Rosenthal v. GUARANTY BANK AND TRUST COMPANY
| Decision Date | 14 March 1956 |
| Docket Number | No. 4078.,4078. |
| Citation | 139 F. Supp. 730 |
| Parties | Milton F. ROSENTHAL, as Trustee of the LeBlanc Corporation, et al., v. The GUARANTY BANK AND TRUST COMPANY OF LAFAYETTE, LOUISIANA. |
| Court | U.S. District Court — Western District of Louisiana |
Cahill, Gordon, Zachry & Reindel, New York City, Montgomery, Barnett, Brown & Sessions, New Orleans, La., Bailey & Mouton, Lafayette, La., for the Trustee.
Mouton & Mouton, Lafayette, La., for defendant.
The Trustee in Bankruptcy of the LeBlanc Corporation, of Louisiana, and of its parent corporation, the LeBlanc Corporation, of Maryland, herein referred to, respectively, for purposes of brevity, as the Louisiana Company and the Maryland Company, seeks to recover from the Guaranty Bank and Trust Company of Lafayette, Louisiana, the sum of $6,699.91, with interest, representing checks of the Louisiana Company drawn on its account with defendant and honored by the latter between October 4 and 10, 1951, both dates inclusive.
The case having been tried to the Court, the following are made Findings of Fact:
(1) Plaintiff, Milton F. Rosenthal, is a citizen of the State of New York, appointed on October 5, 1951, by order of the United States District Court for the Southern District of New York, as Trustee in proceedings for the re-organization of the LeBlance Corporation, a Louisiana corporation, and the LeBlanc Corporation, a Maryland corporation; he was duly qualified and promptly entered upon the discharge of his duties as Trustee, and has since been and is still acting as Trustee.
(2) Defendant, Guaranty Bank and Trust Company, Lafayette, Louisiana, is a banking corporation organized under and pursuant to the state banking laws of the State of Louisiana, with its place of business in the City and Parish of Lafayette, State of Louisiana.
(3) The Louisiana company had on deposit with defendant bank at the close of its business on October 3, 1951, an amount in excess of $6,699.91.
(4) The defendant bank cashed checks of the Louisiana company totaling $6,699.91 between October 4 and 10, 1951, both dates inclusive.
(5) Each and everyone of the checks were issued by the Louisiana company prior to the bankruptcy proceedings of October 3, 1951.
(6) The Maryland company and the Louisiana company each filed petitions for re-organization under Chapter 10 of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., in the United States District Court for the Southern District of New York on October 3, 1951. The petition of the Louisiana company was filed at 1:12 P.M. (E.S.T.). The order approving the Louisiana company's petition was signed the same day at 4:20 P.M. (E.S.T.), which is 3:20 P.M. (C.S.T.).
(7) On June 7, 1954, the New York court rendered its order adjudging both corporations bankrupt and directing that bankruptcy be proceeded with pursuant to the provisions of the Bankruptcy Act.
(8) The Louisiana company carried approximately 95% of its banking business with defendant and "Hadacol" was a million-dollar enterprise, nationally known and advertised with its center of activity at Lafayette, Louisiana, where the corporation had one of the largest payrolls.
(9) On October 3, 1951, the imminent collapse of the "Hadacol" enterprise was publicized with banner headlines in the Lafayette Advertiser, a daily newspaper having a wide circulation in the City of Lafayette, and further accounts were given of proceedings in connection therewith in issues of the same newspaper on October 4th and 5th, as well as the issues of the New Orleans States and the New Orleans Times-Picayune on October 3, 4 and 5, 1951.
(10) Defendant bank was a subscriber to the Lafayette Advertiser prior to and on October 3, 4 and 5, 1951, and the bank received the issues of that newspaper on those specific dates.
(11) R. J. Castille, President of the defendant bank, and George Arceneaux, Cashier, were both individual subscribers to the paper. The bank officials, other than R. J. Castille, President of the bank (who was out of town at the time), read of the bankruptcy proceedings in the Lafayette paper on October 3rd and the officers who were present in the bank on that day discussed the situation.
