Title

Does Payment by Check Constitute a Transfer Upon Delivery or Payment?

Publication Date

Winter 1990

Document Type

Article

Abstract

The inherent delay between delivery and a check's payment is significant in determining whether the transfer occurs upon delivery or payment of the check. A dilemma is created if a check is received on the 93rd day before the debtor's bankruptcy petition is filed, but payment occurs on the 89th day before the petition is filed. When is the transfer of funds considered to have occurred for the purpose of determining whether the payment is avoidable as a preference, on the 93rd or 89th day before the petition was filed?

The first section of this article analyzes of the legal obligations of each party to a check: the payee, drawer and drawee bank. It is the date on which the drawee bank becomes legally obligated to the payee that should control when the transfer occurs under section 547(b). Under section 547(c) the transfer occurs when the payee accepts the check with the understanding the check discharges the drawer's debt. The second section advocates that any decision of when the transfer occurs must consider how relying on the legal obligations of each of the three parties advances or inhibits the policy goals expressed by both sections 547(b) and 547(c) of the Bankruptcy Code. A ruling under section 547(b) that the transfer occurs upon payment by the drawee bank advances the policy goal of that subsection. The policy goal of section 547(c) is advanced by a holding that the transfer occurs upon delivery of the check. Any reliance on section 547(e) in reaching a decision of when the transfer occurs is misplaced, because Congress intended that provision to apply to security interests.

Publication Title

American Bankruptcy Law Journal

Volume

64

Issue

1

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