                        United States Court of Appeals,

                                Eleventh Circuit.

                                    No. 94-2384.

                         In re Edwin Leo VANN, Debtor.

                CITY BANK & TRUST CO., Plaintiff-Appellant,

                                         v.

                      Edwin Leo VANN, Defendant-Appellee.

                                   Oct. 19, 1995.

Appeal from the United States District Court for the Middle
District of Florida. (No. 93-817-CIV-T-21C), L. Clure Morton,
Judge., and Bankruptcy Court (No. 90-10082-8B7), Thomas E. Baynes,
Jr., Judge.

Before TJOFLAT, Chief Judge, BIRCH, Circuit Judge, and HENDERSON,
Senior Circuit Judge.

       BIRCH, Circuit Judge:

       This appeal presents the first impression issue of what

standard       of   reliance   a   creditor           must    satisfy   under      section

523(a)(2)(A) of the Bankruptcy Code to prevent the discharge of a

debt.    The bankruptcy court held that a creditor's reliance on the

debtor's misrepresentations must be reasonable. The court rejected

the    creditor's      claim   that    reasonable            reliance   was   an    overly

stringent standard or, in the alternative, that their reliance met

the reasonable reliance standard.                     The district court summarily

affirmed;       we REVERSE and REMAND for further factfinding.

                                   I. BACKGROUND

       In 1985, defendant-appellee Edwin L. Vann sought credit from

City    Bank    for    the   opening    of    a       cheese    processing      plant   in

Tennessee.            Vann     submitted          a     financial       statement       to

plaintiff-appellant City Bank & Trust Company's ("City Bank"), and
a representative from City Bank visited Vann at his home in Florida

to investigate the real estate holdings and other properties relied

upon by Vann to support the extension of credit.               Between the

initiation of credit negotiations and the eventual closing of the

loan, Vann's financial condition deteriorated.            City Bank did not

request updated financial information from Vann prior to the

closing of the loan, and Vann did not disclose these changes

despite representations in the loan documents that no changes had

occurred.    Vann subsequently filed bankruptcy under Chapter 11.
     City   Bank    filed   an   adversary   proceeding    challenging   the

dischargeability of Vann's debt to it. City Bank charged that Vann

obtained the credit by false pretenses, false representations, or

actual fraud under section 523(a)(2)(A), and that it reasonably

relied on Vann's financial statement, which was materially false

under section 523(a)(2)(B)1.        The bankruptcy court concluded (1)

     1
      Section 523(a)(2) provides that an individual debtor's debt
incurred

                 (2) for money, property, services, or an
            extension, renewal, or refinancing of credit, to the
            extent obtained by—

                   (A) false pretenses, a false representation, or
                   actual fraud, other than a statement respecting
                   the debtor's or an insider's financial condition;
                   [or]

                   (B) use of a statement in writing—

                   (i) that is materially false;

                   (ii) respecting the debtor's or an insider's
                   financial condition;

                   (iii) on which the creditor to whom the debtor is
                   liable for such money, property, services, or
                   credit reasonably relied; and
that, although the bank had been "hoodwinked" by Vann, there was no

actual fraud, (2) that, even if there were false pretenses or false

representations under section 523(a)(2)(A), City Bank was required

to show reasonable reliance on Vann's representations and it failed

to meet that standard;   and (3) that City Bank's reliance on Vann's

materially false financial statement was unreasonable. R1-1-90-297

(Trans. of Proceedings).

     Upon City Bank's motion for further findings of fact and

conclusions of law as to its section 523(a)(2)(A) claim, the

bankruptcy court held that City Bank's reliance must be reasonable

under   both   section   523(a)(2)(A)     and   section   523(a)(2)(B).

Therefore, it denied City Bank's motion and entered judgment in the

adversary proceeding for Vann.          The district court summarily

affirmed the bankruptcy court.       Because we conclude that, in

contrast to section 523(a)(2)(B), section 523(a)(2)(A) does not

require the creditor to show reasonable reliance on the debtor's

representations, we REVERSE and REMAND.

