WEINBERGER, District Judge.
Albert Prout, bankrupt herein, was adjudicated a voluntary bankrupt and thereafter filed his petition for discharge.
Objections to the discharge of the bankrupt herein were filed by Thrifty Loan and Finance Company, the grounds for such opposition being that the bankrupt made a materially false statement in writing respecting his financial condition, upon which said creditor relied, and by reason of which reliance did advance money and extend or renew credit to said bankrupt.
The Referee, after hearing on said objections, sustained the same, and denied the discharge; findings were waived.
The bankrupt here seeks a "review" of the Referee's order, although from the terminology of the Petition for Review, we are unable to ascertain in what respect bankrupt alleges the Referee has erred. The bankrupt's statement is as follows:
"That it is agreeable to the Thrifty Loan and Finance Company, the above named creditor that a discharge be granted to your petitioner eliminating from the order of discharge the claim of said creditor. That your petitioner believes that this is a type of case in which the Court has jurisdiction to make an order of this kind; that attached to this petition are a number of citations which supports the contention of petitioner that this Court has jurisdiction to make the order asked for by your petitioner."
The Referee points out in his certificate on Review that the bankrupt, in his Petition for Review, makes no objection to the findings leading to the Order disallowing his discharge. The Referee further points out that the only relief sought by the bankrupt in his Petition for Review is that he be given what the Referee mentions as a discharge known as a "split" discharge, that is, an order of discharge which will expressly exclude from its effect the claim of the objecting creditor.
In commenting upon the failure of the objecting creditor to oppose the bankrupt's request for a discharge of the type just mentioned, the Referee stated:
"* * * such an order will create a situation where the said creditor is the only remaining existing creditor of the bankrupt. * * * The reason is quite obvious. The creditor is not concerned with a moral urge to `police' bankrupt estates but is motivated rather by a desire to protect its claim, and if after making and supporting his objection he can be lenient and humanitarian and consent to the discharge provided his claim is excepted, he, of course, has accomplished a greater personal objective than he would secure if the discharge was denied."
The Referee continues:
"It is to be admitted that a very convincing argument can be presented both by the bankrupt and the objecting creditor for the making of such an order and since they are the only ones before the court there is admittedly a strong urge to grant such a discharge. * * *
"The danger of the situation can be clearly seen if we assume that the trustee was the objecting creditor where the ground of objection is that a false financial statement was given to one particular creditor. Since the trustee represents all creditors he must insist that the interests of all creditors be protected equally and without discrimination and he would have to insist that the discharge be denied as to all creditors; not as to any favored creditor.
"If the practice of making split discharges were adopted it would be only a short step to a condition where discharge would be granted, with a reservation of those creditors, who called to the attention of the court, the derelictions of the bankrupt.
"The objections to the discharge in the main as contained in Section 14c refer to acts or a course of conduct of the bankrupt of a reprehensible nature which stamps him as a person unworthy of a discharge in bankruptcy — acts which involve unfair dealing and are reprehensible within themselves against the commercial world as well as against the individual creditors."
The bankrupt cites as authority for his position the following cases: In re Morgan, 2 Cir., 267 F. 959; In re Weitzman, D.C., 11 F.2d 897; In re Zeiler, D.C., 18 F.Supp. 539; Thummess v. Von Hoffman, 3 Cir., 109 F.2d 291, and In re Pfister, 315 U.S. 795, 62 S.Ct. 915, 916, 86 L.Ed. 1196.
In Re Morgan, 2 Cir., 1920, 267 F. 959, cited by the bankrupt, the objections to discharge, sustained by the District Court, specified that the bankrupts obtained money or property on credit upon a false statement made for the purpose of obtaining credit. The objecting creditors had purchased some stock, and claimed the false statement was the representation of ownership of certain underlying securities and the promise by the organization managers to deliver stock in the future. Section 14, sub. b(3), of the Bankruptcy Act, 11 U.S. C.A. § 32, sub. b(3), then in effect now section 14, sub. c(3), provided that the discharge should not be granted if the bankrupt had obtained money or property on credit on a materially false statement in writing for the purpose of obtaining credit.
