In re Simms

• Decision Date: 14 March 1962
• Docket Number: No. 19848.,19848.
• Citation: 202 F. Supp. 911
• Parties: In the Matter of Roscoe Wilson SIMMS, Bankrupt.
• Court: U.S. District Court — Eastern District of Virginia

202 F. Supp. 911

In the Matter of Roscoe Wilson SIMMS, Bankrupt.

No. 19848.

United States District Court E. D. Virginia, Norfolk Division.

March 14, 1962.

R. Baird Cabell, Franklin, Va., for petitioning creditor, Bracey.

J. Edward Moyler, Jr., Franklin, Va., for bankrupt.

Frank R. Watkins, Suffolk, Va., trustee in bankruptcy.

WALTER E. HOFFMAN, Chief Judge.

The bankrupt, a farmer, gave to the Seaboard Finance Company, Franklin, Virginia, a written false financial statement with an intent to deceive the lending institution as to his true financial condition. The company, relying upon this statement, made a loan in the sum of $600.00 on January 30, 1959, which loan was in full payment of an existing loan with additional cash being advanced to the bankrupt to make the indebtedness $600.00. He filed his voluntary petition in bankruptcy on December 8, 1960. Specifications of objections to the discharge were filed by another creditor, Leroy R. Bracey, contending that the bankrupt "while engaged in business as a sole proprietor, obtained for such business money or property on credit or as an extension or renewal of credit by making or publishing or causing to be made or published a materially false statement in writing respecting his financial condition."

We are called upon to determine the status of a farmer in light of the 1960 amendments to § 14 of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c(3), and a related amendment to § 17 of the Act, 11 U.S.C.A. § 35, sub. a(2). The question is of first impression. While the record is not clear as to the extent of the bankrupt's farming operations, it appears that he operated a farm for one J. Milton Babb; that he did not own the real estate upon which the farming operations were conducted, but did own and operate farm equipment and arranged for the marketing of his product, the proceeds of which were apparently divided on a "share basis" with the owner of the realty.

The Referee granted the discharge except as to such debts which were not affected by a discharge. It is manifestly clear that the Seaboard Finance Company debt is not affected by the discharge under § 17 of the Act. The Referee accepted the language "engaged in business as a sole proprietor" to mean the usual acceptation of the term "operating some commercial enterprise," such as a store or other related activity, and determined that this would not include a farmer. While not prepared to say that all farmers are excluded from the impact of § 14, sub. c(3) of the Act, the Court is of the opinion that, subject to the right of the objecting creditor to request more specific findings as to the nature of the bankrupt's operations, the Referee was correct in granting the discharge.

If we are to accept the literal language of the 1960 amendments, there would be little doubt as to the correctness of the position advanced by the objecting creditor. Section 14 reserved to the court the right to refuse a discharge in bankruptcy to any bankrupt making a materially false statement in writing respecting his financial condition "while engaged in business as a sole proprietor, partnership, or as an executive of a corporation." The quoted words are contained within the 1960 amendment to § 14, sub. c(3) for the first time; formerly the discharge could be refused to any bankrupt making or publishing a materially false statement in writing respecting his financial condition. Thus, prior to the amendment, farmers, wage earners, doctors, lawyers, retired persons, and all others were subjected to the harsh penalty of a denial of discharge as to all debts in making a false financial statement.

In examining the legislative history of the 1960 amendment to determine the intent of Congress we find the avowed purpose "to limit the use of false financial statements as a bar to discharge in bankruptcy."¹ The report of the House Committee on the Judiciary confirms this purpose in stating:

"The committee believes that complete denial of a discharge is too severe a penalty in the case of the individual noncommercial bankrupt. It is also a penalty which experience has shown to be subject to abuse."

The House Report further comments:

"The exercise of the creditor's right to bar the discharge completely results in a windfall for other creditors who are not even aware of such a statement. Debts which are dischargeable are not discharged solely because one of many debts was induced by a false financial statement. This result is not required to protect a creditor who has relied on a false financial statement since under section 17a(2) that particular debt is not dischargeable."

The legislative history draws a clear line of demarcation between one engaged in "business" and one engaged in "non-commercial activities." The House Report, in considering the word "business," has this to say:

"The situation is somewhat different in the case of a business bankrupt. The businessman is more likely to be aware of the severe consequences to him of issuing a false financial statement. His ordinary business records enable him to produce a more accurate statement than a householder who may have a multitude of small debts and no records. Furthermore, the financial statement issued by a businessman is frequently for the purpose of establishing credit standing in the community. His creditors may never see the financial statement itself. On the other hand, the non-business debtor normally issues his financial statement to a

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