No. 322 | 2d Cir. | Jun 6, 1927
Lead Opinion
(after stating the facts as above). The objections of the appellant to the confirmation of the composition may be grouped under four heads: (1) False financial statement; (2) concealment, removal, or destruction of books of account and records; (3) concealment of assets by virtue of failing to make reasonable explanation of gross discrepancy recently occurring; and (4) not for the best interest of creditors.
Appellant has shown that the bankrupt’s written financial statement of March 1, 1925, sets forth a greater inventory and less liabilities than in fact existed in a substantial amount; but that alone is not sufficient to warrant refusal of the composition.
Under section 14b of tfie Bankruptcy Act, (Comp. St. § 9598), it is essential to show that the bankrupt obtained credit from a person upon a materially false statement in writing, made to such person for the purpose of obtaining such property or credit; and the weakness of the appellant’s ease lies in the fact that it does not appear that the objecting creditors relied upon these statements in issuing and granting credit to the bankrupt.
The statement was mailed to the appellant on June 1, 1925, at which time the bankrupt was indebted to it in the sum of $6,032.84, and between that time and the bankruptcy the credit extended to him was but $364.60, while his payments on account of the indebtedness amounted to $2,785.51, thus reducing the liability of the bankrupt to the appellant to $3,-611.93. Considering the dealings between the appellant and the bankrupt, it does not seem to us that reliance on the statement in granting credit in the sum of $364.60 has been shown.
The statement was received by the First National Bank of Bridgeport some time after March 1st, and on April 17th the bank loaned the bankrupt $1,000. The testimony shows that the bankrupt had been a depositor in the bank for about 8 years, and that it had extended credit to him on his own paper to the extent of $5,000.
There was but little difference in the amount of the bankrupt’s indebtedness to the bank at the time of the receipt of the statement and at the time of the bankruptcy. That the bank did not rely on the statement, notwithstanding the claim made by the cashier to the effect that his opinion of the bankrupt was not as good when he applied for the loan on April 17, 1925, as it was a year before, is shown by the letter recommending the bankrupt, written by the cashier to a New York bank on July 29, 1925.
The bankrupt presented all his books of original entry, and did all in his power to as
In any event, the absence of the book does not seem to have greatly interfered with ascertaining the financial condition of the bankrupt, and we do not believe that the evidence is sufficient to sustain a finding of concealment, removal, or destruction of books of account or records, because the general ledger, some inventory sheets, and some trial balances have not been found. In the face of our finding as to the financial statement, the evidence does not sustain a finding of concealment of assets.
Nothing specific as to the payment of money or delivery of merchandise in an irregular or fraudulent manner, ■ constituting a fraudulent concealment or transfer, - was shown. There was no evidence of any extraordinary purchases, suspicious sales, or removal of property, or disposition of -money or property at any time before the bankruptcy; on the contrary, the business appears to have been carried on in the regular course, and the assets to have been substantial.
The composition seems to be fair and, while not controlling, still of great weight on the question of whether the composition is for the best interest of the creditors, is the fact that less than 2 per cent, of the creditors in number, and less than 10 per cent, in amount, have objected to it. The evidence does not warrant a finding that a greater amount would have been paid to creditors by administering the estate, nor that the composition was not for the best interest of the creditors.
The order appealed from is affirmed.
Dissenting Opinion
(dissenting). The specification for issuing a false financial statement on March 1st appears to me amply proved in two particulars; the amount of the inventory, and.of the bills payable. The January inventory as contained in the books was about $44,000, and was shown by bookkeeping which was not challenged to have remained for 30 days about the same. The inventory put into the issued statement was $62,000. Here was a discrepancy of over $17,000, that nobody attempts to explain, except by the word of a not impressive witness, that the January inventory was “incorrect.” In what respects it was incorrect, we are not told; no details are given; no verification offered; no substitute figures suggested. The stark assertion is all we have; itself a most improbable one. But this is not all. That very inventory was used on March 15th, or shortly before, in an income tax return, after its putative incorrectness had admittedly been discovered. Even in June, when the bookkeeper who made it up came back to the shop, she did not try to change it. How there can be any fair doubt, in the face of such proof, that this item was deliberately false, I cannot conceive.
As to the item of bills payable I need say no more than that there is no escape from the conclusion that at least $8,000 of the Uknity goods must have been sold before February 1st. If not, why give $8,000 of acceptances? The fact that the acceptances may not have been due, or not finally passed by the seller, is quite immaterial. When the goods were sold, debts arose which ought to have been included. The explanations or attempts at explanation seem to me trivial. Thus there is a discrepancy of over $25,000 in the statement. That, coupled with the bankrupt’s shifty testimony, of a kind familiar enough, satisfies me that we have here to do with the usual ease of a dishonest trader, who ought not to get his discharge, no matter however many of his creditors are willing to take their pittance.
Nor can I see that it makes any difference that the bankrupt paid off more on his accounts with the objecting creditors after they got the statement than the value of what he received during that period. It has been held again and again that a creditor may rely on other things, so long as he in fact relies on the statement. There seems to me no reason to doubt that in this case it was one of the factors on which they did rely. I should so hold, even if it were proved that they would have lent or sold without the statement. It is enough if they believed it, and if it in any part actuated their conduct.
I dissent.