                           II. DISCUSSION

        We review the bankruptcy court's construction of section

523(a)(2)(A) de novo.    See Haas v. Internal Revenue Service (In re

Haas), 48 F.3d 1153, 1154 (11th Cir.1995).        Section 523(a)(2)(A)

does not address the standard of reliance that a creditor must

prove to prevent discharge of a debt incurred for an extension of

credit obtained by false pretenses, false representation(s) or

                (iv) that the debtor caused to be made or
                published with intent to deceive....

     will not be discharged in bankruptcy.       § 523(a)(2) (emphasis
     added).
actual fraud.    Nevertheless, the circuit courts agree that, before

the bankruptcy court will withhold discharge, the creditor must

show that it relied on the debtor's misstatements as a necessary

element of recovery for false pretenses, for false representations

or for actual fraud.        See generally Eugene Parks Law Corp. Defined

Benefit Pension Plan v. Kirsh (In re Kirsh),               973 F.2d 1454, 1457

(9th Cir.1992) (per curiam);            BancBoston Mortgage Corp. v. Ledford

(In re Ledford), 970 F.2d 1556, 1559-60 (6th Cir.1992), cert.

denied, --- U.S. ----, 113 S.Ct. 1272, 122 L.Ed.2d 667 (1993);

Allison   v.   Roberts      (In   re    Allison),    960   F.2d   481,    484   (5th

Cir.1992);     Commerce Bank & Trust Co. v. Burgess (In re Burgess),

955 F.2d 134, 140 (1st Cir.1992);            Thul v. Ophaug (In re Ophaug),

827 F.2d 340, 343 (8th Cir.1987);                   Schweig v. Hunter (In re

Hunter), 780 F.2d 1577 (11th Cir.1986);               First Nat'l. Bank of Red
                                                                                   2
Bud v. Kimzey (In re Kimzey), 761 F.2d 421, 423 (7th Cir.1985).

The similarity, however, ends there.               Three standards of reliance

apparently     are   used    by   the    circuit    courts:       (1)    reasonable




     2
      The American Law of Torts provides that

                [i]t is a fundamental principle of the law of
           fraud throughout the United States, regardless of the
           form of relief sought, that in order to secure redress,
           the representee (person to whom or which the
           misrepresentation was made) must have relied upon the
           statement or representation as an inducement to his
           action or injurious change of position. As the general
           American law declares, a representation must have been
           acted upon in the manner contemplated by the party
           making it, or else in some manner reasonably probable.

     Stuart M. Speiser, Charles F. Krause, & Alfred W. Gans, 9
     American Law of Torts § 32:49 (1992).
reliance, (2) justifiable reliance, and (3) actual reliance.3

         Although there is some debate about the exact meaning of

"reasonable" reliance, see In re Kirsh, 973 F.2d at 1459-60, we

conclude the requirement of reasonableness to be a more stringent

standard than justifiable reliance or actual reliance.      But see

Martin v. Bank of Germantown (In re Martin), 761 F.2d 1163, 1166

(6th Cir.1985) (holding that the reasonableness requirement of §

523(a)(2)(B) "cannot be said to be a rigorous requirement, but

rather is directed at creditors acting in bad faith").   Reasonable

reliance connotes the use of the standard of ordinary and average

person.    See In re Kirsh, 973 F.2d at 1458, 1459-60.    The Tenth

Circuit, upon which the bankruptcy court relied, stated that

     [t]his standard of reasonableness places a measure of
     responsibility upon a creditor to ensure that there exists
     some basis for relying upon the debtor's representations. Of
     course, the reasonableness of a creditor's reliance will be
     evaluated according to the particular facts and circumstances
     present in a given case.

First Bank v. Mullet (In re Mullet),      817 F.2d 677, 679 (10th

Cir.1987).    The Tenth Circuit concluded that the bank's failure to

investigate precluded reasonable reliance.    Id. at 681-82.

