101 F. 982 | W.D. Ark. | 1900
On April 4, 1899, A. O. Morgan, the bankrupt, filed an application for discharge, and notice was given creditors, returnable April 15, 1899. On that day the remonstrants filed specifications opposing the discharge. The court ordered a hearing of the application for discharge on May 10, 1899. For some reason, the case was not then heard. A demurrer, however, was interposed to the specifications, and taken in short upon the record, and on the-day of November, 1899, was conceded by the remonstrants, and they were allowed, without objections, to file amended specifications. On the 14th of November, 1899, amended specifications were filed, to which the bankrupt on November <22d interposed a demurrer and a motion to strike out. The former was over
The bankrupt has filed an answer to the specifications, and the proofs have been taken. Only two grounds contained in the specifications for refusing the discharge need be noticed. It is charged that the bankrupt, while engaged in the banking and mercantile business at New Lewisville, Ark., contemplated the following acts of bankruptcy; that is to say:,
“(1) To convey his stock ol' merchandise at said town of New Lewisville, Arkansas, witli the intent to hinder, delay, and defraud his creditors, and to conceal his cash on hands, notes, accounts, ehoses in action, and securities, with such intent. (2) While insolvent, to transfer, to Hicks Company, Limited, who was then one of his creditors, a part of his property, with the intent to prefer said Hicks Company, Limited, over his other creditors, and also to pay to the treasurer of Lafayette county, Arkansas, the sum of money, to wit, $8,000, which the said treasurer had deposited in said Citizens’ Bank as a general deposit, and thereby preferring, while insolvent, the said treasurer over his other creditors; and that while contemplating said acts of bankruptcy, with the fraudulent intent to conceal his true financial condition, he failed to keep books of account or records, both in his business as merchant and as banker, from which his true condition might be ascertained, in this: that 1he pretended books and records produced by the said bankrupt in this proceeding, and kept by him, failed to disclose either a true statement of his assets or of Ills liabilities, or from which the amount of assets on hand and the amount of liabilities due by the said Morgan could be ascertained.”
The second ground taken in the specifications for refusing his discharge is this:,
“That the said bankrupt has committed an offense punishable by imprisonment, as is by the bankrupt law now in force provided, in this: that said Morgan did willfully and fraudulently omit from his inventory and schedule filed herein cash which he then held, or was held 'for him by others and subject to his control, in the sum of, to wit, $10,000.”
It cannot be doubted, in view of the testimony taken, that, when the bankrupt sold out liis stock of merchandise, he did so with the intent to prefer the Hicks Company, Limited, and also with the intent to prefer the treasurer of Lafayette county, Ark. He not only testifies that that was his object in selling out the stock of’ merchandise, but he testifies that after he sold out that he devoted almost the entire proceeds of the sale to the payment of the claim of the Hicks Company, Limited, and to the treasurer of Lafayette county, Ark., as he intended to do. That the sale of his stock of goods, wares, and merchandise with that intent was an act of bankruptcy, there cannot be any question, because the necessary effect of it was to hinder, delay, and defraud his other creditors. In Loveland, Bankr. p. 608, par. 3, the author says:
*984 ■ “What is meant by' the -words ‘in contemplation of bankruptcy’ has been the subject of a good deal of discussion and difference of judicial opinion in this country and in England. In some cases it has been held to mean ‘in contemplation of insolvency,’ or a simple inability to pay as debts should become payable. In other cases it has been held that the debtor must contemplate an act of bankruptcy, or a voluntary application for the benefit of the bankrupt law. The most authoritative definition of these words in this country is contained in the opinion in Buckingham v. McClain, 13 How. 108, 14 L. Ed. 190. In that case the supreme court decided that the words ‘in contemplation of bankruptcy’ did not mean ‘in contemplation of insolvency,’ or a simple inability to pay as debts should become due and payable, but meant that the debtor must contemplate the commission of what was declared by the act to be an act of bankruptcy, or must have contemplated an application by himself to be declared a bankrupt.”
It must, therefore, in the light of this decision, be held that when Morgan sold his stock with a view of appropriating the proceeds-to the payment of the Hicks Company, Limited, and to the treasurer of Lafayette county, Ark., to the detriment and to the exclusion of his other creditors, the act was in contemplation of bankruptcy. But it is not enough, to refuse his discharge, that he made the sale of his stock of merchandise “in- contemplation of bankruptcy.” It must also appear that in 'addition thereto he had, “with the fraudulent intent to conceal his true financial condition, failed to keep books of account or records from which his true condition might be ascertained.”
