Clancy v. First National Bank of Colorado Springs, 10038.

• Decision Date: 12 May 1969
• Docket Number: No. 10038.,10038.
• Citation: 408 F.2d 899
• Parties: James Kendall CLANCY, Appellant, v. The FIRST NATIONAL BANK OF COLORADO SPRINGS, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

408 F.2d 899 (1969)

James Kendall CLANCY, Appellant, v. The FIRST NATIONAL BANK OF COLORADO SPRINGS, Appellee.

No. 10038.

United States Court of Appeals Tenth Circuit.

March 28, 1969.

Rehearing Denied May 12, 1969.

Thomas J. Mitchell, Paul B. Rodden and Rodden, Cooper, Woods & Mitchell, Denver, Colo., for appellant.

Byron L. Akers, Jr., and Haney, Howbert & Akers, Colorado Springs, Colo., for appellee.

Before JONES^*, Senior Judge, Court of Claims, and BREITENSTEIN and HICKEY, Circuit Judges.

JONES, Senior Judge.

This is an appeal from an order of the District Court for the District of Colorado, In Matter of Clancy, 279 F.Supp. 820, which reversed the decree of the Referee in a bankruptcy proceeding. The Referee overruled the objections filed by the bank and granted the bankrupt a discharge. The District Judge reversed the order of the Referee and denied the bankrupt a discharge.

Appellant filed a voluntary petition in bankruptcy on March 10, 1967, and was adjudicated a bankrupt on that date. On September 1, 1967, the First National Bank (Appellee) filed specific objections to a discharge in bankruptcy. On October 18, 1967, a hearing was held before a Referee in Bankruptcy, at which hearing considerable testimony was taken. After the hearing, December 19, 1967, the Referee found that the financial statement which was submitted by the bankrupt was not materially false and that the bank could not sustain its objection because it had not relied substantially on the financial statement. The Referee further found that the bankrupt was engaged in a business within the meaning of § 14, sub. c(3) of the Bankruptcy Act.

After an oral argument on the petitions for review, the district court on February 21, 1968 reversed the Referee's findings ruling that the Referee was clearly erroneous in his findings concerning the financial statement, but affirmed the Referee's finding that the bankrupt was engaged in a business within the meaning of § 14, sub. c(3).

Appellant Clancy by his own acknowledgement, was a professional trader in the market and this was his only business activity from 1965 until bankruptcy in 1967. During this time, he had no other job and his only office was at the stockbrokers office at Boettcher and Company. He had been dealing solely in stock trading and had been engaged in transactions which involved many thousands of dollars.

On February 6, 1967, Clancy applied for an unsecured loan of $16,000.00. He had overbought his position in the stock market and needed the funds to meet a margin call on his stock trading account at Boettcher and Company. He applied for the loan at the First National Bank of Colorado Springs, the Appellee. Mr. Thomas Moon, the bank's president, requested a written financial statement since it was required in making an unsecured loan.

Clancy provided the financial statement showing that he and his wife had a combined net worth of $2,119,800.00 with total assets of $2,188,800.00 and total liabilities of $69,000.00. Though submitted as a joint financial statement of Mr. and Mrs. Clancy, it was signed only by the applicant, Clancy. While he listed $69,000.00 as the total liabilities, he, at the time of the application, was obligated to two other banks on secured loans totaling $150,000.00: $120,000.00 at the Central Colorado Bank and $30,000.00 at the Colorado Commercial Bank, both of Colorado Springs. The Appellant did not disclose the existence of either of these loans to Banker Moon and the banker had no knowledge of them when he made the loan. In fact, only 3 days prior on February 3, 1967 to the date of the loan from appellee bank, Clancy had obtained the $120,000.00 loan from the Central Colorado Bank.

Apparently these loans in February were not enough to save Clancy from bankruptcy in March when he filed a voluntary petition in bankruptcy, only a month after he negotiated the unsecured loan.

Appellee bank objected to the general discharge of the bankrupt under § 14, sub. c(3) of the Bankruptcy Act, 11 U. S.C.A. § 32 sub. c, which reads in pertinent part as follows:

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 * * *.

After a hearing, the Referee found that (1) the bankrupt was engaged in business within the meaning of the Bankruptcy Act, (2) the financial statement was not materially false and that the bankrupt's misrepresentation was not intentional, and (3) there was not actual reliance upon it by the bank.

We agree with the findings of the Referee only as to number 1, and agree with the district court's rejection of findings 2 and 3.

The determination of the Referee that the bankrupt was engaged in "business" within the meaning of the Bankruptcy Act was affirmed by the district court. We believe this conclusion to be correct. The bankrupt not only spent all of his time buying and selling stock but he testified that he considered himself to be a "professional trader under the rules of the S.E.C." Every business day since December of 1965, he had been involved in stock transactions at his only office at Boettcher and Company, and these activities were his only source of income.

In 1960, the Congress amended § 14, sub. c to give the court the right to refuse a discharge in bankruptcy to any bankrupt making a materially false statement in writing respecting his financial condition "while engaged in business as a sole proprietor, partnership, or as an executive or a corporation."¹

The courts have long struggled with the term "business" and what is meant by it. It was stated in In re Green's Estate, 109 Misc. 112, 178 N.Y.S. 353, 360 (1919):

How equivocal the noun "business" really is will be readily perceived by trite examples. * * * If I go a-fishing in this state, I am not a-doing business there; but if a fishmonger goes a-fishing to replenish his stall in this city, he is doing business within the Tax Law. It is because of the ambiguity denoted that the courts properly say that the colloquial word "business" if used in statutes is among the most indefinite in the English language.

Though concluding that a bankrupt sharecrop farmer was not engaged in "business" within the purview of amended § 14, sub. c(3), the court in In re Simms, 202 F.Supp. 911 (E.D.Va. 1962), examined the legislative history of the 1960 amendment in its effort to determine the intent of the Congress. The court states at pages 913, 914:

The legislative history draws a clear line of demarcation between one engaged in "business" and one engaged in "non-commercial activities." * * * * * * * *

We turn to what Congress intended by the use of the word "business" in amending § 14 of the Bankruptcy Act. The Committee reports, as suggested, contrast "business" activity with "non-commercial" activity. * * * A fair interpretation of what Congress was attempting to do in amending § 14 and § 17 would lead to the reasonable conclusion that Congress meant to retain under § 14, sub. c(3) that type of business which is mercantile in character — one that is with regularity

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