     Interpreting § 523(a)(2)(B), the Fifth Circuit held that

reasonable reliance would be ascertained by asking the following

questions:

     whether there had been previous business dealings with the
     debtor that gave rise to a relationship of trust; whether
     there were any "red flags" that would have alerted an
     ordinarily prudent lender to the possibility that the

     3
      Because of the split in the circuits, the Supreme Court has
granted certiorari to a First Circuit case to answer this
question. Field v. Mans, 1994 WL 497614, No. 94-1391, 1994
U.S.App. LEXIS 24927 (1st Cir. Aug. 29, 1994), cert. granted, ---
U.S. ----, 115 S.Ct. 1821, 131 L.Ed.2d 743 (1995).
       representations relied upon were not accurate; and whether
       even minimal investigation would have revealed the inaccuracy
       of the debtor's representations.

Coston v. Bank of Malvern (In re Coston), 991 F.2d 257, 261 (5th

Cir.1993) (en banc) (per curiam);          see also In re Ledford, 970 F.2d

at 1560 (using the same reliance standard for § 523(a)(2)(A) and §

523(a)(2)(B)).4

           Justifiable reliance heretofore has been used only by the

Ninth Circuit.         In re Kirsh, 973 F.2d at 1459.               Justifiable

reliance represents a compromise between the rigid reasonableness

standard and the lenient actual reliance standard.                At the other

end of the spectrum is actual reliance.              Actual reliance requires

that       the   creditor   prove   that   he   in    fact    relied   upon   the

representations of the debtor.         Reasonableness of the reliance may

be used as proof that the creditor did rely.                 In re Allison, 960

F.2d at 485.        For the reasons set forth below, we join the Ninth

Circuit in adopting justifiable reliance as this circuit's standard

of reliance by a creditor on the debtor's misrepresentations to

prevent discharge of a debt pursuant to 11 U.S.C. § 523(a)(2)(A).5

       4
      To the extent that the reasonable reliance cases use a
subjective standard to determine whether or not the reliance is
adequate to prevent discharge, we would categorize the cases as
adhering not to a true reasonable reliance standard, but rather
to a justifiable reliance standard. See In re Kirsh, 973 F.2d at
1459-60 ("This use of the word "reasonable' in place of
"justifiable' is of no real moment unless a later reader is led
away from the true content of the reliance element.").
       5
      We address first the claim by Vann that we have already
answered this question. Relying on Schweig v. Hunter (In re
Hunter), 780 F.2d 1577 (11th Cir.1986), and St. Laurent v.
Ambrose (In re St. Laurent), 991 F.2d 672 (11th Cir.1993), Vann
argues that this court has expressly adopted a standard of
reasonable reliance. Vann rests his argument on the following
passage of In re St. Laurent:
A. STATUTORY CONSTRUCTION

      Although section 523(a)(2)(A) is silent with respect to the


          For purposes of § 523(a)(2)(A), a creditor must prove
          that (1) the debtor made a false representation with
          intent to deceive the creditor, (2) the creditor relied
          on the representation, (3) that his reliance was
          reasonably founded, and (4) that the creditor sustained
          loss as a result of the representation.

     Id. at 676 (emphasis added). Indeed, we have stated that a
     creditor's reliance must be "reasonably founded." See id.;
     In re Hunter, 780 F.2d at 1579. Vann contends that because
     In re St. Laurent was addressing the application of
     collateral estoppel to section 523(a)(2)(A), our statement
     regarding "reasonably founded" is binding on us.

