, 1992Decided: March 25, 1992
Held:
For the purposes of 547(b), a transfer made by check is deemed to occur on the date the check is honored. Pp. 396-402.
- (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 “interest[s] 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 discharged, but if it is not honored, a cause of action against the debtor accrues to the check recipient “upon demand following dishonor.” Pp. 396-399.
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- (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 Honoring the check left the debtor in the position that it would have occupied had it withdrawn cash from its account and handed it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. 399-400.
- (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. 400-402.
931 F.2d 689 (CA 10 1991), 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, post, p 403.
William J. Arland III argued the cause for petitioner. With him on the briefs was Emily A. Franke.
Nancy S. Cusack argued the cause for respondent. With her on the brief were William P. Johnson and Andrew J. Cloutier.
CHIEF JUSTICE REHNQUIST delivered the opinion of the Court.
Under the Bankruptcy Code’s preference avoidance section, 11 U.S.C. 547, the trustee is permitted to recover, with certain exceptions, transfers of property made by the debtor within 90 days before the date the bankruptcy petition was filed. We granted certiorari to decide whether, in determining if a transfer occurred within the 90-day preference period, a transfer made by check should be deemed to occur on the date the check is presented to the recipient or [503 U.S. 393, 395] on the date the drawee bank honors it. We hold that the latter date is determinative.
The relevant facts in this case are not in dispute. The debtor 1 made payment for a bona fide debt to petitioner Barnhill. The check was delivered to petitioner on November 18. The check was dated November 19, and the check was honored by the drawee bank on November 20. The debtor later filed a Chapter 11 bankruptcy petition. It is agreed by the parties that the 90th day before the bankruptcy filing was November 20.
Respondent Johnson was appointed trustee for the bankruptcy estate. He filed an adversary proceeding against petitioner, claiming that the check payment was recoverable by the estate pursuant to 11 U.S.C. 547(b). That section generally permits the trustee to recover for benefit of the bankruptcy estate transfers of the debtor’s property made within 90 days of the bankruptcy filing. Respondent asserted that the transfer occurred on November 20, the date the check was honored by the drawee bank, and therefore was within the 90-day period. Petitioner defended by claiming that the transfer occurred on November 18, the date he received the check (the so-called “date of delivery” rule), and that it therefore fell outside the 90-day period established by 547(b)(4)(A).
The Bankruptcy Court concluded that a date of delivery rule should govern, and therefore denied the trustee recovery. The trustee appealed, and the District Court affirmed. The trustee then appealed to the Court of Appeals for the Tenth Circuit. [503 U.S. 393, 396]
The Court of Appeals for the Tenth Circuit reversed, concluding that a date of honor rule should govern actions under 547(b). In re Antweil, 931 F.2d 689 (1991). It distinguished a prior decision, In re White River Corp., 799 F.2d 631 (1986), in which it held that, for purposes of 547(c), a date of delivery rule should govern when a transfer occurs. 2 The Tenth Circuit concluded that 547(b) and 547(c) have different purposes and functions, justifying different rules for each. It further concluded that a date of honor rule was appropriate, because such a rule was consistent with provisions of the U.C.C., was capable of easier proof, and was less subject to manipulation. We granted certiorari to resolve a Circuit split. 3 502 U.S. 807 (1991).
In relevant part, 547(b) provides:
- “(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property –
- * * * *
- “(4) made –
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- “(A) on or within 90 days before the date of the filing of the petition. . . .”
Title 11 U.S.C. 101(54) (1988 ed., Supp. II) 4 defines “transfer” to mean
- “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 and foreclosure of the debtor’s equity of redemption.
Section 547(e) provides further guidance on the meaning and dating of a transfer. For purposes of 547, it provides
- “[(e)(1)](B) a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.
- “[(e)](2) For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made –
- “(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time;
- “(B) at the time such transfer is perfected, if such transfer is perfected after such 10 days. . . .
Our task, then, is to determine whether, under the definition of transfer provided by 101(54), and supplemented by 547(e), the transfer that the trustee seeks to avoid can be said to have occurred before November 20.
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- “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 (1945). This is unsurprising, since, as noted above, the statute itself provides a definition of “transfer.” But that definition in turn includes references to parting with “property” and “interest[s] in property.” [In the absence of any controlling federal law, “property” and “interests in property” are creatures of state law.] Id., at 370; Butner v. United States, 440 U.S. 48, 54 (1979) (“Congress has generally left the determination of property rights in the assets of a bankrupt’s estate to state law”). Thus, it is helpful to sketch briefly the rights and duties enjoyed under state law by each party to a check transaction.
A person with an account at a bank enjoys a claim against the bank for funds in an amount equal to the account balance. Under the U.C.C., a check is simply an order to the drawee bank to pay the sum stated, signed by the maker and payable on demand. U.C.C. 3-104(1), (2)(b), 2 U.L.A. 224 (1991). Receipt of a check does not, however, give the recipient a right against the bank. The recipient may present the check, but, if the drawee bank refuses to honor it, the recipient has no recourse against the drawee. 3409(1), 2A U.L.A. 189 (1991). 6
That is not to say, however, that the recipient of a check is without any rights. Receipt of a check for an underlying obligation suspends the obligation “pro tanto until the instrument[‘s] . . . presentment[;] . . . discharge of the underlying obligor on the instrument also discharges him on the obligation.” 3-802(1)(b), 2A U.L.A. 514 (1991). But should [503 U.S. 393, 399] the drawee bank refuse to honor a check, a cause of action against the drawer of the check accrues to the recipient of a check “upon demand following dishonor of the instrument.” 3-122(3), 2 U.L.A. 407 (1991); see also 3-413(2), 2A U.L.A. 208 (1991). And the recipient of a dishonored check, received in payment on an underlying obligation, may maintain an action on either the check or the obligation. 302(1)(b), 2A U.L.A. 514 (1991).
