In re Finder, 77.
| Decision Date | 05 December 1932 |
| Docket Number | No. 77.,77. |
| Parties | In re FINDER. SMITH v. FINDER. |
| Court | U.S. Court of Appeals — Second Circuit |
Nathaniel J. Palzer, of New York City (Michael S. Gleason, of New York City, of counsel), for appellant.
Edward Vogel, of Brooklyn, N. Y. (Milton Wexler, of New York City, of counsel), for appellee Herman Finder.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
This appeal arises from an order confirming a report of a referee in bankruptcy overruling specifications of objections to the discharge of the bankrupt, Herman Finder.
The first specification charged that the bankrupt had obtained credit by making a false financial statement in writing. This statement made on June 25, 1930, set forth a net worth of $25,280.12. Among the items on which the net worth was based was one of cash in bank stated to be $2,243.13. The actual cash in bank was only $288.11. The item $2,243.13 included both the real cash balance of $288.11 and credits represented by checks aggregating $964.13 which, after being deposited for collection, had been returned as worthless. The item also included a further sum of $964.13 which the bankrupt had added to the cash shown on his books, which embraced both the true cash balance of $288.11 and the worthless checks. The effect of this remarkable method of bookkeeping was not only to include the worthless checks in the item of cash in bank, but to include them twice. In other words, it increased the actual cash by $1,928.23. It cannot be denied that a financial statement showing so little cash in bank as $288.11 would have been a poor basis for obtaining credit. The increased balance was wholly without foundation, and a showing of cash better than the actual balance was so important to the bankrupt that we cannot think his inaccurate statement was inadvertent.
In addition to the incorrect cash item of $2,243.13, there was in the financial statement a valuation of a life insurance policy at $2,000, the real equity in which was but $533.15. The bankrupt says that he acted in good faith in so valuing his policy, and that his valuation was only an estimate made without having the policy before him. The policy was issued in June, 1923, and for only $5,000. It seems unlikely that a business man, who was also an accountant, could have acted in good faith when he estimated the cash value of such a policy at about four times its real worth. It is said that the insurance item was inserted in the statement at the suggestion of the manager of a Trade Association and that the estimate of the value of the policy of the bankrupt must have been honest, because the statement as first made up did not contain the item of $2,000 and showed a net worth of only $23,280.12, and a net worth of less than $25,000 would not have given an X rating. But even though the bankrupt started out with no expectation of obtaining an X rating, as soon as the inclusion of the policy among the assets was suggested, he attributed to it an excessive value, and this exaggerated value was needed to bring up the net worth shown by the statement which already included two fictitious cash items of $964.13 each, to the $25,000 required for an X rating. In view of the foregoing, we think that it cannot be fairly said that the financial statement was made in good faith and it certainly was false in fact. We accordingly sustain the first specification.
The second specification was withdrawn.
The third specification charged the bankrupt with failing to explain satisfactorily losses of assets. He purchased $37,897.23 of merchandise between December 1, 1930, and January 8, 1931, sold $30,432.49 of merchandise between those dates, and had none on hand when the petition in bankruptcy was filed on January 9, 1931. He testified that a portion of the merchandise was damaged and that some of it was sold at a loss. While his explanation was lacking in details and while he had uniformly sold similar merchandise at a profit during the preceding months, we are not inclined to...
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In re Gould
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