          We do not view In re St. Laurent with the same effect.
     Our finding that collateral estoppel precluded the
     bankruptcy court from relitigating fraud was based on our
     conclusion that the "elements of common law fraud in Florida
     " "closely mirror" the requirements of section 523(a)(2)(A)
     and, hence, are "sufficiently identical ... to meet the
     first prong of the test for collateral estoppel." ' " In re
     St. Laurent, 991 F.2d at 676 (omission in original) (quoting
     In re Jolly, 124 B.R. 365, 367 (Bankr.M.D.Fla.1991)).
     Moreover, the Florida standard of reliance we cited in In re
     St. Laurent was actual reliance. Id. at 676 ("To prove
     fraud under Florida law, a plaintiff must establish that the
     defendant made a "deliberate and knowing misrepresentation
     designed to cause, and actually causing detrimental reliance
     by the plaintiff.' ") (quoting First Interstate Dev. Corp.
     v. Ablanedo, 511 So.2d 536, 539 (Fla.1987)). In In re
     Hunter, we concluded that there were no false
     representations or false pretenses, and accordingly, we
     never reached the issue of reliance. In re Hunter, 780 F.2d
     at 1580. We made no statement in In re St. Laurent or in In
     re Hunter, regarding what "reasonably founded" means, and we
     refuse to be bound by dicta. See New Port Largo, Inc. v.
     Monroe County, 985 F.2d 1488, 1500 n. 7 ("For good or for
     bad, opinion-writing judges—unlike legislators—can make
     cases decide no more than the cases present. For example,
     no matter how often or how plainly a judicial panel may put
     in its opinion that "we hold X,' "X' is not law and is not
     binding on later panels unless "X' was squarely presented by
     the facts of the case and was a proposition that absolutely
     must have been decided to decide the concrete case then
     before the court.") (Edmondson, J., concurring), cert.
     denied, --- U.S. ----, 114 S.Ct. 439, 126 L.Ed.2d 373
     (1993). Hence, we now address for the first time directly
     what standard of reliance is required under section
     523(a)(2)(A).
standard of reliance, its companion section 523(a)(2)(B) is not.

Subsection (B) states prominently that the creditor's reliance on

the debtor's statement must have been reasonable.               We thus begin

with the basic premise of statutory construction that " " "[w]here

Congress includes particular language in one section of a statute

but omits it in another section of the same Act, it is generally

presumed that Congress acts intentionally and purposely in the

disparate inclusion or exclusion." ' " Rodriguez v. United States,

480 U.S. 522, 525, 107 S.Ct. 1391, 1393, 94 L.Ed.2d 533 (1987) (per

curiam) (quoting Russello v. United States, 464 U.S. 16, 23, 104

S.Ct. 296, 300, 78 L.Ed.2d 17 (1983));          accord In re Haas, 48 F.3d

at 1156-57;      United States v. Jordan, 915 F.2d 622, 628 (11th

Cir.1990), cert. denied, 499 U.S. 979, 111 S.Ct. 1629, 113 L.Ed.2d

725 (1991).      Vann has pointed to no authority supporting the

concept   that   Congress    specifically     intended   for    a   reasonable

reliance standard to apply. Thus, we can deduce from the exclusion

of the reasonable reliance standard in the section immediately

preceding section 523(a)(2)(B) only that some other standard than

reasonable was intended by the legislature.           Cf. In re Ophaug, 827

F.2d at 343 (relying on the purpose behind subsection (B) to

conclude "having no reason to think that Congress meant anything

other   than   what   it   said,   we   can   only   conclude   that   section

523(a)(2)(A) does not require a creditor to prove that his reliance

on the debtor's fraudulent misrepresentations was reasonable").

B. LEGISLATIVE HISTORY

        Because Congress failed to provide the standard of reliance

in section 523(a)(2)(A), we look to the legislative history of that
section to determine whether Congress's intent can be ascertained

there. Sections 523(a)(2) of the 1978 Bankruptcy Code embodied the

revision of Bankruptcy Act section 17(2). Although there is little

information     concerning      the    passage     of   section   523(a)(2)(A),

specifically, it is clear that the Congress intended the reasonable

reliance     standard    only    for   a    nondischargeability      claim   made

pursuant to section 523(a)(2)(B).              The House of Representatives

Report on the Bankruptcy Code of 1978 contained a lengthy statement

regarding the use of false financial statements to obtain money,

property, services, or credit.             See H.R.Rep. No. 595, 95th Cong.,

1st Sess. 129-32 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6090-

93.       Section 523(a)(2)(B) specifically was enacted to protect

consumers against "abuse in consumer cases," and to guard "the

fresh start goal of the bankruptcy discharge."               Id. at 130, 1978

U.S.C.C.A.N.     at     6091    (emphasis    added).       The    report,    where

discussing the effect of false financial statements, states in

pertinent part:       "[t]he difference[ ] [is] that current law ...

