122 F. 313 | D. Mass. | 1903
A creditor seeks to prove a debt after the expiration of a year from the filing of the petition. Objection thereto is made by the bankrupt alone. The contention of the peti
In order to sustain his contention, the creditor must establish two propositions, one of fact and one of law: First, that the bankrupt’s statement in his schedule was fraudulently made; and, second, that, if creditors are led by a false and fraudulent schedule of the bankrupt not to prove their claims within a year, they may prove them thereafter as against an objection made by the bankrupt alone.
x. The bankrupt scheduled, “One policy in United States Life Ins. Co. N. Y. City, for $1,000, payable to Mary E. Towne, wife of debtor.” This was in fact a policy on the life of the bankrupt for $1,000 on the 20-year endowment plan, payable, in the event of his death, to his wife, but, if the insured should live to October 15, 1902, payable to him. The petition in bankruptcy was filed November 23, 1900. The statement in the schedule was erroneous, and likely to mislead, inasmuch as it gave no notice of the important rights in the policy which belonged to the bankrupt and to his trustee in bankruptcy. The status of policies more or less like this has been so much discussed and doubtéd, however, that the bankrupt’s inaccurate and incomplete statement, standing by itself, does not conclusively establish his fraud or bad faith. The court has to determine if the entry in the schedule was made in honest error or in fraud of creditors. The bankrupt owed the insurance company $150, and had pledged the policy as security for the debt. This debt he omitted from his schedule intentionally. His explanation of the omission was contradictory and unsatisfactory. Had this debt been scheduled, the trustee and the creditors would have been put upon inquiry concerning the nature of the policy in question. The omission is some evidence of fraud. A few months after the adjudication, the trustee made inquiry concerning the policy.' The local agent of the insurance company refused to give him any information. From the office of the company in New York he obtained the necessary details, but then took "no further action. The creditors had no notice of the discovery. Smith, a proving creditor, not concerned in the present petition, sought to interrogate the bankrupt with a view to discovering concealed property, or to prevent a discharge, either or both. The inquiry was continued from time to time until after the expiration of the year, when the bankrupt procured his brother to buy off Smith. The bankrupt having petitioned for his discharge, the trustee, as required by the practice in this district, filed a report upon the petition. This report objected to the discharge on the ground that the bankrupt had not kept proper books, that he had concealed property generally, and that he had bought off the creditor Smith.
The original misstatement made by the bankrupt concerning the insurance policy, whether made in honest error or in fraud, certainly tended to prevent creditors from proving their debts. The bankrupt’s share of the policy belonged to his creditors, however the policy was scheduled; and, had he been actuated by an honest desire to carry out the purposes of the bankrupt act, he would have delivered the policy up to the trustee for the creditors’ benefit as soon as its status was pointed out to him; or, if he doubted the legal right of the trustee, he would not have sought to prevent his creditors from sharing in the fund when the trustee’s title was established. Even if he originally misled his creditors in good faith, yet he is now seeking to take advantage of his mistake, and to prevent his creditors from sharing in property which would have been divided among them had they not been misled by his original error. The law may, in some cases, permit a bankrupt to avail himself of a technicality which defeats the reasonable operation of the bankrupt law. If this bankrupt has throughout acted in legal good faith, though he seeks to profit by his original error, it may be that his attempt will be successful. His conduct, however, requires closer scrutiny than would that of a bankrupt contending for something morally fair and reasonable. Upon the whole, considering the misdescription in the schedule, the apparent attempt to mislead by omitting the debt to the insurance company, the buying off of the creditor Smith when his inquiry threatened to be inconvenient, and the peculiar dealings with the trustee, I find that the bankrupt’s schedules were not prepared in good faith, but with an intent to mislead the creditors, which attempt he now seeks to make effectual.
2. The court has next to consider if the bankrupt can prevent the allowance of a claim offered for proof after the expiration of a year, where the delay was caused by his own fraud. The language of section 57n of the statute (Act July 1, 1898, c. 541, 30 Stat. 561 [U. S. Comp. St. 1901, p. 3444]) is unqualified, but cannot, I think, be intended to govern in a case like this. The decided cases were concerned with the right of a tardy creditor to prove in competition with creditors who had been diligent, not with the right of a bankrupt to prevent the payment of a creditor whose tardiness had been caused by the bankrupt’s own fraud. In re Leibowitz (D. C.) 108 Fed. 617; In re Rhodes (D. C.) 105 Fed. 231; In re Hawk, 52 C. C. A. 536, 114 Fed. 916; In re Moebius (D. C.) 116 Fed. 47; Bray v. Cobb (D. C.) 100 Fed. 270; In re Shaffer (D. C.) 104 Fed. 982. That all creditors who have duly proved their claims are to be paid in full before the petitioner can .receive anything is admitted. As against the bankrupt, the allowance of the proof offered can be supported
Judgment of the referee reversed, and matter remanded to him, with direction to proceed in accordance with this opinion.