In re Milne

• Decision Date: 29 July 1941
• Parties: In re MILNE.
• Court: U.S. District Court — District of New Jersey

40 F. Supp. 89

In re MILNE.

District Court, D. New Jersey.

July 29, 1941.

Prince & Loeb and Sidney J. Loeb, all of New York City, for petitioner.

McDermott, Enright & Carpenter and Samuel M. Coombs, Jr., of Jersey City, N. J., for bankrupt.

SMITH, District Judge.

This matter is before the court at this time on a petition for review, filed by Terese N. Harris (surviving partner of Sydeman Brothers), a creditor. The petitioner seeks a review of the discharge of the bankrupt.

The petition in bankruptcy was filed and the adjudication entered thereon on January 15, 1937. Pursuant to the provisions of the Bankruptcy Act, Section 21, sub. a, 11 U.S.C.A. § 44, sub. a, the usual hearings were conducted. Thereafter, on April 6, 1939, after hearing, and over the objection of the petitioner, an order of discharge was entered by the referee in bankruptcy.

The specifications of objection urged by the petitioner, without repeating the details thereof, were: (1) the concealment of books of account and records from which the bankrupt's financial condition and business transactions might be ascertained; (2) the transfer of property, with intent to defraud creditors; and, (3) the commission of offenses punishable by imprisonment, to wit, false swearing and concealment of assets. The referee found that the specifications had not been sustained, and he thereupon ordered that the bankrupt be discharged.

The questions presented for determination are primarily factual, and the Court, therefore, has considered, not only the findings of the referee, but all of the testimony, transcripts of which were submitted with his certificate. The recital in extenso of the testimony is unnecessary. There are repeated herein only such facts as are pertinent to the discussion.

The bankrupt, prior to 1934, had been a member of the New York Commodity Exchange and had been engaged as a broker in the buying and selling of rubber futures. It may be reasonably inferred from all of the testimony that during the period between 1929 and 1934 his business, like that of many others similarly engaged, had rapidly declined, so that in 1935, if not prior thereto, he was hopelessly insolvent. Evidence of this is found, not only in the bankrupt's testimony, but in his schedules, wherein we find listed debts he had contracted between 1933 and 1935, but none that he had contracted prior thereto; the debts incurred thereafter are small. The bankrupt's business failure had been followed in 1934 by his suspension from the New York Commodity Exchange. This membership had been, undoubtedly, a most valuable asset, and he would not have had willfully suffered its loss if he had been in a position to avoid it. The bankrupt's financial disaster had been followed by the abandonment of his bank accounts and the willful destruction of his books of account and records.

The petitioner proved the destruction of the books and records by the testimony of the bankrupt, who readily admitted it. The burden was then upon the bankrupt to prove by a fair preponderance of evidence that his act was justified. 11 U.S.C.A. § 32; Nix v. Sternberg, 8 Cir., 38 F.2d 611; Karger v. Sandler, 2 Cir., 62 F.2d 80; In re Underhill, 2 Cir., 82 F.2d 258; Koufman v. Sheinwald, 1 Cir., 83 F. 2d 977; Rosenberg v. Bloom, et al., 9 Cir., 99 F.2d 249; Hedges v. Bushnell, 10 Cir., 106 F.2d 979. The determination of this issue must necessarily rest upon all the facts and circumstances, in the light of which the bankrupt's explanation must be considered. Rosenberg v. Bloom, Hedges v. Bushnell, both supra. There is ordinarily a requirement that books of account and records be preserved so that there may be a complete disclosure of the bankrupt's financial condition and business transactions. It necessarily follows, therefore, that the destruction of such books and records, if without justification, will preclude the bankrupt's discharge. It has been indicated, however, in some cases that this fact alone shall not bar the discharge if the destruction of the books of account and records does not affect the ability of the creditors to ascertain the bankrupt's financial condition and business transactions. Karger v. Sandler, In re Underhill, both supra.

It is to be noted in the instant case that the abandonment of bank accounts and the destruction of records had taken place approximately two years prior to the bankruptcy, and at a time when the bankruptcy had apparently not been contemplated. The bankrupt explained that he had destroyed the records at that time because he had discontinued business and was seeking employment. He further explained that the bank accounts had been abandoned because he had been without funds, and the business records had been destroyed because they had reflected only his indebtedness to others; there had been none indebted to him. It does not appear that the destruction of the records had been accompanied by any fraudulent intent or surrounded by any inculpatory circumstances. The Court can easily understand why the bankrupt, obviously discouraged by the loss of his business, had pursued the course that he had. The explanation in the absence of contradictory evidence of a more persuasive character should be accepted.

The specification of false swearing, although indefinite and insufficient, has been considered. A careful examination of the entire record fails to reveal any testimony to sustain it. Such a specification may be sustained only by competent proof that the bankrupt knowingly and fraudulently misrepresented a fact material to the issue under inquiry. Humphries v. Nalley, 5 Cir., 269 F. 607; In re Slocum, 2 Cir., 22 F.2d 282; Hanover-Capital Trust Co. v. Meyer, 3 Cir., 57 F.2d 815; Sharcoff v. Schieffelin & Co., 2 Cir., 70 F.2d 725; Willoughby v. Jamison, 8 Cir., 103 F.2d 821. The required proof was lacking.

The bankrupt, at the time the petition in bankruptcy was filed, was, and...