requires only reliance, not reasonable reliance, by the creditor on

the statement.     The courts have recently begun to require that the

reliance be reasonable, however."            Id.   Nowhere in the report is a

reference made to a requirement of reasonable reliance to prevent

discharge on the basis of unwritten false statements. 6               Thus, our


      6
      In fact, the statements of one Representative, 124
Cong.Rec. 11,089 (1978) (statement of Rep. Edwards), reprinted in
1978 U.S.C.C.A.N. 6436, 6453, and one Senator, 124 Cong.Rec.
17,406 (1978) (statement of Sen. DeConcini), reprinted in 1978
U.S.C.C.A.N. 6505, 6522 emphasize that sections 523(a)(2)(A) and
523(a)(2)(B) are mutually exclusive in their purposes, supporting
the construction that reasonable reliance cannot be read into
section 523(a)(2)(A).
conclusion        that    only   section    523(a)(2)(B)     requires   reasonable

reliance is fortified.

C. COMMON LAW

           Because neither the statute nor the legislative history

indicates whether a creditor must demonstrate actual reliance7 or

justifiable reliance to prevent discharge according to section

523(a)(2)(A), we turn to the common law.             See In re Kirsh, 973 F.2d

at 1457-58;          Cf. Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501

U.S. 104, 106-108, 111 S.Ct. 2166, 2169, 115 L.Ed.2d 96 (1991)

("Congress is understood to legislate against a background of

common-law adjudicatory principles.");             Briscoe v. LaHue, 460 U.S.

325,       330-34,    103   S.Ct.   1108,    1113-15,   75    L.Ed.2d   96    (1983)

(concluding that witness immunity was " "so well grounded in

history and reason' that we cannot believe that Congress impinged

on it "by covert inclusion in the general language before us' "

(quoting Tenney v. Brandhove, 341 U.S. 367, 376, 71 S.Ct. 783, 788,

95 L.Ed. 1019 (1951)));             United States v. Turley, 352 U.S. 407,

411, 77 S.Ct. 397, 399, 1 L.Ed.2d 430 (1957) ("We recognize that

where       a   federal     criminal   statute   uses   a    common-law      term    of

established meaning without otherwise defining it, the general

practice is to give that term its common-law meaning.").                            The

Restatement (Second) of Torts provides the common law rule in these

cases:

       The recipient of a fraudulent misrepresentation can recover
       against its maker for pecuniary loss resulting from it if, but

       7
      The statement in House Report No. 595 that "current law ...
requires only reliance" pertains to § 523(a)(2)(B), and thus, the
statement does not reveal congressional intent regarding §
523(a)(2)(A).
       only if,

            (a) he relies on the misrepresentation in acting or
       refraining from action, and

              (b) his reliance is justifiable.

Restatement (Second) of Torts § 537 (1977) (emphasis added).

       Another generally recognized authority, Prosser & Keeton on

Torts states that "[n]ot only must there be reliance but the

reliance must be justifiable under the circumstances."                  W. Page

Keeton, Prosser & Keeton on Torts § 108, at 749 (5th ed. 1984).

The     justifiability       requirement     provides      "some      objective

corroboration to plaintiff's claim that he did rely."              Id. at 750.

        To    constitute     justifiable   reliance,      "[t]he   plaintiff's

conduct must not be so utterly unreasonable, in the light of the

information apparent to him, that the law may properly say that his

loss is his own responsibility."           Id.   This conclusion, however,

does not mean that the reliance must be objectively reasonable.

"Although the plaintiff's reliance on the misrepresentation must be

justifiable, ... this does not mean that his conduct must conform

to the standard of the reasonable man."             Restatement (Second) of

Torts § 545A cmt. b.            Justifiable reliance is gauged by "an

individual     standard    of   the   plaintiff's   own    capacity     and   the

knowledge which he has, or which may fairly be charged against him

from   the    facts   within    his   observation   in    the   light   of    his

individual case."         Prosser & Keeton on Torts at 751 (emphasis

added).      Additionally,

       [i]t is only where, under the circumstances, the facts should
       be apparent to one of [plaintiff's] knowledge and intelligence
       from a cursory glance, or he has discovered something which
       should serve as a warning that he is being deceived, that he
       is required to make an investigation of his own.
Id. at 752 (footnotes omitted);       see also Mayer v. Spanel Int'l

