Robinson v. Commercial Bank of North America

• Decision Date: 08 July 1963
• Docket Number: Docket 28053.,No. 358,358
• Citation: 320 F.2d 106
• Parties: Abraham S. ROBINSON, as Trustee in Bankruptcy of R. Appel, Inc., Appellee, v. COMMERCIAL BANK OF NORTH AMERICA, Appellant.
• Court: U.S. Court of Appeals — Second Circuit

320 F.2d 106 (1963)

Abraham S. ROBINSON, as Trustee in Bankruptcy of R. Appel, Inc., Appellee, v. COMMERCIAL BANK OF NORTH AMERICA, Appellant.

No. 358, Docket 28053.

United States Court of Appeals Second Circuit.

Argued June 6, 1963.

Decided July 8, 1963.

Nicholas Atlas, New York City (I. Alan Harris, of Livingston, Livingston & Harris, David S. Edgar, Jr., and Emanuel R. Gold, New York City, on the brief), for appellant.

Murry E. Harston, New York City, for appellee.

Before CLARK and FRIENDLY, Circuit Judges, and ZAVATT, District Judge.^*

ZAVATT, District Judge.

This is an appeal from a judgment in the sum of $70,000.00 in favor of the appellee and against the appellant after a trial at which the trial judge submitted the issues of fact to the jury on framed interrogatories, all of which were answered unanimously in favor of the appellee.

The appellee sued, claiming voidable preferences under Bankruptcy Act, §§ 60, sub. a(1) and 60, sub. b, 11 U.S.C. §§ 96, sub. a(1) and 96, sub. b, when R. Appel, Inc., on November 21 and November 29, 1960, and within four months of its bankruptcy, repaid to the appellant loans aggregating $70,000.00. The evidence was sufficient to justify submitting to the jury the question of Appel's insolvency on each of the payment dates and to support the jury's findings that Appel was in fact insolvent when each of these payments was made.

Appellant contends that there was insufficient evidence to submit to the jury the question as to whether appellant, at the time when these payments were made, had reasonable cause to believe that Appel was insolvent. Bankruptcy Act § 60, sub. b, 11 U.S.C. § 96, sub. b. In order to avoid a preferential transfer, it is not necessary to prove that the transferee had actual knowledge or even an actual belief of the insolvency of the transferor. All that is required is proof of reasonable cause to believe that the transferor was insolvent at the time of the preferential transfer. A transferee has such reasonable cause when such a state of facts is brought to his notice respecting the affairs and pecuniary condition of the transferor as would lead a prudent business person to the conclusion that the transferor is insolvent. He may not willfully close his eyes in order that he may remain in ignorance of the transferor's condition. Where the circumstances are such as would incite a man of ordinary prudence to make inquiry, the transferee 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 have acquired had he conducted such an investigation." 3 Collier on Bankruptcy § 60.53 (14th Ed. 1961). See Mayo v. Pioneer Bank & Trust Co., 297 F.2d 392 (5th Cir. 1961); Marks v. Goodyear Rubber Sundries, Inc., 238 F.2d 533, 62 A.L.R.2d 770 (2d Cir. 1956); Margolis v. Gem Factors Corp., 201 F.2d 803 (2d Cir. 1953). On the other hand, it is true that if the known facts raise only a suspicion that the transferor may be insolvent the test is not met. Mayo v. Pioneer Bank & Trust Co., supra, 297 F.2d at 395. Each case must be resolved on its own special facts.

Appel had enjoyed a line of credit up to $70,000.00 with Bankers Trust Company (hereafter "Bankers") for approximately 20 years. In February 1960 it owed Bankers $70,000.00, of which $20,000.00 was then due and $50,000.00 would become due in June 1960. Sometime before May 1960, Bankers refused to renew the $20,000.00 loan; gave Appel until March 17, 1960 to pay $15,000.00 on account and asked Appel to clean up its loans with Bankers by May 16, 1960. Shortly before May 3, 1960 Appel's new accountant went to the Commercial Bank (hereafter "Commercial") and requested the opening of a line of credit on Appel's behalf. He advised Commercial that Appel then owed Bankers $55,000.00; that Bankers insisted on payment; that Bankers had refused Appel's request "to renew $25,000 for 30 days." He submitted to Commercial a financial statement of Appel as of December 31, 1959, which listed as one of Appel's substantial assets an account receivable of $115,995.04 owed...