In re Philpott, 3395.

• Citation: 37 F. Supp. 43
• Decision Date: 30 December 1940
• Docket Number: No. 3395.,3395.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: In re PHILPOTT.

37 F. Supp. 43

In re PHILPOTT.

No. 3395.

District Court, S. D. West Virginia.

December 30, 1940.

Okey P. Keadle, of Huntington, W. Va., for bankrupt.

Amos A. Bolen, of Huntington, W. Va. (Fitzpatrick, Brown & Davis, of Huntington, W. Va., on the brief), for Personal Finance Co.

HARRY E. WATKINS, District Judge.

Personal Finance Company, a creditor, objected to bankrupt's petition for discharge. It is charged that the bankrupt obtained an extension or renewal of credit from the objecting creditor by making a materially false statement in writing respecting his financial condition. Bankruptcy Act, Sec. 14, sub. b (3), as amended, 11 U.S.C.A. § 32, sub. b (3). The matter was referred to referee as special master. The special master has made a report in which he has made specific findings of fact and recommends that the discharge be denied. Exceptions to this report have been filed by the bankrupt.

There is no dispute in the evidence that before executing an extension or renewal of his loan, the objecting creditor required him to sign a written financial statement, disclosing, among other things, his total indebtedness, exclusive of the amount owed to objecting creditor. The evidence also shows, without contradiction, that the written financial statement which bankrupt signed, and to which he made oath, placed such indebtedness at $107, all owing to one creditor; whereas bankrupt then knew that he owed seventeen creditors, aggregating $1,041.34. The conflict in the testimony relates to the circumstances under which such statement was made.

Bankrupt says: (1) that the statement was not false because he did not understand it; (2) that he did not intend to deceive; and (3) that the creditor did not rely upon the statement in granting the extension of credit.

Bankrupt had done business with this small loan company for more than ten years. Within two years previous to bankruptcy, he had obtained five loans, or extension of credit. In two instances the loans were paid. In two other instances, after he had paid a small amount on the loans, he applied for renewals, and the loans were again increased to the limit of $300 permitted under the West Virginia Small Loan Act. Acts 1933, c. 13. On each of these previous occasions financial statements were given by bankrupt but these records have since been destroyed by the finance company.

On November 30, 1937, the bankrupt owed the finance company $247.30, at which time his loan was renewed by increasing the amount to $300, cash being given for the difference. On April 2, 1938, the amount due on this loan was $267.34. The loan was in default and bankrupt wanted to increase the loan and thereby obtain additional money. The finance company refused, but did agree that if he would pay $2.34 upon principal reducing the account to $265, the account would be refinanced by extending the time of payment and reducing the monthly payments.

Before the loan was refinanced, bankrupt was required to sign and swear to a written financial statement which provided as follows: "I hereby make application to you for a loan of $265 under the Small Loan Law of this State. For the purpose of informing you fully of my financial condition, the following statements, upon which you may rely in acting upon this application, are hereby made". Statement 3 was as follows: "Exclusive of such amount as I owe you, I hereby state, affirm, represent and warrant to you that my total indebtedness and liabilities on this date do not exceed $107". A previous statement showed that this amount was owing to one creditor upon a refrigerator. Bankrupt admits that he filled in the figures of $107 in the above statement and that one other answer in the financial statement is in his own handwriting. He does not remember whether he read the statement before signing it. He says he might have read and forgotten about it. He would not say that the other questions were not asked him. He simply says that he understood the statement related only to the claim for the refrigerator and not to other debts. No other witness testified in his behalf. He is not a laborer but check clerk for the Chesapeake & Ohio Railway Company at Huntington. Under these circumstances, I am of opinion that the master was correct in finding that the statement was false and that bankrupt knew he was making a false statement.

It is urged that bankrupt did not intend to deceive. It is undoubtedly true that Section 14, sub. b (3), has reference to a statement, materially false in fact, deliberately made for the purpose of deceiving, or made recklessly, without an honest belief in its truth, and with a purpose to mislead or deceive. But where it is shown that bankrupt has obtained an extension of credit by means of a materially false written financial statement, which he knew to be false, intent to deceive is inferred and the burden of disproving such intent rests upon the bankrupt. Matter of Monsch, D. C.Ky., 18 F.Supp. 913. Collier on Bankruptcy, 14th Ed., section 14.43, and cases there cited. In this respect the bankrupt has failed.

To bar bankrupt's application for discharge under Section 14, sub. b (3) of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c (3), these elements are necessary: (1) the statements must be materially false; (2) the statement must be in respect to his financial condition; (3) it must be in his handwriting; (4) it must be given to obtain credit or extension of credit; (5) credit or extension of credit must be given on the faith of such statement.

...