Ltd. (In re Mayer), 51 F.3d 670, 676 (7th Cir.1995) ("A victim who

lacks access to the truth, and has not been alerted to the facts

that would alert him to the truth, is not to be ... blocked by a

discharge under the bankruptcy laws—just because he did not conduct

a more thorough investigation.").      Under the common law, a person

was not barred from recovery because he failed to undertake an

investigation of the truth of a misrepresentation even where "the

reasonable man of ordinary caution would do so."            Restatement

(Second) of Torts § 545A cmt. b.      This subjective construction is

consistent with the Supreme Court's interpretation of the statutory

purpose.     See Grogan v. Garner, 498 U.S. 279, 287, 111 S.Ct. 654,

659, 12 L.Ed.2d 755 (1991) ("We think it unlikely that Congress ...

would have favored the interest in giving perpetrators of fraud a

fresh start over the interest in protecting victims of fraud.").

Thus, we adopt the standard of justifiable reliance.

       The    bankruptcy   court   embraced   the   reasonable   reliance

standard as stated by the Tenth Circuit and concluded that the bank

would have been "better served by demanding an appraisal," of

certain property and should have made other inquiries of the debtor

to ascertain the status of other properties.          R1-1-90-292.    The

court found that because the bank failed to do so, it was not

entitled to discharge on the basis of either section 523(a)(2)(A)

or section 523(a)(2)(B).       Although the bankruptcy court, with

hindsight, can see plainly that the bank would have been "better

served by demanding an appraisal" and by making further inquiries

of the debtor, even the cases upon which the court relied admonish
that the court should not " "second guess a creditor's decision to

make a loan' " or " "base its decision regarding discharge on

whether it would have extended the loan.' "    In re Mullet, 817 F.2d

at 681 (quoting Northern Trust Co. v. Garman (In re Garman), 643

F.2d 1252, 1258 (7th Cir.1980) (interpreting section 17(2) of the

Bankruptcy Act), cert. denied, 450 U.S. 910, 101 S.Ct. 1347, 67

L.Ed.2d 333 (1981)).

     By   adopting   the   standard   of   justifiable   reliance,   we

necessarily reject the standard of actual reliance employed by the

Eighth Circuit in In re Ophaug and the Fifth Circuit In re Allison.

It cannot be argued that a standard of actual reliance is supported

by the plain language of the statute.       Section 523(a)(2)(A) does

not mention reliance in any form and, to the extent that reliance

is required, it is as an element of actual fraud, false pretenses

or false representations that must be proven to prevent discharge

of the debt.     Moreover, a standard of actual reliance does not

"reflect a fair balance between the[ ] conflicting interests" of

discouraging fraud and of providing the honest but unfortunate

debtor a fresh start that are present in the dischargeability

provisions.    Grogan, 498 U.S. at 287, 111 S.Ct. at 659.   A standard

of actual reliance requires little of the creditor;           whereas,

justifiable reliance requires the creditor to act appropriately

according to his individual circumstances.       Therefore, the fresh

start policy of the Bankruptcy Code is intact while fraudulent

debtors are precluded from profiting from their misdeeds.

D. APPLICATION OF JUSTIFIABLE RELIANCE STANDARD

      With respect to section 523(a)(2)(A), the bankruptcy court
found that, although Vann "hoodwinked" City Bank, there was no

actual fraud in Vann's obtaining the loan from City Bank. R1-1-90-

297. The bankruptcy court, however, refused to make any additional

factfinding to assist our review.    If Vann obtained the loan from

City Bank by false pretenses or by a false representation, and if

City Bank justifiably relied on his misrepresentations, then Vann

is not entitled to discharge of that debt.        City Bank is not

required   to   prove   that   it   reasonably   relied   on   Vann's

misrepresentations.

                          III. CONCLUSION

     This appeal required us to decide the standard of reliance

that a creditor must satisfy under section 523(a)(2)(A) of the

Bankruptcy Code to prevent discharge of a debt. We have determined

that standard to be justifiable reliance.    Because the bankruptcy

court did not make sufficient factfindings for our review, we

REVERSE and REMAND to the district court with instructions to

remand to the bankruptcy court for proceedings consistent with this

opinion.
