In re Johnson, 2224.

• Decision Date: 27 March 1953
• Docket Number: No. 2224.,2224.
• Citation: 114 F. Supp. 396
• Parties: In re JOHNSON.
• Court: U.S. District Court — Northern District of Texas

114 F. Supp. 396

In re JOHNSON.

No. 2224.

United States District Court N. D. Texas, Fort Worth Division.

March 27, 1953.

Brantley Pringle, Fort Worth, Tex., for creditor Parker.

Mayer, Tuchin & Mehl, Fort Worth, Tex., for bankrupt Johnson.

DOOLEY, District Judge.

Peyton Johnson was duly adjudged a bankrupt on petition filed against him in this Court on December 16, 1950. James E. Parker, a creditor, objected to the discharge of said bankrupt, and finally relied on four of his specified grounds of objections, but only two thereof, together with the relevant provision of the Bankruptcy Law,¹ will be particularly noted.² The referee refused the objections to discharge, and entered an order of discharge May 16, 1951. The objecting creditor, Parker, on May 26, 1951 filed a petition for review, and the errors therein assigned dealing with the foregoing two grounds of objections are quoted in the margin.³ The referee later filed findings of fact and conclusions of law and the parts thereof now pertinent are appended.⁴ The referee's theory on the particular point now being re-examined was further stated by him in a written opinion.⁵

In December 1949 Peyton Johnson was at the point of going into the business of constructing prefabricated houses in Fort Worth, Texas, and on December 10, 1949 he borrowed $15,000 from Parker for capital in his said business. He went to the office of Dun & Bradstreet, Inc. about December 21, 1949, to make contact with said mercantile agency in the interest of his new business, and while there related the information used by a representative in filling out a financial statement on the regular form of said agency, and personally signed it. The top line of the sheet he signed had this entry: "Statement Made To Dun & Bradstreet, Inc. For Use Of Subscribers As A Basis For Business Decisions." The statement showed total assets of $22,600, including $14,000 cash, evidently the money obtained from Parker, and showed total liabilities of only $3,000, thus reflecting a net worth of $19,600. His debt to Parker was omitted from the statement and he knew it.⁶ In extenuation he makes two points, first that Parker told him to keep the loan confidential, and second that some undeclared assets he owned ought to offset the discrepancy of understated liabilities in his financial statement. The first excuse rests on Johnson's testimony that Parker said some of his relatives might try to have him declared an incompetent if they found out about the loan, and that the transaction should be kept confidential. Obviously the conversation did not have in mind the subject of a mercantile agency financial statement. Parker simply wanted to guard against his relatives getting any word that he had made such an unsecured loan. In other words, he wanted to remain anonymous in the transaction. That purpose would not have been violated if Johnson had included this liability in his financial statement. The financial statement simply called for amounts and not the identity of any creditor. The liability could have been included without defeating the personal privacy desired by the lender. Manifestly this is a lame excuse for the falsification in the financial statement. The other contention that Johnson failed to include certain assets in said statement is raised only by vague generalizations in his testimony.⁷ He does not enumerate any specific omitted assets nor give any appraisal of property values. When the intimation of missing assets was made at the hearing before the referee counsel for bankrupt did not follow through to develop any details or other tangible facts on the subject. The only thing definite about such alleged assets is that the referee finds same consisted mainly of exempt property. The whole thing is too indefinite for any practical utility. Moreover any such omitted assets, if satisfactorily proven, would not neutralize the materiality of the falsification in the financial statement. In the first place exempt property would make no weighty difference at best, and in any event undisclosed assets, whether exempt or non-exempt, if taken into account nunc pro tunc, would certainly upset the proportion between assets and liabilities as actually listed in the financial statement. The statement as written and signed reflected assets of over $22,000 against liabilities of only $3,000 or a ratio of better than 7 to 1, while if the liabilities be increased by $15,000 and the assets increased by a like amount, then the statement would reflect assets of about $37,000 against liabilities of $18,000 which would make a ratio of about 2 to 1. The fallacy in thinking that a false financial statement can be defended in such a way by attempting to offset some additional assets against the admitted omission of a relatively large liability was pointed out long ago by Judge Learned Hand,⁸ and the ruling has been confirmed by other courts.⁹ The bankrupt Johnson also says that after he made and signed the financial statement of December 21, 1949, being so indefinite as to the time that he first said it was about the middle of 1950 and last said it was only several weeks after the statement was signed, he was in company with a reporter of Dun & Bradstreet, Inc. at a cafe and told him all about his deal with Parker, but he did not testify that his purpose thereby was to have said statement amended by an increase in his liabilities or that he wanted to make a new and corrected statement, nor even that he explained the transaction in a way recognizing an outright and binding obligation to Parker, and the significance of this last comment is emphasized by his tendency in testimony to question the fact of a positive liability.¹⁰ In any event the record in the files of the mercantile agency was not changed and it still acted on the faith of the same signed statement of December 21, 1949. It is most unlikely that the bankrupt, if he had any such talk in the cafe, meant to have any change made in his signed statement, since on March 1, 1950, he made an application to the First National Bank in Fort Worth for a loan of $18,000 and pursuant thereto personally filled out on his own typewriter the data called for in the bank's form of financial statement and opposite the entry "Notes owed to others", he wrote in "None". In other words at this time he persisted in the same concealment of his debt to Parker that he did in the statement previously signed at the office of Dun & Bradstreet, Inc. The only rational conclusion is that he had not intended to rectify such concealment in his said first financial statement. The bank decided against making the loan, but that does not affect the tell-tale weight of the bankrupt's act from the standpoint above mentioned.

