## Facts

- A depositor wrote checks on its account at Bank of Marin before filing a voluntary bankruptcy petition.
- After the petition was filed, the checks were presented for payment, and the bank honored them without knowledge or notice of the bankruptcy.
- The bankruptcy trustee sought a turnover order requiring the bank (and alternatively the payee) to remit the amounts paid to the bankruptcy estate.
- A bankruptcy referee held the bank and the payee jointly liable for the amounts paid; the district court affirmed, and the Ninth Circuit affirmed on the view that the filing vested title in the trustee and effectively froze the account regardless of the bank’s knowledge.
- While Supreme Court review was pending, the payee satisfied the joint judgment in full and then demanded contribution from the bank.

## Issues

1. Whether the case became moot after the payee paid the joint judgment in full.
2. Whether a bank that, without knowledge or notice of a debtor’s bankruptcy and without revocation of authority, honors checks drawn before the petition but presented after filing is liable to the bankruptcy trustee for the amounts paid.

## Decision

- The Supreme Court held the case was not moot because the payee’s contribution demand left the bank exposed to further litigation based on the judgment.
- The Court reversed, holding the bank was not liable to the trustee for honoring the checks under these circumstances.
- The Court rejected the view that a voluntary petition automatically freezes a debtor’s checking account as against an uninformed drawee bank.
- The Court reasoned that, absent notice or revocation, a bank must honor properly drawn checks and should not be made liable for doing so without knowledge of the bankruptcy.
- The Court indicated that, if recovery was appropriate as an invalid transfer, it was more equitable to seek it from the payee who benefited rather than from the bank that merely discharged its ordinary obligation.

## Legal Principles

- Filing a voluntary bankruptcy petition does not, by itself, constitute notice to a drawee bank.
- A bank that pays checks drawn prepetition but presented postpetition is not liable to the trustee when the bank lacked knowledge or notice of the bankruptcy and its payment authority was not revoked.
- Statutory vesting of the debtor’s title in the trustee as of the petition date governs the debtor–trustee relationship but does not automatically impose liability on third parties who, without notice, perform preexisting duties.
- Equitable considerations may counsel placing responsibility for an avoidable postpetition benefit on the transferee/payee rather than on an innocent intermediary bank.

## Conclusion

The Supreme Court reversed and held that a bank does not incur liability to a bankruptcy trustee for honoring checks drawn before a voluntary bankruptcy petition and presented after filing when the bank had no notice of the bankruptcy and no revocation of its authority to pay.


Bank of Marin v. England, 385 U.S. 99 (1966)