223 F. 853 | D. Maryland | 1915
‘ The president of the bank has testified that the bank, in discounting the notes now held by it, relied upon the statement of January 31, 1914. Lenders of money and sellers of merchandise, when they get a statement from a borrower or a buyer, sometimes require him to stipulate that, until he notifies them of some change which should be made in it, they shall be entitled to rely on it as a substantially accurate summary of his financial condition whenever he borrows or buys. Questions of how far and how long the debtor is bound by such an agreement occasionally arise. But there are none of them in the instant case. The charge here is, not that the condition of the bankrupts changed for the worse between the time they furnished the statement and the dates at which their various notes now held by the bank were discounted for them by it, but that when they gave such statement to it they knew it was false, both as to their condition on the day it bore date and on the day it was delivered to the bank.
Four successive annual statements were made between the death of Turnbull and the bankruptcy. In none of them was the amount owing his estate included among the liabilities, although in accordance with the express agreement of the partners it was charged as such on the firm’s hooks. On the 31st of January, 1914, the amount of this indebtedness was $105,172.39.- The statement as of that date given the banks by the bankrupts showed their assets to amount to $196,999.-10 and their liabilities to $96,369.62. If the firm then owed nothing more, its net worth would have been $100,629.48, and such the statement purported to show it was. In point of fact, the firm was "then insolvent on the face of its own books to the extent of $4,542.91, being the difference between the apparent excess of its assets over liabilities, as shown by its statement, and the amount of its indebtedness to the Turnbull estate.
Prior to December, 1913, there had been no business relations between the bankrupts and the bank. In the last-mentioned month the bank acquired the assets of the National City Bank, in which the bankrupts had an account, and from which they were borrowers. In that way the bank became the owner of four notes of the bankrupts, for $22,500 in the aggregate. At some time after the account was taken over by the bank, the bankrupt Waite had an interview with its president. At that time Waite was asked about certain matters not shown on the statement, as, for example, the rent of the warehouse used by his firm, how long the lease thereof had still to run, and the approximate amount of its annual sales. Memoranda of the answers to these
Waite testifies that the item was not included in the statement, because the latter was made out in the same form which had been customary before Turnbull’s death, and because he regarded it as a statement of the firm’s “working capacity.” Before Turnbull’s death there was, of course, no liability to him to be included. The bankrupts’ belief that the debt would not be pressed, so as to embarrass them, did not justify its omission from the statement of their liabilities. In re Miller (D. C.) 192 Fed. 730; In re Arenson (D. C.) 195 Fed. 609; Josephs v. Powell, 213 Fed. 627, 130 C. C. A. 291.
In the case at bar the bankrupts, a few days before the maturity of each note, offered for discount a new one for a smaller amount. The discount was made and passed to their credit. Thereafter they drew a check for the payment of the old note. In form, therefore, there was the payment of an old loan, and the contracting of a new. If the parties had used currency, instead of checks, the case would have been on all fours with In re Arenson, supra. The bank would have given the bankrupts the proceeds of the new note in currency, and on the same day, or, as was usually the case, on a subsequent day, the bankrupts would have brought other bills or coins to the bank to pay off their matured obligation. Nothing of that kind was done. Discount of new note, payment of old, were alike made without any actual currency changing hands. It is true, there never would have been money
The bankrupts cite cases to show that for many purposes courts have regarded such a series of transactions as the mere renewal or continuance of an existing indebtedness. Whenever, to do justice between the parties, it is necessary to look through the form to the substance, it will be done. But is there any such necessity presented by this case? Whenever a note matured, the bank, until it agreed to renew it, had the right to insist upon being paid in full. It is more than probable that it would have exercised such right, had it known that the books of the bankrupt showed it to be-insolvent. It consented, by accepting a new note, to surrender its right to insist on payment for the time during which that note was to run. Was not, or at least may not, the practical effect upon it have been precisely the same as if upon the faith of the false statement it had made an absolutely new loan ? Under such circumstances, can the bankrupts be heard to say that the form which they voluntarily gave their dealings with the bank is not binding on them, in order that they may escape the consequences of doing that which may have damaged the bank precisely as much as it would have been damaged, had the form which actually was adopted accurately represented in every respect and from every standpoint what was in fact -done ? In short, the false statement is clearly such as is in spirit within the condemnation of section 14b (3), and the form which the transactions between the parties took is within its letter. With this conclusion agrees Judge Chatfield, if I correctly understand his decision in Re Wylly (D. C.) 210 Fed. 954.
It follows that the bankrupts are not entitled to a discharge.