In re Russell

• Decision Date: 08 February 1910
• Docket Number: 141.
• Parties: In re RUSSELL.
• Court: U.S. Court of Appeals — Second Circuit

176 F. 253

In re RUSSELL.

No. 141.

United States Court of Appeals, Second Circuit.

February 8, 1910

The following is the opinion of the trial court:

I think that the contract of March 2, 1906, between Mr. Russell, Mrs Russell, and the Commercial Trust Company bars the Trust Company from taking legal proceedings of any kind to the disadvantage of the bankrupt based on the financial statements made to the Trust Company and the Bradstreet Company. There was ample consideration in Mrs. Russell's indorsement for $17,500 and her transfer of her collateral. The Trust Company, by that contract, agreed to cancel and surrender the said statements, conceded the inadvertency of any misstatements therein, and waived and released any claim in that regard. The effect of that agreement, in my opinion was to leave the parties to it subsequently in the same condition in which they would have been if no such financial statements had ever been made. This conclusion makes it unnecessary to consider the question elaborately argued by the bankrupt's counsel whether the statements were in fact untrue.

My conclusion is that the referee's report should not be confirmed, and that a discharge should be granted to the bankrupt.

Campbell & Moore (William J. Wallace, of counsel), for appellant.

Charles A. Boston, for appellee.

Before LACOMBE and WARD, Circuit Judges, and HAND, District Judge.

LACOMBE Circuit Judge.

On April 14, 1908, Russell filed his petition and was adjudged a bankrupt. On June 8, 1908, he applied for his discharge. The creditors were duly cited to appear; the Commercial Trust Company, a creditor in the sum of $40,000, duly appeared and opposed the discharge, filing written specifications of objection. These specifications set out two statements in writing by the bankrupt, which the objecting creditor claimed were materially false and were made to the Trust Company for the purpose of obtaining property from it on credit, such property being obtained from the creditor upon said statements. The bankrupt vigorously denies the falsity of such statements, which are dated respectively January 26 1907, and April 26, 1907. The case was sent to a referee as special master for examination and report. Testimony was taken, and he reported (February 24, 1909) that both statements were false, that the bankrupt obtained property from the creditor on the strength of each of them, and recommended that discharge be denied. The District Judge overruled the report and granted discharge, basing his decision on a certain agreement between the bankrupt and the creditor (dated March 2, 1908) which will be hereinafter referred to. The order granting discharge is now here on appeal. The opinion of the District Judge will be found above. The facts detailed in the record are as follows:

Russell is an artist who engaged in various business ventures connected with real estate and the erection of buildings thereon. In May, 1905, he made a statement to a reporter of Bradstreet's Commercial Agency giving an estimate of his financial condition. This statement is not specified and was not considered by the special master. On January 12, 1907 Russell wrote a letter to the Trust Company in respect to opening accounts for two corporations, and upon receiving a reply called (January 14th) and made himself known, had a conversation with its president, and referred the latter to four individuals as to his honesty, integrity, and general standing. The company wrote to these individuals the same day and received favorable replies. It also applied to the Bradstreet Company for a report, and on the same day-- January 14th--received a copy of the statement of May, 1905. Thereupon on January 29, 1907, the Trust Company loaned Russell $20,000 on his demand note with collateral. On January 26, 1907, Russell made a statement in writing to the Bradstreet Company giving an estimate of his financial condition on a printed form furnished by the company signed by him. This is one of the statements enumerated in the specifications. Whether or not it is false has been hotly contested, but we do not find it necessary to decide that question. The Bradstreet Company kept this statement on its own files, but on February 2, 1907, it sent to the Trust Company a copy of its contents, adding that, while 'well regarded personally and believed to possess considerable means, no definite estimate of same is obtained.'

On February 13, 1907, the Trust Company made a further loan to Russell on his demand note for $5,000. Subsequently on April 15, 1907, the Trust Company called on Russell for a statement as to his financial condition; he sent them such written statement signed by himself on April 26th. This is the other statement set out in the specifications of objections, and it will not be necessary to decide whether or not the special master erred in finding that it was false. On May 4, 1907, the Trust Company loaned to the Dayton Construction Company (in which Russell was interested) on its note due August 5th, with collateral, $12,500. The president of the Trust Company asserts that Russell indorsed this note, the latter asserts that he did not; the question might readily have been determined by producing the note. This was not done, and upon examining all the evidence bearing on this branch of the case we are inclined to the opinion that his indorsement was not on it. Inasmuch, however, as a note of one Dorrance ($15,000), to the Dayton Company which was indorsed by Russell was substituted for the Dayton Company note when it came due, the question becomes unimportant; Russell was of course liable on this Dorrance note whether the proceeds of the prior note went to the Dayton Company or to himself.

Some months later, the panic of 1907 having intervened and in January or February, 1908, differences having arisen, the matter of the truthfulness or falsity of these two statements was taken up in an interview or interviews between counsel for the Trust Company and Russell. Counsel insisted that there were several false representations in the written statements, that they could have Russell arrested and put in jail in a civil action on a charge of fraud, that his reputation would suffer, that Russell was up against a very grave proposition. Counsel asked if Russell's wife had property, and if she would not give up some of it to help him out of this fix. These interviews resulted in the agreement, above referred to between Helen A. Russell, the wife, of the first part, Walter Russell of the second part and the Trust Company of the third part, which was executed March 2, 1908. It recites that 'the party of the second part has heretofore borrowed certain moneys from the party of the third part aggregating $40,000 and has delivered written statements to the party of the third part as to his assets and liabilities, and has transferred to the party of the first part certain properties included in said statements. ' The indebtedness stated is the $25,000 loaned to Russell and the $15,000 due on the Dorrance note indorsed by him, which was substituted for the original Dayton Company note for $12,500. It further recites that 'the party of the first part (the wife) desires to secure the withdrawal and cancellation of any such filed statements and to avoid any contention regarding the validity of any such transfer of property to her, and to obtain from the party of the third part forbearance of its claim against the party of the second part and to that end has agreed to assume responsibility for a portion of said indebtedness, to wit, the sum of $17,500, and to secure the payment thereof by the assignment as collateral security' of certain property and securities specifically enumerated.

It further recites that:

'The party of the third part in consideration of such assumption and giving of security by the party of the first part as aforesaid has agreed to forbear as herein provided in respect to its claim against the party of the second part and has agreed to cancel and surrender any statements delivered to it by him and to concede the inadvertency of any misstatements therein, and to waive and release any claim in that regard, and in respect to any transfer of properties from said party of the second part to said party of the first part and to waive and release any claim or right against them or either of them or against any such properties on account of any such transfer.'

The parties mutually...