Elbro Knitting Mills v. Schwartz

• Decision Date: 18 January 1929
• Docket Number: No. 5123.,5123.
• Citation: 30 F.2d 10
• Parties: ELBRO KNITTING MILLS v. SCHWARTZ.
• Court: U.S. Court of Appeals — Sixth Circuit

30 F.2d 10 (1929)

ELBRO KNITTING MILLS v. SCHWARTZ.

No. 5123.

Circuit Court of Appeals, Sixth Circuit.

January 18, 1929.

Arthur E. Fixel, of Detroit, Mich. (Fixel & Fixel, of Detroit, Mich., on the brief), for appellant.

Irwin I. Cohn, of Detroit, Mich., for appellee.

Before DENISON, MOORMAN, and HICKS, Circuit Judges.

HICKS, Circuit Judge.

Max Grossberg was adjudged bankrupt June 1, 1927. His estate passed into the hands of Schwartz, trustee in bankruptcy. On April 26 and April 28, 1927, Elbro Knitting Mills sold Grosberg certain bathing suits, valued at the cost of $211.50. Before Grosberg's estate passed into the hands of his trustee, Schwartz, there was a receiver's sale, and these bathing suits were sold thereat, but with the understanding that the proceeds thereof were to be held in place of the merchandise. On December 1, 1927, Elbro Knitting Mills, hereinafter called petitioner, filed its amended petition, seeking to recover from the trustee the value of the property. The trustee resisted, and the petition was denied. The order denying the petition simply recites that, the petition "not having been sustained, the same is hereby denied." Petitioner sought review, and the order of the referee was confirmed. In his certificate to the judge (General Order XXVII), the referee undertakes to set out in detail the grounds upon which his general order of dismissal was based. Assuming that the referee could thus supplement the dismissal order and that we have here a concurrrent finding of the referee and judge, we do not regard ourselves strongly bound thereby, because the finding substantially embodies a deduction from facts some of which are in the record by stipulation and none of which are seriously disputed rather than conclusions upon conflicting evidence (Ohio Valley Bank v. Mack C. C. A. 6 163 F. 155, 158, 24 L. R. A. (N. S.) 184; Johnson v. Ellmers et al. C. C. A. 6 295 F. 685), and we are constrained to believe that an analysis of the evidence makes it clear to a moral certainty at least that the bankrupt, without intention or expectation of paying therefor, induced petitioner to part with his goods by concealing both his insolvency and his intention.

As to insolvency, on April 26 and 28, 1927, the date upon which he gave orders for petitioner's merchandise: The official audit, admittedly true, shows that bankrupt's inventory on January 1, 1927, was $12,107.58. Up to May 1st he purchased additional merchandise to the amount of $24,491.69. If he had sold no goods, he would have had on hand May 1st $36,599.27 worth of goods at cost. He had sold goods to the value of $14,417.82, leaving on hand $22,181.45, if he had sold at cost. But his indebtedness at that time for merchandise alone was $23,313.59, leaving a balance against him of $1,132.14, but his sales did not represent cost. If he sold these goods at all, and did not otherwise dispose of them, the sales were at a loss of sometimes as great as 50 per cent. In addition, he owed $1,760 in bank. Thirty days later he went into bankruptcy, with a total indebtedness of $28,514.19 and total assets of $15,589.65. He had failed for $12,924.54 as per his books, but the formulas of bookkeeping are not alone to be relied upon to determine insolvency. There are other practical considerations.

The audit reveals the market value of Grosberg's assets at $11,674.48, leaving a deficiency of $15,079.71 within about 30 days after the sale by petitioner. The financial condition at the time of bankruptcy is relevant evidence upon the question of solvency at any recent time prior thereto. Bailey v. Hornthal, 154 N. Y. 648, 49 N. E. 56, 61 Am. St. Rep. 645; Oppenhym & Sons v. Blake (C. C. A. 8) 157 F. 536. The failure for this large amount so soon after receipt of petitioner's goods creates an inference of insolvency at that time. That Grosberg knew he was in failing circumstances from January 1, 1927, and that he was by March or April at least clearly insolvent, is demonstrated by the stipulation as to his testimony found in the record. We quote briefly therefrom:

"On the first day of each month my bookkeeper gave me a list of the people I owed money to.

"Up to January, 1927, I always discounted my bills. After that I no longer discounted the bulk of my bills.

"Creditors pressed me for their past due bills all through January, February, March and April, 1927. I gave many of them post-dated checks. When the checks came due, I was not always able to meet them and when I needed money to pay these post-dated checks, I had to sell merchandise at less than cost. I would sell goods for whatever I could get and I would not let a customer go out. This was going on all through the months of February, March and April, 1927.

"Merchandise was being sold at a loss throughout this period, sometimes goods were sold at as great a loss as 50% off cost in order to realize money for the payment of bills and post-dated checks.

"The shrinkage in my business from January 1, 1927, to the date of bankruptcy, June 1, 1927, was due to the sale of merchandise for less than cost."

Before the filing of the bankruptcy petition Grosberg told Mr. Morse "that I was busted."

That Grosberg was concealing his condition from January 1, 1927, is apparent. The last financial statement made by Grosberg to Dun & Co. was on February 28, 1926. He then listed his assets at $15,304.93, his liabilities at $5,959.53 and his net worth at $9,346.40. On February 24, 1927, Singleton, the agent of Dun & Co., called upon Grosberg for a financial statement. He did not make it; neither did he reveal that he had made an inventory as of January 1, 1927. He stated that an inventory would be taken about the end of March, 1927, and that a financial statement would be forthcoming about 30 days after that date,...