(12) It was not shown that any of the bank officials read the articles appearing in the New Orleans papers under dates of October 3, 4 and 5, 1951. The article appearing in the Lafayette Advertiser of October 3, 1951, referred to The LeBlanc Corporation of Maryland holding company for the LeBlanc Corporation of Louisiana. Nowhere in that article is any reference made to any reorganization proceedings having been filed by the LeBlanc Corporation of Louisiana.
(13) The article appearing in the issue of the Lafayette Advertiser of date October 4, 1951, makes reference to a petition filed for re-organization and a complaint of false advertising by said corporation filed by the Federal Trade Commission. On Page 4 of said newspaper, the reference is to the bankruptcy proceedings by the LeBlanc Corporation of Maryland. No mention is made therein of the LeBlanc Corporation of Louisiana.
(14) The last article appearing in the Lafayette Advertiser on October 5, 1951, reads as follows:
(15) Sometime between October 6 and October 10, 1951, Mr. Carl R. Lowe, a Lafayette representative of the Louisiana company, called Mr. Arceneaux, Cashier for the defendant bank, and told him that The LeBlanc Corporation was under reorganization and suggested that payments be stopped on the checks that had been previously issued. Mr. Arceneaux informed Mr. Lowe that it was not the custom of the bank to stop payment on any check unless a description of the check was given the bank, and he suggested to Mr. Lowe that the bank be furnished with a detailed description of the checks so that they would know which ones they were not to pay.
(16) The bank had had previous dealings with Lowe and had reason to be skeptical of Mr. Lowe's authority and advice. Mr. Lowe had previously given and countermanded orders in connection with the bank account to such an extent as to cause confusion to the bank. No attempt was made to secure the testimony of Mr. Lowe by appearance as a witness or by deposition.
(17) Mr. Castille was at a bankers' convention in Chicago on October 3, 4 and 5, 1951, but returned to Lafayette on October 6, 1951, and on that date he visited the bank and discussed with the bank's attorneys in detail the question of honoring checks on the Louisiana company's account.
(18) The officials of the bank decided to continue to honor checks until they ascertained the true status of the Louisiana company.
(19) Milton F. Rosenthal, Trustee in reorganization for the Louisiana company, by letter dated October 9, 1951, which was received by the bank on October 11, 1951, notified the bank of the bankruptcy proceedings. Payment of all checks on the account was stopped on the receipt of that notice, and the Trustee was so advised by letter on that same date.
(20) During the period from October 2nd through October 10, 1951, the status of the LeBlanc Corporation was very much confused. No one locally knew just what was happening.
(21) Officials of the defendant bank did not have "actual knowledge" of the pending bankruptcy proceedings for the Louisiana company within the meaning of the bankruptcy law. The bank officials acted in good faith and in the regular course of business in honoring the checks, which were issued prior to October 3rd.
The suit is based on Title 11 U. S.C.A. § 110, which provides that the Trustee is "vested by operation of law with the title of the bankrupt as of the date of the filing of the petition." Necessarily, any transfer of the bankrupt's bank account after the filing of the petition and adjudication would violate that rule. Defendant recognizes this, but maintains that it had no "actual knowledge" of the bankruptcy proceeding and acted in good faith when the checks were cashed. This raises a factual question, for the Trustee takes the position that as of the close of business on October 3, 1951 and thereafter, the defendant was fully aware of the pending proceedings in New York and cashed the checks in question with actual knowledge that the bankruptcy petitions had been filed.
Going a step further, the Trustee asserts with confidence and argues with conviction that since the amendment of the bankruptcy statute by the Chandler Act (effective September 22, 1938) that a bank is liable regardless of knowledge or good faith where it cashes checks of the bankrupt after the order approving a petition for reorganization was actually signed. The amendments affected by the Chandler Act relied on are as follows:
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...the District Court. 352 F.2d 186. We granted certiorari because of the importance of the question presented. Cf. Rosenthal v. Guaranty Bank & Trust Co., D.C., 139 F.Supp. 730; Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. We were advised on oral argument ......
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Bank of Marin v. England
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