The Circuit Court, in its opinion, at page 962 of 267 F., stated:
"The argument of the appellee seems to be that the bankrupts obtained money upon the statement referred to; that they thereby obtained credit, and thereafter they obtained the money on credit upon the statement. But the language of the statute limits the refusal to discharge to obtaining money or property on credit upon a materially false statement in writing by him to any person or his representative for the purpose of obtaining credit from such person.
"It is plain that the intention of Congress was to extend not the statute to all cases of false written statements where credit happens to be given, and the thought being to confine the statute to cases where the decision to give credit was induced by the false statement. Such statement must be a financial statement, as distinguished from a mere misrepresentation.
"A debt fraudulently contracted by the bankrupt will not be released by his discharge. Therefore the debts in question, which the court below found were contracted fraudulently, may fall within the provision of the act. Congress, however, never intended to refuse a bankrupt his release from all of his debts because he had contracted one or more fraudulently. * * *
"A discharge in bankruptcy is refused when the bankrupt has made false written statements as to his financial standing and thereby obtained money or property from any one relying on the statement." (Citing cases)
The Court then stated that the testimony of the creditors showed that, if anything, they were misled in investing, and that they were not misled into giving credit, and granted the discharge.
In Re Weitzman, D.C., 11 F.2d 897, 898, the District Court granted a discharge to the bankrupt of all his debts except that of the objecting creditor. It seems clear that the District Court sustained the Referee in his finding that the bankrupt had "obtained money or property from a person on the faith of a financial statement which the creditor relied upon; such statement being in writing, and being materially false and made to the creditor or his representative."
The Court found that the bankrupt had received from the bank a renewal of existing indebtedness, and that the matured note which was unpaid had been returned to him, and held that this constituted receiving "property."
It was further stated in the opinion (page 898 of 11 F.2d):
"A creditor has the option of interposing a bar to a discharge affecting all debts, or of permitting the discharge to be granted, and of then asserting his claim on after-acquired property, on the ground that his claim was not affected by the discharge. (Citing cases) Under that section of the statute which relates to discharges it is said, in substance, that discharges may be granted against all debts, except those therein detailed, among which are such as are contracted by false representations, etc. (citing In re Carton & Co., D.C., 148 F. 63, and In re Kretz, D.C., 212 F. 784)."
The District Court then remarked that in the case of In re Kretz, "it inferentially appears that the right to object is not confined to the person defrauded but belongs to any creditor."
Continuing:
"Circuit Judge Manton, speaking for the Circuit Court of Appeals for the Second Circuit in Re Morgan, 2 Cir., 267 F. 959, 962, however, seems to hold that a creditor who did not part with any money or property by reason of the false statement may not object to the discharge; that only the creditor who did so act can prevent the bankrupt's discharge: (quoting from the opinion in the Morgan case) `"A debt fraudulently contracted by the bankrupt will not be released by his discharge. Therefore the debts in question, which the court below found were contracted fraudulently, may fall within this provision of the act. Congress, however, never intended to refuse a bankrupt his release from all of his debts, because he had contracted one or more fraudulently. The phrase `for the purpose of obtaining credit' contemplates a statement fitted to such purpose."'"
Following the quotation from In re Morgan, the District Court concluded:
"Section 14b (3), Bankruptcy Act * * * would seem, therefore, to be for the use and benefit, exclusively, of the creditor who was defrauded in the manner therein photographed, and if such creditor does not object no other creditor can.
"A decree will be drawn, granting the bankrupt a discharge from all debts except that of the American Exchange National Bank."
The bankrupt in the case at bar has cited three other cases, to which we shall advert but briefly, as they do not in any way deal with the problem before us.
In Re Zeiler, D.C., 18 F.Supp. 539, the bankrupt filed...
