Opinion
Bankr. No. 69826.
November 30, 1953.
C.E. Hunter, Canton, Ohio, for Bankrupt.
Charles L. Moushey, Canton, Ohio, Trustee.
Mervyn T. Grosjean, Canton, Ohio, for objecting creditor.
To the Honorable Judges of the District Court of the United States for the Northern District of Ohio, Eastern Division, Sitting in Bankruptcy:
I, Wm. B. Woods, Referee in Bankruptcy, in charge of the above proceeding, do hereby certify:
That in the course of such proceeding, the Household Finance Corp. of Canton, Ohio, filed Specifications of Objections to the Discharge of bankrupt, to which bankrupt filed Exceptions to the Specifications, hearing thereon was had, decision on the objections was reserved and an order was entered on June 11, 1953, denying the discharge of this bankrupt.
Thereafter on June 25, 1953, bankrupt filed a Petition for Review of Referee's Order denying his discharge.
Findings of Fact
1. That Luther Robinette filed his petition and was adjudicated bankrupt on January 16, 1953.
2. That Charles L. Moushey, of Canton, Ohio, is duly appointed, qualified, and acting Trustee in Bankruptcy.
3. That on September 9, 1952, bankrupt and his wife, Helen Robinette, signed a Financial Statement that he then owed, except real estate contracts and mortgages, the sum of $902.15 (Objector's Ex. A); in addition thereto he owed $895.18 to a total of twelve other creditors to whom said debts were owed on said date.
4. That on the faith of such Financial Statement, the Household Finance Corp. extended an existing loan and loaned to bankrupt the additional sum of $54.80.
5. That said Financial Statement was filled in by bankrupt's wife, signed by him and by the said wife.
6. That there was some controversy in the testimony as to whether bankrupt's wife was present when bankrupt signed the Financial Statement or whether she was at the office of the Household Finance Corp. on the same day or at a different time as said bankrupt; but this controversy is of no consequence as both parties admitted the signing and delivery of the Financial Statement to the objector.
7. That there was some difference in the testimony; bankrupt claiming that the objector by its agents advised bankrupt it was not necessary to list all his debts on the Financial Statement but only a part of them. Bankrupt also claimed that the objector belonged to agencies giving credit ratings and should have known of existing debts through such agencies which fact is immaterial as bankrupt and wife both signed the Financial Statement; and also the agents of objector deny such statements to bankrupt or to his wife, that it was not necessary to list all creditors.
Conclusions of Law
1. That where a bankrupt has signed a false financial statement and obtained an extension of credit or money by reason thereof, under Sec. 14, sub. c. of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c, such bankrupt is not entitled to a discharge.
2. That where the objector has established a prima facie case to bar discharge of bankrupt, so that the burden of proof has shifted to the bankrupt to establish by a preponderance of evidence his right to a discharge, which burden the bankrupt has failed to meet, the discharge of such bankrupt should be denied.
Memorandum
The Specifications of Objections to the Discharge of Bankrupt were on the ground that Bankrupt had issued a false financial statement in writing as to his financial condition upon which credit was extended by said objector. The relevant statute, Section 14, sub. c of the Bankruptcy Act provides:
"The court shall grant the discharge unless satisfied that the bankrupt has * * * (3) obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a materially false statement in writing respecting his financial condition".
Bankrupt was a mechanic, employed by a dairy company at Navarre, Stark County, Ohio. The financial statement was issued to the Household Finance Corporation on September 9, 1952; and, relying upon such statement, a loan was made by the objector to this Bankrupt.
The Household Finance Corporation offered in evidence the financial statement, a copy of which is set forth in the Specifications of Objections to the discharge herein filed.
Bankrupt admitted the execution of the financial statement and that he obtained and spent the money. He admitted that there were other creditors, as brought out in the testimony, which were not set out in the financial statement and were as stated in his bankruptcy petition. There was no denial of the facts presented by the objecting creditor and no denying of his borrowing or as to his other indebtedness as presented at the hearing. The Bankrupt offered testimony that he told the representative of the Household Finance Corporation at the time the statement was furnished that he had other creditors although the written financial statement signed by Bankrupt and his wife states "We have no other debts".
The question at issue is whether the Bankrupt obtained credit or money or an extension of credit on September 9, 1952 from the objecting creditor, whose agents relied upon the materially false statement in writing, and that the loan would not have been made if the statement had not been furnished.
Under Section 14, sub. c (3) it is required that it be shown not only that the statement was untrue but that it was "false". "False implies an intention to defraud, to deceive, and this in turn implies a knowledge of its untruth." 1 Collier on Bankruptcy, 14 Ed., p. 1361; Remington 5, Section 3327.
Recently there have been several particularly relevant cases that consider statements made to loan companies comparable to those in the case at bar. In Re Levine, D.C.N.Y., 28 F. Supp. 819, 41 Am.Bankr.Rep., N.S., 709; In Re Ernst, 2 Cir., 107 F.2d 760, 41 Am.Bankr.Rep., N.S., 183; Klecka v. Shuttles Bros., 5 Cir., 115 F.2d 573, 44 Am.Bankr.Rep., N.S., 204; Morris Plan Bank v. Lassman, 2 Cir., 116 F.2d 473, 44 Am.Bankr.Rep., N.S., 314. In the last case, the Court said:
"When a lender asks a borrower how much he owes, and the borrower sets a figure without qualifications, the lender properly understands that the borrower is telling what he knows; not indeed accurately to the cent, but certainly that he is not speaking at random. If he is merely guessing at the right amount — which it is necessarily within his power to ascertain — his answer is untruthful unless he in some way conditions it. It may be morally worse to tell what he knows to be false, but it is as deliberate a deceit to give an appearance of accuracy to what one knows to be a shot in the dark."
