201 F. 1004 | W.D.N.Y. | 1913
The special master found that the bankrupt Simon did not, in contemplation of his bankruptcy, fail to keep proper books of account with intent to conceal his true financial condition, or the financial condition of the firm of Meyer & Simon of which he was a member; that, even assuming that the books were improperly kept, Simon had nothing to do with keeping them; that he did not obtain money or property on credit based upon a materially false statement made by him in writing; that he did not, as claimed by the objecting creditors, destroy certain books and records of the partnership by which its true .financial condition could have been ascertained; and that he did not malee a false oath in the bankruptcy proceeding. The specifications of objection to the discharge of the bankrupt embodying the various grounds of opposition with the evidence in their support are submitted for consideration upon the ground that the special master erred in his conclusions. Claim is also made by the trustees that it was proven before the referee in bankruptcy that the bankrupt had concealed from his creditors assets amounting to $250,000; and that he should be required to surrender to his trustees the amount concealed. Upon this phase of the controversy the special master found that no assets whatsoever were concealed, to which determination exceptions have been filed, and an appropriate question is presented for review. The involuntary petition was filed on the 7th day of October, 1910, and the adjudication followed on October 25th. The liabilities were $809,801.54, and the assets $441,219.82. A brief description of the nature of the business of .the bankrupt and the status of the firm at the time of filing the petition in bankruptcy follows.
Inventory taken December 31st, 1909.
Assets.
Stock on hand.........................1...................... $302,187 85
Cash on hand and in bank.................................... 15,729 30,
Book accounts................................................ 21,598 75
Investments .......................... 424,180 70
Fixtures ..................................................... 12,500 00
$776,196 60
Diabilities.
$ 68,822 40 Merchandise .............................
180,000 00 Banks ...................................
$248,822 40 .
Net worth..,........................................... $527,374 20
Insurance ..........'................................... $250,000 00
[Signed] Ely Meyer & M. O. Simon.
•The statements were untrue in various important particulars. For instance the cash on hand and' in banks was $6,281.85 less than claimed' in the statement. That such was the fact appears clearly enough' from the testimony of the accountant who examined the books at the request of the receivers in bankruptcy, and which testimony it seems, to me was not successfully controverted. It is claimed by the trustees that the books of the bankrupt failed to show the true value of the merchandise on hand, though the statements gave such value as $302,-187.85. No inventory of merchandise on hand was kept, the bankrupt testifying to the customary destruction thereof at the end of, the year. That the item of $302,187.85 representing clothes and trimmings largely exceeded the real value thereof is not seriously con-' troverted. The claim that there was no intention to overestimate such value, and that the bankrupt was unacquainted with the contents of the statements as they were not actually written by him or under his' direction, is insufficient, as hereinafter more particularly stated, to-justify holding that what he actually did was unaccompanied by a fraudulent intention or purpose. One of the statements was signed’ add delivered by him personally, and another was delivered by him' and his partner. Circumstances arising in the conduct of a partnership or joint venture can readily be conceived which would justify holding one of the partners blameless for acts done by a partner with fraudulent intent, and under such circumstances a discharge, should' not' be denied him, but it is inconceivable that the bankrupt Simon, having signed the statement and delivered the same, was ignorant of' the purport of th’e statements and their falsity. Certain it is that he participated in- the' benefit of the loans from the banks and of’the'
It is also shown that in December, 1909, the American Woolen Company took an order from the bankrupt, and that, before making a delivery, inquiry was made of Dun & Co. as to the financial standing of the firm. At the request of the commercial agency, the bankrupt delivered to it a copy of the above-quoted statement signed by him in the name of the firm. Upon transmission of this statement to the. American Woolen Company, credit was given the firm to the amount of $21,000, the value of the merchandise previously ordered, but not delivered. In my mind there is no doubt that the credit was given in reliance upon the truthfulness of the representations contained in the statement, which, as has been said, was false in the particulars dwelt upon, and also in respect to the item of investment which was stated as amounting to $424,180.70 and included $240,000 purporting to be the value of leasehold interests in stores in different cities. That such values were overstated by approximately $100,000 is undoubted. Nothing was paid outright for the leases, and their value was largely speculative and conjectural. Did the bankrupt intentionally falsify the claim of investments to deceive his creditors? Expert evidence was given to show that the lease in Boston had no distinct market value, the bankrupt having in fact agreed to pay too large a rental, and that efforts to dispose of such lease had failed before the making of the statement, yet $20,000 was stated to be its value. The value of the leasehold in Chicago, which contained a restriction against subletting the premises without the consent of its lessor, was likewise overstated.
