Bankruptcy–Bank Paying Depositor’s Check After His Adjudication in Bankruptcy is Liable to Trustee for Amount of Check–Bank of Marin v. England
Prior to filing a voluntary petition in bankruptcy, which is an automatic adjudication of bankruptcy, depositor delivered five checks to Eureka Fisheries drawn upon depositor’s account in appellant Bank of Marin. Six days after the filing, Eureka Fisheries presented the checks to appellant and received payment. Appellee, depositor’s trustee in bankruptcy, did not notify appellant of the bankruptcy proceedings until after appellant had honored the checks. An order was sought by appellee from the referee in bankruptcy requiring appellant, or in the alternative Eureka Fisheries, to return the amount of the honored checks to the bankrupt’s estate. The referee issued the requested order, and his ruling that appellant and Eureka Fisheries were jointly liable was affirmed by the bankruptcy court. On appeal to the Ninth Circuit, held, affirmed. After an adjudication in bankruptcy, a bank has no authorization to pay any checks drawn by a bankrupt depositor, since, upon adjudication, all of the bankrupt’s property vests by operation of law in the trustee; when checks are honored after adjudication, a bank is liable to restore the sum paid out of the bankrupt’s account even if the bank did not receive notice of the adjudication.