Bankrupt impresses one as a person inclined to be frank but careless in regards to his financial obligations. That is to say, he seemed not to understand that in making a financial statement as a basis for a loan that he was required to be careful and not mislead his creditor.
While Bankrupt might think his debts were negligible, so why bother to put them on a financial statement since he was only renewing a loan which he intended to pay back, yet the rule of law is that a person asking for credit is as other persons are, bound to regard the consequences of his act. So a person who makes an untrue statement recklessly suffers as one who deliberately falsifies, when the ground of objection is urged. Morris Plan Bank v. Lassman, supra.
Where it was shown that statements signed by the bankrupt and turned over by his wife to two different small loan companies were, in fact, untrue as to his debts when owing, but bankrupt contended that his wife made such statements in accord with directions of officers or employees of the loan companies, who deliberately induced her to make omissions so they could be urged in opposition to a discharge in bankruptcy, the burden of proof was on the bankrupt to so show and it could not be said that, on conflicting evidence, the referee's denial of a discharge was improper. In Re Berberich, 7 Cir., 1951, 190 F.2d 53.
When an objecting creditor shows that the bankrupt made a false statement in writing the onus shifts to the bankrupt to show that it was not relied upon. There must of course be some evidence to show that the statement was not relied on or on review a discharge will be set aside. In re Savarese, D.C. 1944, 56 F. Supp. 927, 57 Am.Bankr.Rep., N.S., 160.
A partial reliance on the false statement is sufficient to sustain an objection to the discharge. There may be a sufficient reliance on the false statement even though the creditor has made an independent investigation of the debtor's financial status. Banks v. Siegel, 4 Cir., 1950, 181 F.2d 309.
Upon the proof introduced, the objector has established a prima facie case to bar discharge, so that the burden of proof has shifted upon the Bankrupt to establish by preponderance of evidence his right to discharge. This burden the Bankrupt has failed to meet, and it must be found that Bankrupt obtained money and a renewal of credit by a materially false financial statement.
A somewhat similar situation occurred in the recent case of In re Axel, D.C. 1951, 103 F. Supp. 810, where the bankrupt offered similar evidence that he had advised the agent of the loan company about his debts and was told that he need not disclose a certain loan in the application he was furnishing to the objecting loan company. The referee denied discharge and this was affirmed by the New York District Court.
Herewith is handed up for consideration for your honors, the pleadings and exhibits with all papers in the case. Respectfully submitted.
This is a petition for review of an order of the Referee denying petitioner a discharge in bankruptcy. The Household Finance Corp., one of bankrupt's creditors, opposed the discharge on the claim that it was induced to extend a loan to the bankrupt on a fraudulent financial statement made by the bankrupt and his wife.
The bankrupt had been borrowing money for a period of years from the finance company. On September 9, 1952 he sought an increase of his loan in the amount of $54.80. Before loaning the additional sum, however, the objector required the bankrupt and his wife to make a financial statement. The evidence reveals that the bankrupt failed to disclose almost half of his indebtedness. The bankrupt asserted that he and his wife were induced to exclude certain debts by the employees of the objector who informed them that such further listing would not be required. The loan was made.
Section 14, sub. c of the Bankruptcy Act, Title 11 U.S.C.A. § 32, sub, c, provides, in part:
"The court shall grant the discharge unless satisfied that the bankrupt has * * * (3) obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a materially false statement in writing respecting his financial condition; * * *."
Section 14, sub. c requires the objector to show, not only that the bankrupt knowingly and wilfully made a false financial statement, but further that the objector was induced by the false statement to make the loan. Bank of Monroe v. Gleeson, 8 Cir., 1925, 9 F.2d 520. The mere signing of the false financial statements, however, consitutes reasonable ground to believe that the bankrupt has committed an act which would bar his discharge. The burden of proving that the objector did not rely on the statements passed to the bankrupt. Berberich v. Northern Illinois Corp., 7 Cir., 1951, 190 F.2d 53; Morris Plan Industrial Bank v. Parker, 1944, 79 U.S.App. D.C. 164, 143 F.2d 665.
It is not clear from the record whether or not the objector offered evidence contraverting the bankrupt's testimony that he was induced by the objector's employees to make the false financial statement. Be that as it may, the Referee is not compelled to accept the bankrupt's uncorroborated statement. Dixwell v. Scott Co., 1 Cir., 1940, 115 F.2d 873; In re Stine, D.C. 1945, 60 F. Supp. 703.
All that the Court can gather from the record is that the Referee found that the bankrupt made a false financial statement and that the objector relied on it in extending the loan. In so finding the Referee must have chosen to disbelieve the testimony of the bankrupt with respect to his inducement by the objector. The findings of the Referee, therefore, are not clearly erroneous, and this Court is bound to accept them. Berberich v. Northern Illinois Corp., supra; Morris Plan Industrial Bank v. Henderson, 2 Cir., 1942, 131 F.2d 975.
The order of the Referee will be affirmed, and the bankrupt's petition for review dismissed.