In re Margolis
| Decision Date | 16 November 1937 |
| Citation | 23 F. Supp. 735 |
| Parties | In re MARGOLIS. |
| Court | U.S. District Court — Southern District of New York |
Percival E. Jackson, of New York City, for bankrupt.
Hahn, Abeson & Golin, of New York City (Julius J. Abeson, of New York City, of counsel), for trustee.
In my memorandum of January 30, 1936,1 the first specification was disposed of. The sole remaining question is whether the second specification has been proved. I shall deal only with that matter in the present memorandum.
As a preliminary we should get in mind certain facts, which are undisputed or incontrovertibly established; also certain applicable propositions of law which are indisputable. These will be set out briefly.
All the events involved transpired in 1930. The period with which we are concerned is January 1 to September 22. That will be called the accounting period.
The bankrupt was examined on October 21 and 27, 1930, under Section 21a of the Bankruptcy Act, 11 U.S.C.A. § 44(a). The minutes of the examination were put in evidence at the hearings on the specifications (pp. 158, 159). For convenience the testimony on the examination will be referred to as 21a and the pages given. When reference is made to the minutes of the hearings on the specifications, the pages only will be given.
The second specification alleges that the bankrupt has failed satisfactorily to explain a loss of assets or a deficiency of assets to meet his liabilities. The charge is laid under subdivision (b) (7) of Section 14 of the Bankruptcy Act, 11 U.S.C.A. sec. 32(b) (7).
All agree, as is clear, that the initial burden of going forward with evidence in support of the specification rests on the objector, — in this case the trustee. The duty of the objector in this respect, as sometimes referred to in the decisions, is to make out a prima facie case. In re Strauss, D.C., 4 F.Supp. 810, 812. It is settled, however, that, by force of the provision in the section of the statute mentioned, when an objector shows that there is reasonable cause to believe that the charge is true, the burden then passes to the shoulders of the bankrupt to disprove it. In re Melniker Hammock Mfg. Co., 2 Cir., 45 F.2d 703, 704, 705; Karger v. Sandler, 2 Cir., 62 F.2d 80, 81; In re Lessler, 2 Cir., 74 F.2d 249, 250. See also, Shanberg v. Saltzman, 1 Cir., 69 F.2d 262; In re Sugarman, D.C., 3 F.Supp. 502, 505; In re Tobias, D.C., 49 F.2d 651; In re Monsch, D.C., 18 F.Supp. 913. Indeed, the statute expressly so provides. As relates to the second specification here involved, it says that if "the objector shall show to the satisfaction of the court that there are reasonable grounds for believing" the allegation of the specification, "then the burden of proving" that he has not "failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities" "shall be upon the bankrupt."
If a prima facie case be made and the bankrupt fail to furnish a satisfactory explanation, the court has no discretion. Its duty is mandatory. It must deny a discharge. In re United States Restaurant & Realty Co., 2 Cir., 187 F. 118, 120; In re Northridge, D.C., 53 F.2d 858.
Within the rules of law mentioned, there are, therefore, but two inquiries: (1) Did the trustee make out a prima facie case? (2) If so, has the bankrupt exculpated himself from it? Both raise issues of fact. The answers to them depend exclusively on the evidence.
Moreover, it is immaterial whether the objector makes the prima facie showing preceding or at the hearing on the specification. In either event, the burden passes to the bankrupt. Matter of Libbie Siff, doing business under the trade name and style of New York Mill End Pants Co., No. 59,306, February 6, 1936, per Coxe, J. (unreported); In re Kaplan, D.C., 17 F. Supp. 956. Nevertheless, in what follows both aspects will be covered. There will be discussion, first, of whether a prima facie case was made in the 21a examination and, secondly, whether one was made at the specifications hearings. If so, then consideration will be given to whether the bankrupt, by proof, has made a satisfactory rebuttal.
That there has been a loss and is a deficiency, as the objector asserts, is shown without dispute.
The schedules were signed by the bankrupt and are admissible against him. Schedule A states his liabilities to be $31,966.04 and his assets to be only $11,481.66. Accepting these figures as correct, then manifestly, when the bankruptcy petition was filed on October 9, 1930, there was a deficiency of $20,484.18 (hereinafter sometimes referred to as a deficiency of $20,000).
The net worth of the debtor on January 1, 1930, was $18,095.62 (pp. 122, 128). When the bankruptcy petition was filed about ten months later, this surplus had disappeared. In its place there was a deficiency. In consequence, according to the testimony by or in behalf of the bankrupt himself, he had suffered a loss measured by the total of those two sums. The addition of a net worth of $18,095.62 and a deficiency of $20,484.18 brings the loss up to $38,579.80 (hereinafter, for convenience, sometimes called the $38,000 loss).
