Kalodner, Van Dusen and Stahl, Circuit Judges.
This is an appeal from a District Court order of November 26, 1968, denying a Petition for Review of a Referee's October 4, 1968, order adjudging "that George W. Myers is a bankrupt". The November 26, 1968, Memorandum Opinion of the able District Judge states the procedural background as follows:
"On June 12, 1968, the petitioning creditors in this cause filed an involuntary petition in bankruptcy charging a preferential payment while insolvent. In its answer the debtor denied insolvency. The issue was narrowed, by agreement, to one question: was the alleged bankrupt insolvent on the date of the payment, May 29, 1968? The referee held a hearing at which time evidence was reviewed from witnesses called by the creditors. The debtor was given an opportunity to offer testimony but advised the referee that it would rest its case without the introduction of any additional testimony. An adjudication of bankruptcy followed. The debtor petitioned for review and we remanded. After holding an additional hearing the referee reaffirmed his previous order which forms the basis of the present petition for review."
The above-mentioned remand to the Referee was explained in the District Court Memorandum Opinion of September 6, 1968 as follows:
"Upon consideration of the arguments advanced before us, we noted a distinct confusion surrounding the facts in this case. Illustrative of this confusion was the testimony of the impartial accountant in regard to the status of the alleged bankrupt on May 29, 1968. His audit was made on June 20, 1968 and was not conducive to a proper determination of the solvency or insolvency of the petitioner on the crucial date of May 29, 1968. Upon reviewing the circumstances of this case, it would better serve the interests of justice to refer this question to the Referee in order to enable him to take additional testimony and resolve these conflicts."*fn1
One of the reasons stated in the Petition for Review of the Referee's October 4 order was the Referee's refusal "to allow the alleged bankrupt to introduce evidence in rebuttal of the testimony presented at the remand hearing on September 25, 1968." We have concluded that the District Court's order of November 26, 1968, must be reversed. The alleged bankrupt was denied procedural due process by the Referee's refusal of its offer to present evidence at the close of the evidence introduced by the petitioning creditors at the additional remand hearing on September 25. See Republic National Bank of Dallas v. Crippen, 224 F.2d 565, 566 (5th Cir. 1955), where the court said:
"The specification of error relied upon by appellants in this court is the refusal of the trial court to allow appellants to introduce any evidence in support of their claims. Other specifications of error were assigned, but the above specification is the heart of the whole controversy.
"* * * The right to be heard on their claims was a constitutional right and the denial of that right to them was the denial of due process which is never harmless error. [Citing cases.]"
The fact that the alleged bankrupt did not elect to rebut the evidence produced by the petitioning creditors at the first hearing did not constitute a waiver of its right to rebut the evidence they introduced at the additional September 25, 1968, hearing.*fn2 When it was prevented from introducing its own testimony at the remand hearing, the alleged bankrupt was thereby placed in the position of being unable to rebut the evidence the District Court stated on September 6 that it needed for a decision as to its solvency or insolvency.*fn3
We express no opinion on the merits, including the issue of the solvency or insolvency of the alleged bankrupt on May 29, 1968. The November 26, 1968, order of the District Court will be reversed and the case will ...