The proof shows that B. R. Farrar, the county treasurer of Lafayette county, Ark., had deposited, of county funds, about $3,468.63 with the Citizens’ Bank, which bank was the property of Morgan, and that Morgan had assumed to pay Hicks Company, Limited, about $900, which was due it from the firm of whom Morgan had bought both the bank and a small stock of merchandise, including a large amount of outstanding accounts. It further appears from the bankrupt’s evidence that when he sold his stock of goods, wares, and merchandise to Millwee, who was a traveling salesman for a St. Louis firm, which firm was a creditor of Morgan, he sold it at 50 per cent, of cost and carriage, or about $4,100, and took in payment thereof two checks on banks, — one for about $2,703.09, and one for either $900 or $1,000, — and the balance, presumably, in cash. The former check, it appears from the bank books, was deposited in the bank to the credit of the Morgan store, and, according to the testimony of Morgan’s bookkeeper, was turned over to the attorney of the treasurer of Lafayette county in part payment of Farrar’s deposit with the bank. The other check was made payable to Hicks Company, Limited, and turned over to his agent at the time it was given, and no entry made of it on either the books of the bank or the store; nor does any entry appear in the books of the store with reference to the check which was turned over to the treasurer of Lafayette county. The sale of the stock of merchandise and the payment of these two debts (one debt by the bank, and the other by the store) were, to all intents and purposes, parts of a single transaction. Indeed, the sale was made, as above stated, in order that these two debts might be paid. , They were important transactions, involving large sums. They were transactions in which the bankrupt’s cred
He owes mercantile debts amounting to.........................§14,975 42
He owes Millwee............................................... 4,100 00
Total ................................................... §19,075 42
His stock seized in the hands of Milhvee, cost price. ... § 8.24S 5(>
Store accounts, uncollected at the sale, and made by him
after he entered into business, abom................ 5,829 0(5
Total ........................................ $14,078 22 14,078 22
i ___
Balance unaccounted for........................................ § 4,997 20
It must not be overlooked that, the $5,829.66 of store accounts were for goods sold on time, and, as the bankrupt himself testified, at a profit of not less than 33/; per cent.; and, moreover, that no profit realized on $45,000 of sales is taken into the account, as above stated. It is fair to assume that the profits realized on cash sales, and on credit sales which were collected, more than paid the fimband personal expenses, without reference to any profits realized on cotton, so that the deficit should be enlarged instead of reduced, especially when it is remembered that considerable sums have been proven against his estate, with his knowledge and approval, by his clerks, which properly belong to the expense account. The bankrupt was only in business about eight months, and his personal expenses, in a. small country town, upon a liberal estimate, would scarcely exceed $1,000. An examination of his bank books does not relieve the situation. It will be assumed that the $2,128.87 appearing to Morgan’s individual account on the books of the bank went to pay its depositors, although it does not appear that this balance was ever carried into Morgan’s store account on the books of the bank. Mor»
Assets ........................................................ $21,035 25
Liabilities ..................................................... 15,748 20
Surplus ................................................. $ 5,287 05
Of these assets, as shown by the books, $12,956.13 are gone, and no account of them given, either on the books or otherwise; $5,829.66 are sundry uncollected accounts, of nominal value, for goods sold by the store between February and November, 1898; $1,031 represents overdrawn accounts, of what value it does not appear; while the $15,748.20 in liabilities are mercantile debts and unpaid deposits, all created during the eight months he was in business. I may sum it up in this way: He started in business in February, 1898, with sufficient assets, if properly handled, to pay the bank and store debts,— certainly enough, and a surplus, if the $4,100 paid him by Millwee be considered. He was in business only eight months. It is true, the assets were not ready money, nor readily convertible 'into money, but in goods, moneys, live stock, bank safe, fixtures, and open accounts, bills receivable, and the like. He sold goods from which he realized over $45,000. His profits on goods sold on credit, he said, averaged 33-2.- per cent., and on cash sales 10 per cent. When he sold out, in November, 1898, he had on hand goods and other property which sold for about $5,500, and uncollected book accounts for goods sold by him of $5,829.66, — the accounts representing goods sold'at a profit of 33-J- per cent., — and he owed mercantile debts, including the money Millwee paid him, of $19,075.42. I cannot reconcile the condition of things as stated above either with integrity of conduct or purpose; nor can I, in view of these facts, believe that his books were kept in the shape they were otherwise than with the intent to conceal his true financial condition from his creditors. It is said that the fact that he did not make proper entries upon his books when he quit .business was of no importance, and yet the very object which the bankrupt law had in view, when it required books to be kept, was that when a failure occurred the creditors might be able to- ascertain the true condition of the bankrupt. I am constrained to find that his true financial condition cannot be ascertained from the books and records kept by him, and that he has not accounted for or turned over to his trustee all of his estate. What he has done with-it, or what disposition has been made of it, does not appear. The discharge is refused on both the grounds above stated, and it is so ordered.;