BANK OF MARIN v. ENGLAND, TRUSTEE IN BANKRUPTCY
No. 63
Supreme Court of the United States
Argued October 20, 1966. Decided November 21, 1966.
385 U.S. 99 | 87 S. Ct. 274 | 17 L. Ed. 2d 197
Thomas B. Donovan argued the cause for respondent. With him on the brief was John Walton Dinkelspiel.
John P. Austin filed a brief for the California Bankers Association, as amicus curiae, urging reversal.
The question presented by this case is whether a bank which honored checks of a depositor drawn before its bankruptcy but presented for payment after it had filed a voluntary petition in bankruptcy, is liable to the trustee for the amount of the checks paid where the bank had no knowledge or notice of the proceeding. The trustee applied to the referee for a turnover order requiring petitioner bank to pay to the trustee the amount of the checks and in the alternative asking the same relief against the payee. The referee determined that petitioner and the payee were jointly liable to the trustee. The District Court affirmed. Only petitioner appealed and the Court of Appeals affirmed the District Court. 352 F. 2d 186. We granted certiorari because оf the importance of the question presented. Cf. Rosenthal v. Guaranty Bank & Trust Co., 139 F. Supp. 730; Mullane v. Central Hanover Bank & Trust Co., 339 U. S. 306.
I.
We were advised on oral argument that the joint judgment rendered against petitioner, the bank, and the payee of the checks was paid in full by the payee and that at present respondent‘s sole financial interest in this litigation is protection against imposition of costs under our Rule 57. It is therefore suggested that the case is moot.
II.
Section 70a of the Bankruptcy Act, 52 Stat. 879,
Section 70d (5), 52 Stat. 882,
Reversed.
MR. JUSTICE HARLAN, dissenting.
The Court, in its haste to alleviate an indisputable inequity to the bank, disregards, in my opinion, both the proper principles of statutory construction and the most permanent interests of bankruptcy administration. I must dissent.1
The Act itself is unambiguous. Section 70a vests title to the bankrupt‘s property in the trustee “as of the date of the filing оf the petition.” 52 Stat. 879,
In the situation before us, the remaining issue is accordingly whether this transfer occurred before or after September 26, the day on which Seafoods filed its petition in bankruptcy and was perforce adjudicated bankrupt. I do not understand petitioner to contend, or the Court to suggest that this occurred at a time other than presentment of the checks, October 2. Given the law of California, by which a check is not a pro tanto transfer of the drawer‘s rights until presentment, I cannot see that another moment is possible. California Civil Code § 3265e; California Commercial Code § 3409. In sum, I find it unavoidable that the Act‘s plain words hold the bank liable to the trustee for the value of its payment on Seafoods’ behalf.2
I do not suggest that this Court should confine its attention to the unadorned terms of the Bankruptcy
The Court first intimates, without expressly deciding, that the bank is shielded by its contractual right to a seasonable revocation of its duty to honоr checks drawn upon it. The Court vouches for this the doctrine that a trustee in bankruptcy takes rights no wider or more complete than his bankrupt had. It is doubtless true that a trustee is not a bona fide purchaser or encumbrancer, and that he ordinarily assumes the bankrupt‘s property subject to existing claims, liens, and equities. Hewit v. Berlin Machine Works, 194 U. S. 296. Unfortunately, these maxims scarcely suffice to decide this case. They are interstitial rules, valid no further than the Act‘s positive requirements permit. First National Bank v. Staake, 202 U. S. 141. 4 Collier, Bankruptcy ¶ 70.04, at 954.2. The Act in several respects clothes the trustee in powers denied to his bankrupt: A trustee may thus avoid, although his bankrupt may not, transactions deemed fraudulent under the Act, liens obtained and preferential transfers completed within four months of bankruptcy, and statutory liens within the prohibition of § 67c (2). 4 Collier, Bankruptcy ¶ 70.04, at 957.
The Court does not assert that this transfer is protected by § 70d. I understand it insteаd to concede that, equitable considerations aside, the bank‘s payment is invalid against the trustee. I must conclude that the Court has reasoned that a contractual defense retained against the bankrupt suffices to preclude use of a power expressly conferred upon the trustee. If this is the Court‘s meaning, it has traversed both logic and author-
The Court‘s principal contention seems to be that equitable considerations oblige it to release the bank from liability. Its premise plainly is that equity is here a solvent to which we may appropriately resort; I am unable to accept that premise. This is not a case in which the statute is imprecise. Nor is it a case in which the legislature‘s intentions have been misshapen by the statute‘s words; even a cursory examination of thе history of § 70 will evidence that its terms faithfully reflect Congress’ purposes.
