Court Opinion

ID: 9448292
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:30:15.316845+00
Date Added: 2024-06-11T17:31:21.911262
License: Public Domain

On Petition for Rehearing
PER CURIAM.
In its petition for rehearing the Pioneer Bank & Trust Company reiterates its contention that it had no reasonable cause to believe Twin City was insolvent on January 10, 1956. The petitioner relies strongly on the test as set forth in Grant v. First National Bank, 1878, 97 U.S. 80, 24 L.Ed. 971 and on this Court’s application of the test in Lang v. First National Bank of Houston, 5 Cir., 1954, 215 F.2d 118.
In Grant the Supreme Court stated the standard in the following terms:
“ * * * It is not enough that a creditor has some cause to suspect the insolvency of his debtor; but he must have such a knowledge of facts as to induce a reasonable belief of his debtor’s insolvency, in order to invalidate a security taken for his debt. * * *”
Collier phrases it:
“Knowledge of insolvency is not necessary, nor even actual belief thereof; all that is required is a reasonable cause to believe that the debtor was insolvent at the time of the preferential transfer. A creditor has reasonable cause to believe that a debtor is insolvent when such a state of facts is brought to the creditor’s notice, respecting the affairs and pecuniary condition of the debtor, as would lead a prudent business person to the conclusion that the debtor is insolvent. Of course, a creditor may not wilfully close his eyes that he might remain in ignorance of his debtor’s condition. On the contrary, where circumstances are such as would incite a man of ordinary prudence to make inquiry, the creditor is chargeable with notice of all facts which a reasonably diligent inquiry would have disclosed. In such case, an inquiry of the debtor alone is generally insufficient where his answer, under the circumstances, could readily have been found to be untrue. As a matter of fact, it is the creditor’s cause for belief and not the debtor’s knowledge, or lack of it, that is important. And if the creditor fails to make an inquiry when he has a duty to do so, he will be charged with all the knowledge which he would *397have acquired had he conducted such an investigation.” 3 Collier on Bankruptcy § 60.53.
in our original opinion we said:
. “For reasonable cause to exist, it is not necessary that a person enefitted by a transfer know positive y that the result of the transaction will be to effect a preference. 1 is sufficient for a finding of reasonable cause that the person or his , . . , , . , . agent has knowledge of such facts .... n as would induce a person of reasonable prudence to make inquiry, when such inquiry would have developed the facts essential to a knowledge of the situation. On the other hand, if the known facts should raise only a suspicion that the debtor might be insolvent, the test is not met.”
We find no necessary conflict between the test as we phrased it and the test as stated in Grant and elaborated on in Collier.
There are certain facts in Lang v. First National Bank of Houston which, if collected and isolated from other facts, support the petitioner’s position that Lang presents a stronger case for the trustee’s recovery than the instant case. For example, the bankrupt’s officers specifieally told the bank’s officers that they were worried about their company’s financial condition. We are more impressed, however, with the facts distinguishing Lang from the instant case. Thus, in Lang the Court pointed out:
“To be sure, the appellee knew that the bankrupt was having difficulty meeting current obligations— which, after all, was the reason working capital was needed. But it also knew that the bankrupt had several lucrative jobs in progress and that some were near completion. * * * The bankrupt showed the appellee’s officer that there were more than a half-million dollars in retainages on one job alone, explaining that receipt of this amount would remedy the situation considerably.”
This is a crucial distinction. Twin City (Gray) had no “lucrative jobs in progress” with “a half-million dollars in re-on one fb alonf’• J™11 Ci^ had only one contract and had been paid almogt in fulL Moreoyer> in Lang there -was nothing comparable to the alter ego relation of Twin City to Gray. Nor is there the remotest resemblance between Lang’s candid, above-board actions and Gray’s gyrations.
„ , , . ... ., I he Court has again carefully consid- . * .... . . ered the record. The petition for rehearlng’ IS
_ Denied,
7 CAMERON, Circuit Judge,
I dissent,