Barnhill v. Johnson
112 S. Ct. 1386, 1992 U.S. LEXIS 1955, 503 U.S. 393 (1992)
Rule of Law:
For purposes of the Bankruptcy Code's preference avoidance section, 11 U.S.C. § 547(b), a transfer made by check is deemed to occur on the date the drawee bank honors it, not the date the check is delivered to the recipient.
Facts:
- The debtor made payment for a bona fide debt to petitioner Barnhill.
- The check was delivered to Barnhill on November 18.
- The check was dated November 19.
- The drawee bank honored the check on November 20.
- The debtor later filed a Chapter 11 bankruptcy petition.
- The 90th day before the bankruptcy filing was November 20.
Procedural Posture:
- Respondent Johnson (trustee) filed an adversary proceeding against petitioner Barnhill in Bankruptcy Court, claiming the check payment was recoverable as a preference under 11 U. S. C. § 547(b).
- The Bankruptcy Court concluded that a date of delivery rule should govern and therefore denied the trustee recovery.
- The trustee appealed to the District Court, which affirmed the Bankruptcy Court's decision.
- The trustee then appealed to the Court of Appeals for the Tenth Circuit.
- The Tenth Circuit reversed, concluding that a date of honor rule should govern actions under § 547(b).
- The Supreme Court granted certiorari to resolve a Circuit split among the Courts of Appeals.
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Issue:
Does a transfer made by check, for the purpose of the Bankruptcy Code's preference avoidance section, occur on the date the check is delivered to the recipient or on the date the drawee bank honors it?
Opinions:
Majority - Chief Justice Rehnquist
No, for the purpose of the Bankruptcy Code's preference avoidance section, a transfer made by check occurs on the date the drawee bank honors it, not the date of delivery. The Court reasoned that under federal law, supplemented by state law principles (U.C.C.), receipt of a check does not give the recipient a right against the drawee bank, but is merely an order to the bank. No unconditional transfer of the debtor's interest in property occurs before the check is honored, as the debtor retains full control over the account (e.g., ability to stop payment) and the account remains subject to third-party actions. A 'transfer' of the debtor’s claim against the bank (an 'interest in property' under § 101(54)) only takes effect when the bank honors the check, at which point the debtor's account is charged. Characterizing delivery as a 'conditional transfer' of property would unduly expand the statutory definition, as the recipient has no actual interest in the debtor's bank account until honor. This interpretation is consistent with § 547(e)(2)(A), which states a transfer occurs when it 'takes effect between the transferor and the transferee.' The Court also rejected reliance on legislative history suggesting a 'date of delivery' rule, noting that such history explicitly applied only to § 547(c) (exceptions to preferences), not § 547(b) (general preference avoidance).
Dissenting - Justice Stevens
Yes, for the purpose of the Bankruptcy Code's preference avoidance section, a transfer made by check occurs on the date the check is delivered to the transferee, provided that the check is honored within 10 days. Justice Stevens argued that this aligns with traditional commercial practice and tax law, which generally treat the date of delivery as the payment date if the check is subsequently honored. He contended that the expansive definition of 'transfer' in § 101(54) includes 'conditional' transfers, and delivery of a check effects a conditional transfer of the right to funds in the debtor's account. Reading §§ 101(54) and 547(e)(2) together, a transfer by check is 'made' on the date of delivery if it is 'perfected' (meaning when no creditor can acquire a superior judicial lien, which occurs upon honor) within 10 days. If not honored within 10 days, the transfer occurs on the date of honor. He also emphasized the consistency principle, arguing that 'transfer' should have the same meaning in both § 547(b) and § 547(c), where courts unanimously apply a date of delivery rule for checks, supported by legislative history.
Analysis:
This case significantly clarifies a critical point in bankruptcy law regarding the timing of transfers made by check, providing certainty for trustees and creditors in preference avoidance actions. By adopting the 'date of honor' rule for § 547(b), the Supreme Court aimed to prevent debtors from making 'eleventh-hour' payments that could fall outside the 90-day preference window if a 'date of delivery' rule were applied. The decision reinforces that federal bankruptcy law defines 'transfer' and its timing, even while drawing upon state commercial law to determine 'property' interests. Furthermore, it limits the application of legislative history to specific statutory subsections, underscoring the importance of precise statutory language over general statements of intent when interpreting different provisions of the Bankruptcy Code.
