Clower v. First State Bank of San Diego, Texas

• Decision Date: 15 April 1965
• Docket Number: No. 21604.,21604.
• Citation: 343 F.2d 808
• Parties: George CLOWER, Trustee in Bankruptcy of the Estate of Sinton Plumbing & Supply Company, Inc., Appellant, v. FIRST STATE BANK OF SAN DIEGO, TEXAS, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

343 F.2d 808 (1965)

George CLOWER, Trustee in Bankruptcy of the Estate of Sinton Plumbing & Supply Company, Inc., Appellant, v. FIRST STATE BANK OF SAN DIEGO, TEXAS, Appellee.

No. 21604.

United States Court of Appeals Fifth Circuit.

April 15, 1965.

Charles R. Porter, Jr., R. Briscoe King, Corpus Christi, Tex., for appellant.

No appearance for appellee.

Before BROWN and BELL, Circuit Judges, and HUNTER, District Judge.

HUNTER, District Judge:

The Trustee in Bankruptcy of the Estate of Sinton Plumbing & Supply Company, Inc. (hereinafter referred to as "Sinton") brought suit to set aside payments of $8,600 made by the bankrupt to the defendant bank within four months of the bankruptcy.

Section 60 of the Bankruptcy Act (Title 11 U.S.C.A. § 96, sub. a(1) states as follows:

"A preference is a transfer, as defined in this title, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this title, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class."

Section b of the above identified statute states as follows:

"Any such preference may be avoided by the trustee if the creditor receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent."

Section b of the statute then goes on to say that the Trustee may recover the property or its value from any person who has received such property.

All the elements of a preference voidable under Section 60, sub. b were stipulated to exist except the last, namely, the requirement that the creditor shall have "reasonable cause to believe" that the debtor was insolvent at the time of the transfer.

This appeal is uncontested, and in support of the District Court's judgment, this Court was neither favored by brief nor argument or appearance of counsel. The sole question is whether the district judge erred in finding that defendant bank did not have reasonable cause to believe Sinton insolvent when it received the payments of $8,600. We hold that this finding was erroneous and that the trustee is entitled to judgment.

A multitude of cases set forth the legal standards to be applied in resolving the question of reasonable cause with respect to voidable preferences. Numerous cases delineate the scope of appellate review where as here the factual determination is primarily a matter of drawing inferences from undisputed facts. The facts of instant case are closely analogous to those in Mayo v. Pioneer Bank & Trust Company, 297 F. 2d 392, 5 C.C.A. 1961, where this Court, in carefully chosen language, defined the legal standards applicable there and here. Judge Wisdom put the rule in these words:

"Cases on the point have evolved a fine line to apply in determining whether a creditor has `reasonable cause to believe\' that a debtor is insolvent. For reasonable cause to exist, it is not necessary that a person benefited by a transfer know positively that the result of the transaction will be to effect a preference: it is sufficient for a finding of reasonable cause that the person or his agent has knowledge of such facts 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. Compare Marks v. Goodyear Rubber Sundries, 2 Cir., 1956, 238 F.2d 533, 62 A.L.R.2d 770 with Lang v. First National Bank in Houston, 5 Cir., 1954, 215 F.2d 118. See 3 Collier on Bankruptcy § 60.53.

* * * * * *

"Under Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C. A. the trial judge\'s findings of fact are conclusive unless clearly erroneous, but when the factual determination is primarily a matter of drawing inferences from undisputed facts or determining their legal implications, appellate review is far broader than where disputed evidence and questions of credibility are involved. Mitchell v. Raines, 5 Cir., 1956, 238 F.2d 186; Galena Oaks Corporation v. Scofield, 5 Cir., 1954, 218 F.2d 217. Our scope of review in this case is broad, since the decision turns not on what the officers of the bank in fact believed, but on what they had `reasonable cause\' to believe; and, most of the basic facts are undisputed."

More obvious indications of solvency than those present in the instant case would be difficult to conceive. Sinton was insolvent from its very inception. When the alleged preference payments were made, it was hopelessly insolvent and going downhill fiscally...