The Act of 1898 vested title to the bankrupt‘s property in the trustee at adjudication, but contained nothing to prevent its dissipation in the interval after filing.3 The courts were therefore left free to devise protective rules to reconcile the competing interests of the estate and of those who dealt with the bankrupt in this period. The fulcrum of those rules was the proposition that a “petition [in bankruptcy] is a caveat to all the world, and in effect an attachment and injunction.” Mueller v. Nugent, 184 U. S. 1, 14. The courts softened its severity by a series of exceptions, either employing or distinguishing it as equity or convenience suggested. The result, as a principal draftsman of the Chandler Act reforms described it, was that “no consistent theory of protected transactions has been developed,” and the situation was “conducive to confusion and uncertainty, with potentialities for argument, ‘bluffing,’ litigation, expense and de-
The Chandler Act stemmed chiefly from a sustained investigation of these and other problems by the National Bankruptcy Conference.6 Its members were the Act‘s principal draftsmen. The revisions they made to § 70 entirely restructured the basis both of the trustee‘s title and of the protection given to transactions which occur after filing. Their purрose, as one of them explained to the Chandler subcommittee, was to provide “a clear statutory basis” to the issues of title and protected transactions, in “lieu of a crazy quilt of contradictory judicial statements.”7 The effect of their revisions was to define “the full extent to which bona fide transactions with the bankrupt, after bankruptcy, will be protected.”8
Adjudication and receivership were plainly expected to mark the perimeters of this protection. Various factors determined this choice. First, none of the several exceptions to Mueller v. Nugent reached transactions
It is equally plain that the protection offered by § 70d must have been intended principally for involuntary proceedings. There are several indications of this. Most important, the hazard to which the section was chiefly directed, the consequences of an unwarranted petition upon a debtor‘s credit, is entirely absent from voluntary proceedings. Thus, the discussion of this problem before the Chandler subcommittee was explic-
In short, § 70 was tailored to provide carefully measured protection to bona fide transfers. It was intended to preclude further confusion and uncertainty. There is every indication that its terms faithfully reflect its purposes.
I fully sympathize with the discomfort of the bank‘s position, but I cannot escape the impact of what
More important, the Court today permits the dilution of the Chandler amendments to § 70. The Court‘s disposition of this case may be taken to suggest that whenever equity is thought strongly to demand relief from the strictures of the Act, further exceptions may be appropriately created to the statutory schеme. I fear that the Court may have set in motion once more the protracted process which before 1938 resulted in “confusion and uncertainty,” “litigation, expense and delay.”
I would affirm the judgment of the Court of Appeals.
MR. JUSTICE FORTAS.
I would vacate the judgment. I believe that we do not have before us a case or controversy between the partiеs of record.
Respondent, the trustee in bankruptcy, has no substantial stake in the outcome of this litigation and is not an adversary in the usual sense. On February 24, 1964, the referee in bankruptcy ruled that both the petitioner bank and the payee on the bankrupt‘s checks were liable to the trustee. On May 19, 1964, the payee paid the trustee in full and has not been a party to this litigation since that time. Having received full payment, the trustee has no interest in the litigation except professional curiosity as to the question of law—and he so apprised the District Court, the Court of Appeals, and this Court. See Brief for Respondent, p. 2. See also Petition for Certiorari, p. 4. Nevertheless, the bank, also eager for an answer to this intriguing legal problem and facing a claim from the payee for contribution, continued the litigation against the trustee, and the trustee obligingly went аlong. The respondent trustee‘s only financial interest is admittedly confined to the question of court costs,1 incurred as a volunteer.
There are two reasons of substance why the Court should not, in this case, decide the important statutory question presented. First, this is not an adversary proceeding, and has not been one since respondent received full payment in 1964. It is basic to our adversary system to insist that the courts have the benefit of the contentions of opposing parties who have a material, and not merely an abstract, interest in the conflict. Adverse parties—adverse in reality and not merely in positions taken—are absolutely necessary. See, e. g., Muskrat v. United States, 219 U. S. 346, 361-363 (1911); California v. San Pablo & Tulare R. Co., 149 U. S. 308, 313-314 (1893); South Spring Gold Co. v. Amador Gold Co., 145 U. S. 300, 301-302 (1892). Cf. Aetna Life Ins. Co. v. Haworth, 300 U. S. 227, 240-242 (1937) (Hughes, C. J.); Fairchild v. Hughes, 258 U. S. 126, 129-130 (1922) (Brandeis, J.).
Second, this is a peculiar case in which to depart from the settled rule. The effect of the decision today is to strip the payee of its asserted right tо contribution, although the payee is not before this Court, and was not before the Court of Appeals or the District Court. The question of the relative rights and obligations of the payee and the bank ought to be resolved in litigation in which both participate.2 Cf. Mullane v. Central Hanover Bank & Trust Co., 339 U. S. 306, 314 (1950). The impact of today‘s decision upon a party not present confirms the wisdom of the rule “that when there is no actual controversy, involving real and substantial rights, between
I would vacate the judgment below and remand with direction to dismiss. See Mechling Barge Lines v. United States, 368 U. S. 324, 329-330 (1961); United States v. Munsingwear, 340 U. S. 36, 39-41 (1950).