Gilpin v. Merchants' Nat. Bank

• Decision Date: 21 November 1908
• Docket Number: 9.
• Citation: 165 F. 607
• Parties: GILPIN v. MERCHANTS' NAT. BANK.
• Court: U.S. Court of Appeals — Third Circuit

165 F. 607

GILPIN v. MERCHANTS' NAT. BANK.

No. 9.

United States Court of Appeals, Third Circuit.

November 21, 1908

J. W Bayard, for petitioner.

H. T Dechert, for respondent.

Before GRAY and BUFFINGTON, Circuit Judges, and ARCHBALD, District judge.

GRAY Circuit Judge.

This is a petition by a bankrupt, to revise for error of law the decree of the United States District Court for the Eastern District of Pennsylvania, reversing the referee's report and sustaining one of the creditor-appellee's exceptions to his application for discharge. The sole exception thus sustained, was to the effect that the referee had erroneously held that the 'materially false statement' in writing, mentioned in clause (3) of section 14b of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 550 (U.S comp. St. 1901, p. 3427), amended by Act Feb. 5, 1903, c 487, Sec. 4, 32 Stat. 797 (U.S. Comp. St. Supp. 1907, p. 1026)), must, in order to constitute a bar to the discharge of the bankrupt, be intentionally or knowingly untrue. The facts of the case as summarized from the findings made by the referee, and elsewhere disclosed in the record, are as follows:

The bankrupt was engaged in the construction of buildings, at Baltimore, in places near New York City, and Philadelphia. His main office was in Philadelphia, where his books were kept by his bookkeeper. The bankrupt was chiefly engaged in the actual supervision of the building work he had in hand, and paid little or no attention to his books. He collected money, paid notes, and in a general way knew the condition and progress of each of his building contracts. He intrusted the keeping of his books to his bookkeeper, and in September, 1905, the posting of his books was some months behind. During that month, the bankrupt went to the Merchants' National Bank, at Philadelphia, (the excepting creditor and appellee) and stated that he wished to open an account, and would require accomodations not to exceed $10,000. The bank informed him that they would like to have a statement, and gave him one of their blank forms, to be filled out and signed by him. This form the bankrupt took to his office, and there signed the same in blank, instructing his bookkeeper to fill it out and send it to the bank. He signed it in blank before it was filled out, for the reason that he was obliged to return to Baltimore without delay. He says he instructed the bookkeeper to make an exact statement for the bank, to which the bookkeeper replied that he could not, but that he would make an approximate statement and send it to the bank.

The statement was made by the bookkeeper, and upon it was written the word 'approximate,' and it was sent by the bookkeeper to the bank. Upon this statement, and upon a note which the bankrupt was to obtain from one Stokes, of Baltimore, as collateral, the bank extended the accommodation desired. This note was never obtained for the bank from Stokes. About October 3, 1905, and after the said statement of September 28th had been filed by the bank, the note of the bankrupt for $7,500, due 30 days after date, was discounted. After two renewals and a payment of $1,000 on account, and the further discount of a 10 days' note of $2,500, the bank, on the 9th day of February, 1906, renewed the entire amount then due, viz., $9,000, for 30 days, which is still unpaid.

The adjudication of bankruptcy was entered February 26, 1906. The approximate statement sent by the bookkeeper to the bank was materially inconsistent with the bankrupt's books, as they stood at the time the bankruptcy occurred. There is nothing in the referee's report to show how the books actually stood at the time the statement was prepared by the bookkeeper. There is no evidence that the bankrupt ever saw this statement after it was filled out, that the bank ever showed it to him, or interrogated him in regard to it, or that he ever asked to see it. This statement showed a net worth of $43,569.27. The bankrupt himself made up from his books, during the course of his examination, a statement showing that his net worth at that time was $45,698.09. This statement, however, in all its items fails to coincide with the statement made up by the bookkeeper and delivered to the bank.

The referee finds that, although the falsity of the statement sent to the bank has been proved, the fact that the bankrupt knew it to be false, or did not know it to be true, was not proved, and says:

'There is no evidence to support the contention that the bankrupt knew or had any reason to believe that the statement sent to the bank by the bookkeeper was false, or that the bankrupt intended in any way to deceive the bank.'

The referee, therefore, reported that a decree of discharge of the bankrupt should be entered. To the finding of the referee, as stated, the appellee filed its exception, and the court below, after considering the same, reversed the finding of the referee and directed that an order be entered, sustaining the said objection to the bankrupt's discharge.

Section 14 of the bankrupt act prescribed the conditions upon which a discharge may be granted to the bankrupt by the court of bankruptcy in which the proceedings are depending, and provides that the court shall hear and investigate the merit of the application and discharge the bankrupt, unless he has--

'(1) committed an offense punishable by imprisonment, as herein provided; or (2) with intent to conceal his financial condition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained; or, (3) obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtaining such property on credit; or (4), at any time subsequent to the first day of the four months immediately preceding the filing of the petition transferred, removed, destroyed, or concealed, or permitted to be removed, destroyed, or concealed any of his property with intent to hinder, delay, or defraud his creditors; or (5) in voluntary proceedings been granted a discharge in bankruptcy within six years; or (6), in the course of the proceedings in...