The dealings between the bankrupt and the Acme Brick Company (Acme) will now be noticed. W. T. Johnson, treasurer and credit manager of the Acme, testified as shown below.¹¹ The bankrupt in 1950 was a newcomer in business and it is a fair inference he had never bought anything from said company before on credit. His first purchase of bricks was in the amount of $330 on July 26, 1950. Later on September 26 and September 28, 1950 he made two more similar purchases in the sums of $28.70 and $5.33 respectively. His account for the first purchase was still unpaid at the time of the last two purchases, but all of the account was paid before the filing of this bankruptcy. The credit manager testified more than once that in making these credit sales to the buyer Johnson he relied to a large extent on the financial statement the latter had delivered to Dun & Bradstreet, Inc. The referee despite those assertions found that the credit manager was mistaken and that he did not rely on such financial statement. The rule is that the fact findings of the referee are to be accepted unless clearly erroneous, and that proposition has particular force as to credibility and in the field of conflicting testimony. There is no conflicting testimony to deal with in this instance and the referee does not challenge the credibility of the witness. He only says the witness was mistaken. The reasons given are (1) that the first bill of $330 was sold before the company received the written report from Dun & Bradstreet, Inc., and (2) the company could always protect itself by perfecting a materialman's lien, as was known to said credit manager. It is true that the first sale was made before receipt of the written agency report, but that is modified by the further fact that the credit manager said that his regular practice in opening an account was to make a preliminary check by telephone with Dun & Bradstreet, Inc., and he was sure in his own mind that was done in this instance. His conviction is inherently probable since apparently the buyer was a stranger to him as a credit customer at that time and is also strongly corroborated by the circumstance that the first sale was made July 26 and the written report from Dun & Bradstreet, Inc. was received July 29. This certainly fits the pattern of a telephone inquiry from a subscriber followed in regular course by a written report of the mercantile agency mailed a few days later. Of course if the first bill of $330 had been paid promptly and then afterwards the two smaller bills had been sold then there might be some plausibility in saying that the company had already tested this buyer's credit responsibility and that was good enough to induce the two later sales, but the actual picture of the account mounting until all three sales were unpaid in the aggregate sum of about $365, is the equivalent of a single sale in that sum from a credit standpoint. It is hardly reasonable that the credit manager would have approved the accumulation of such indebtedness without substantial reliance on the information from Dun & Bradstreet. He says he did so rely and he was a disinterested witness. Acme has no stake at all in this bankruptcy, and has nothing to gain whether...