An analysis of the evidence indicates that in the year 1909 the firm sustained losses of upwards of $300,000, losses of such magnitude that Simon may be presumed to have been aware thereof at the time of making the statements in question to the banks and to the commercial agency, statements which owing to the excessive values put upon the investment account and upon the stock on hand show a large increase of business and property. The bankrupt knew that statements were annually given to Dan & Co., Commercial Agency, for general circulation among the trade, and he thoroughly understood the purpose and usefulness thereof. He knew that further credit and the character of the firm’s rating depended upon the representations made, and he also knew, as indicated by the exhibit Culver letter, that the trade was commenting unfavorably upon the firm’s financial condition.
“(3) obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtaining such property on credit.”
After stating the history of the amendment and its wording as it left the House of Representatives and was afterwards changed in the Senate, the court said:
“It would seem from this that the ordinary statement of financial condition' made to a mercantile agency for general circulation among its inquiring subscribers would not be within the statute.”
Several cases were reviewed without an expression of opinion thereon by the court which substantially held that, where statements were made to commercial agencies with the intent that they should be shown to creditors or used to meet inquiries made for the special purpose of extending credit if satisfactory, the same rule applied as if the bankrupt had himself made the false statements and procured credit thereon. In 1910 subdivision 3 was again amended and broadened. It now reads:'
“(3) obtained money or property on credit upon a materially false statement in writing, made by him to any person or his representative for the purpose of obtaining credit from such person.” Act June 25, 1910, c. 412, § 6, 36 Stat. S39 (U. S. Comp. St. Supp. 1911, p. 1496).
And in Re Petersen, 10 Am. Bankr. Rep. 355, it is held that the right to a discharge is governed by the law at the time of filing the petition.
In this case Simon knew that inquiries were being made to the commercial agencies concerning the firm of which he was a member, and he no doubt made the objectionable statement to quiet such inquiries and to obtain credit from the American Woolen Company, and loans and advances from banks, and not simply for the purpose of continuing the previous rating. In Re Kyte (D. C.) 174 Fed. 867, it was held that the procurement of credit upon an intentionally false statement made to a mercantile agency, to prevent the giving out of unfavorable reports to subscribers bars a discharge.
The fourth specification relates to concealment of assets'. Inasmuch as it has already been found herein that the bankrupt misrepresented and exaggerated the value of the assets of the firm, I am unable to hold on this record that he also concealed assets from his trustee in the large amount claimed. If the bankrupt possessed the amount of money and property claimed to have been concealed from his trustees;, the probabilities are that-the affairs of the firm would not have
There were other reasons assigned for withholding the discharge, among which were omissions to schedule property, and the making of a false oath in this proceeding, but the specifications lack proof. Preliminary objection was made by the bankrupt to the sufficiency of the specifications because of improper verification, but I think such technical objection may be overruled.
My conclusion is that the trustees and the objecting creditors have proven by a fair preponderance of the evidence that the bankrupt by materially false statements in writing .made with an intention of misrepresenting the value of his assets obtained money and property from the objecting creditors who relied upon such statements. The discharge will be withheld on that ground, and, as the evidence is insufficient to sustain specifications two, three, and four, they are dismissed. An appropriate order embodying this disposition of the specifications and of the question which was submitted for review and answered in the negative may 'be entered.