The controversy relates to furs, sometimes called skins by the witnesses. The schedules show that eight creditors suffered a loss of $25,884.25 on furs they sold to the bankrupt. Save as to $2,298 of this amount, the schedules further show that all the purchases for which this indebtedness was incurred were made within four months prior to the end of the accounting period; that the sales were on credits which carried the due dates of the bills beyond the end of the accounting period; and that no part of the sum has been paid.
The $2,298 (first item on Schedule A-3), not shown on the face of the schedules to be covered by a note or when payable, is owing to H. Bodek. A witness from that concern produced its books and testified (pp. 132-135). This evidence was that the unpaid open account which was incurred within the four months' period (namely, on June 16, September 4 and September 11, 1930) and is still unpaid, totals $2,560 (pp. 132, 133). This is more than the open account ($2,298) set out in the schedule. To the extent of the $2,298, however, as already stated, it appears without dispute that the open account was incurred within the four months' period. For the present purpose, therefore, we may treat that amount as being in the same class with the items covered by notes, which aggregate $23,586.25. Hence, the total loss suffered by the eight creditors on sales within the four months is brought up to $25,884.25.
The matter may be clarified somewhat by adding a summary of the $25,884.25 indebtedness, shown by the schedules still to be owing to the eight creditors from whom the bankrupt purchased furs in 1930 shortly before the bankruptcy. This is as follows:
Purchase Amount
dates Creditors owing
May 27 M. Breitman & Sons........ $ 6,518.25
June 13 Rosenthal & Brickman...... 1,600.00
July 22 J. Schierer, Inc.......... 1,120.00
July 31 H. Bodek ................. 3,432.00
August 15 M. Breitman & Sons........ 2,070.00
August 15 Deifik & Prufer........... 1,415.00
August 19 M. Wallach ............... 932.85
August 19 Lichtman & Shapiro........ 650.00
August 21 Lichtman & Shapiro........ 839.40
August 22 Samuel Londner ........... 810.00
August 25 Lichtman & Shapiro........ 1,452.00
September 3 Lichtman & Shapiro........ 540.00
September 8 H. Bodek ................. 2,206.75
__________
Total evidenced by notes... $23,586.25
H. Bodek (open account)............. 2,298.00
__________
Total ..................... $25,884.25
As previously pointed out, the bankrupt made the purchases for which the $2,298 is owing on June 16, September 4 and September 11.
The amounts shown by the above table were to Breitman & Sons, $8,588.25; Rosenthal & Brickman, $1,600; Schierer, $1,120; H. Bodek, $7,936.75; Deifik & Prufer, $1,415; Wallach, $932.85; Londner, $810; and Lichtman & Shapiro, $3,481.40, — total, $25,884.25.
Restated by months, the purchases of furs within four months preceding the end of the accounting period, for which no payments have been made, were as follows: May, $6,518.25; June, $3,700 (composed of $1,600 from Rosenthal & Brickman and $2,100 from Bodek); July, $4,552; August, $8,169.25; September, $2,746.75 (including 198 from Bodek), — total, $25,884.25.
Of the $31,966.04 total debts owing at the time of the bankruptcy, for the purpose of considering the significance of the amounts owing for furs, we should deduct items aggregating $3,675. These consist of $2,000, incurred in 1929, owing to a man of the same surname as the bankrupt, — presumably a relative, — residing in Germany, and items aggregating $1,675 scheduled as owing to Louis Vogel, which represent merely an exchange transaction (Schedules A(3) and (5); Schedules B(2); 21a, pp. 42, 43, 44-48).
If the $3,675 be deducted from the total of debts stated in the schedules, the balance owing by the bankrupt on all accounts, which constitute the real basis for comparison here, is only $28,291.04. Of this sum the total of $25,884.25 owing to the eight merchandise creditors mentioned above on fur purchases alone is upwards of 90%.
It may be noted also that, apart from those eight creditors, the bankrupt scheduled only ten small merchandise creditors and to them the total owing is $955.04.
When the bankrupt was testifying at the 21a examination, the sole explanation he undertook to make of the loss of or deficiency in his assets was that he was robbed at his place of business, 245 West 29th Street, on Sunday, September 21 (21a, pp. 4-24, 27-44, 48-54). There was no attempt to explain the loss or deficiency in any other way or to base an explanation on...
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