Moody Natl Bank v. Shurley

Case Type:
Case Status:
23-50163 (5th Circuit, Oct 20,2020) Not Published
Business debt to bank is dischargeable under facts of this case, which failed to establish the required elements under 523(a), namely: (a) a reasonable investigation would have revealed prior blanket lien; (b) no reasonable or justifiable lender reliance on the debtor's representations; (c) debtors lacked intent to deceive; and (d) debtors lacked subjective motivation to harm lender, nor was there an objective substantial certainty of harm to the bank.
Procedural context:
United States Bankruptcy Court for the Western District of Texas denied bank's objection to discharge under Section 523(a). District Court affirmed. Fifth Circuit affirmed.
Chapter 7 debtors (husband and wife) took out a loan from Moody National Bank to support the debtor's wood-working business. The debtors had a short pre-existing relationship with the bank, having requested a prior loan, which the bank denied; however the bank and debtors continued discussions about potential financing. With the lender's knowledge, the debtors obtained a small receivables loan from a different lender, secured by a filed UCC-1 filing indicating a blanket lien on all the debtors' business assets. The bank subsequently approved two loans to the debtors, but the bank's due diligence failed to confirm the pre-existing receivables loan or lien. Debtors made one payment before defaulting on the bank's loans.
Higginbotham, Stewart, and Southwick (Per Curium)

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