With this background, we turn to the issue at hand. Petitioner argues that the Court of Appeals erred in ignoring the interest that passed from the debtor to the petitioner when the check was delivered on a date outside the 90-day preference period. We disagree. We begin by noting that there can be no assertion that an unconditional transfer of the debtor’s interest in property had occurred before November 20. This is because, as just noted above, receipt of a check gives the recipient no right in the funds held by the bank on the drawer’s account. [Myriad events can intervene between delivery and presentment of the check that would result in the check’s being dishonored.] The drawer could choose to close the account. A third party could obtain a lien against the account by garnishment or other proceedings. The bank might mistakenly refuse to honor the check. 7
The import of the preceding discussion for the instant case is that no transfer of any part of the debtor’s claim against the bank occurred until the bank honored the check on November 20. The drawee bank honored the check by paying it. U.C.C. 1-201(21); 1 U.L.A., 65 (1989); defining honor); 4-215(a), 2B U.L.A. 45 (1991). At that time, the bank had a right to “charge” the debtor’s account, 4-401, 2B U.L.A. 307 (1991) – i.e., the debtor’s claim against the bank was reduced by the amount of the check – and petitioner no longer [503 U.S. 393, 400] had a claim against the debtor. Honoring the check, in short, left the debtor in the position that it would have occupied if it had withdrawn cash from its account and handed it over to petitioner. We thus believe that, when the debtor has directed the drawee bank to honor the check and the bank has done so, the debtor has implemented a “mode, direct or indirect . . . of disposing . . .” of property or “an interest in property. . . .” 11 U.S.C. 101(54) (emphasis added). For the purposes of payment by ordinary check, therefore, a “transfer” as defined by 101(54) (1988 ed., Supp. II) occurs on the date of honor, and not before. And since it is undisputed that honor occurred within the 90-day preference period, the trustee presumptively may avoid this transfer.
In the face of this argument, petitioner retreats to the definition of “transfer” contained in 101(54). Petitioner urges that, rather than viewing the transaction as involving two distinct actions – delivery of the check, with no interest in property thereby being transferred, and honoring of the check, with an interest being transferred – that we instead should view delivery of the check as a “conditional” transfer. We acknowledge that 101(64) adopts an expansive definition of transfer, one that includes “every mode . . . absolute or conditional . . . of disposing of or parting with property or with an interest in property.” There is thus some force in petitioner’s claim that he did, in fact, gain something when he received the check. But at most, what petitioner gained was a chose in action against the debtor. 8 Such a right, however, cannot fairly be characterized as a conditional right to [503 U.S. 393, 401] “property. . . or an interest in property,” 101(54), where the property in this case is the account maintained with the drawee bank. For as noted above, until the moment of honor, the debtor retains full control over disposition of the account and the account remains subject to a variety of actions by third parties. To treat petitioner’s nebulous right to bring suit as a “conditional transfer” of the property would accomplish a near-limitless expansion of the term “conditional.” In the absence of any right against the bank or the account, we think the fairer description is that petitioner had received no interest in debtor’s property, not that his interest was “conditional.”
Finally, we note that our conclusion that no transfer of property occurs until the time of honor is consistent with 547(e)(2)(A). That section provides that a transfer occurs at the time the transfer “takes effect between the transferor and the transferee. . . .” For the reasons given above, and in particular because the debtor in this case retained the ability to stop payment on the check until the very last, we do not think that the transfer of funds in this case can be said to have “taken effect between the debtor and petitioner” until the moment of honor.
Recognizing, perhaps, the difficulties in his position, petitioner places his heaviest reliance not on the statutory language, but on accompanying legislative history. Specifically, he points to identical statements from Representative Edwards and Senator DeConcini that “payment of a debt by means of a check is equivalent to a cash payment, unless the check is dishonored. Payment is considered to be made when the check is delivered for purposes of sections 547(c)(1) and (2).” 124 Cong.Rec. 32400 (1978); id., at 34000. We think this appeal to legislative history unavailing.
To begin, we note that appeals to statutory history are well taken only to resolve “statutory ambiguity.” Toibb v. Radloff, 501 U.S. 157, 162 (1991). We do not think this is such a case. But even if it were, the statements on which [503 U.S. 393, 402] petitioner relies, by their own terms, apply only to 547(c), not to 547(b). Section 547(c), in turn, establishes various exceptions to 547(b)’s general rule permitting recovery of preferential transfers. Subsection (c)(1) provides an exception for transfers that are part of a contemporaneous exchange of new value between a debtor and creditor; subsection (c)(2) provides an exception for transfers made from debtor to creditor in the ordinary course of business. These sections are designed to encourage creditors to continue to deal with troubled debtors on normal business terms by obviating any worry that a subsequent bankruptcy filing might require the creditor to disgorge as a preference an earlier received payment. But given this specialized purpose, we see no basis for concluding that the legislative history, particularly legislative history explicitly confined by its own terms to 547(c), should cause us to adopt a “date of delivery” rule for purposes of 547
