In re Weissman

• Decision Date: 09 May 1927
• Docket Number: No. 171.,171.
• Citation: 19 F.2d 769
• Parties: In re WEISSMAN.
• Court: U.S. Court of Appeals — Second Circuit

19 F.2d 769 (1927)

In re WEISSMAN.

No. 171.

Circuit Court of Appeals, Second Circuit.

May 9, 1927.

George E. Beers and Rolfe W. Skulason, both of New Haven, Conn., for appellant.

Archibald Palmer and Shaine & Weinrib, all of New York City (Maxwell Green, of New York City, of counsel), for appellees.

Before HOUGH, MANTON, and SWAN, Circuit Judges.

SWAN, Circuit Judge (after stating the facts as above).

These proceedings were brought before us both by appeal and by petition to revise. To resort to both methods of bringing up the record is wholly unnecessary. Appeal is the proper procedure. In re Prudential Lithograph Co., 270 F. 469 (C. C. A. 2); In re Gold, 210 F. 410 (C. C. A. 7); Hewit v. Berlin Machine Works, 194 U. S. 296, 24 S. Ct. 690, 48 L. Ed. 986; Taylor v. Voss, 271 U. S. 176, 46 S. Ct. 461, 70 L. Ed. 889; Remington, Bankruptcy (3d Ed.) § 3688. We shall consider the case on the appeal.

There is no doubt of the right of a vendor to reclaim his property, when his sale was induced by fraud. In re New York Commercial Co., 228 F. 120 (C. C. A. 2); In re Gold, supra; Jones v. H. M. Hobbie Grocery Co., 246 F. 431 (C. C. A. 5). See, also, Cunningham v. Brown, 265 U. S. 1, 11, 44 S. Ct. 424, 68 L. Ed. 873; 1 Black, Bankruptcy (3d Ed.) § 360. Assuming arguendo Weissman's statement to have been false, the fact that it was issued to a commercial agency, for the purpose of being communicated to patrons of the agency who apply for credit reports, gives the seller, who relied upon it, the same standing as though it had been obtained by him directly from the buyer. Davis v. Louisville Trust Co., 181 F. 10, 30 L. R. A. (N. S.) 1011 (C. C. A. 6); and see In re K. Marks & Co., 218 F. 453 (C. C. A. 2); Eaton v. Avery, 83 N. Y. 31, 38 Am. Rep. 389; Soper Lumber Co. v. Halsted & Harmount Co., 73 Conn. 547, 48 A. 425.

The District Court decided against the claimant, on the ground that he had failed to prove the fraud alleged. This necessitates a consideration of the evidence. The financial statement of August 11th showed debts for merchandise of $103,000, and a net worth of $207,000. The claimant sought to prove the falsity of the statement by means of an admission by Weissman. The bankrupt's schedules showed debts owing on November 21 of $1,300,000. This, without more, would be no proof of what he owed on August 11. Testimony was introduced to show how the schedules were prepared. Mr. Alderman, one of the bankrupt's attorneys, testified that he prepared the schedules, and that in ascertaining the merchandise liabilities he used exclusively invoices which he obtained from the trustees' accountants. Weissman swore to the schedules so prepared. This we regard as an admission by him, not only of his total indebtedness on November 21, but also of the correctness of the way in which this total was arrived at, namely, by adding the items shown upon the invoices as indebtedness owing at dates specified therein. In other words, we think this may be regarded as an admission by Weissman that he owed for merchandise on August 11th the sums which these invoices stated that he owed at that date. It is as though he had handed the invoices to Alderman and said, "These are correct."

An accountant examined the invoices and tabulated the indebtedness shown by them to be owing on specified dates, as follows: On August 10, $208,000; on August 11, $210,000; on September 29, $581,000; on November 15, $894,000. It is true that invoices by themselves, or attached to the proofs of claim allowed in the bankruptcy proceedings, would not be competent evidence to establish the bankrupt's indebtedness on August 11th. But, taken in connection with Weissman's use of the invoices in making up his schedules, we regard them as showing beyond peradventure of doubt, in the absence of contradictory evidence, that the August 11th statement of indebtedness, and the confirmation of the statement on September 29, were false to an extent which proves them absolutely fraudulent.

The problem remaining is whether an admission by the bankrupt, made in connection with filing his schedules, may be used against his trustee in a reclamation proceeding based on fraud.

Statements made out of court by a party litigant are universally admitted against him. 2 Wigmore, Evidence, § 1048; Admissions as an Exception to the Hearsay Rule, 33 Yale L. J. 355. It is everywhere conceded that the debtor's admissions made while his estate was in him are competent evidence also against his assignee in insolvency or trustee in bankruptcy. Ramsbottom v. Phelps, 18 Conn. 278; Von Sachs v. Kretz, 72 N. Y. 548; Smith v. Township of Au Gres, 150 F. 257, 9 L. R. A. (N. S.) 876 (C. C. A. 6); 2 Wigmore, Evidence, § 1081. On this principle, schedules of a voluntary bankrupt, since they are sworn to before the petition is filed, would be competent against the trustee to prove the amount of the bankrupt's indebtedness. They have frequently been admitted, without discussion, even in the trustee's favor, against an alleged preferred creditor. In re Mandel, 127 F. 863 (D. C.) affirmed, 135 F. 1021 (C. C. A. 2); Wellington v. Jackson, 121 Mass. 157; Lynch v. Bronson, 80 Conn. 566, 69 A. 538; Buttz v. James, 33 N. D. 162, 156 N. W. 547.

Their admission as against the alleged preferred creditor has been criticized. See Remington, Bankruptcy (3d Ed.) § 1755. Compare Collier, Bankruptcy (13th Ed.) 26. But we need not consider at this time how far, if at all, the voluntary bankrupt's schedules are competent in favor of his trustee; they are competent against him to the same extent that they would be against the bankrupt himself. In several cases the schedules have been admitted where the bankruptcy was involuntary, or where the opinion fails to disclose whether it was voluntary or involuntary. Lyttle v. Fifth Nat. Bank, 39 Am. Bankr. Rep. 690 (Ref., S. D. N. Y.); In re Docker-Foster Co., 123 F. 190 (D. C. E. D. Pa.); Hackney v. Raymond Bros. Clarke Co., 68 Neb. 633, 94 N. W. 822, 99 N. W. 675; Utah Ass'n of Credit Men v. Boyle Furniture Co., 39 Utah, 518, 117 P. 800.

The rule which excludes declarations of assignors, grantors, and others, if made after the title or interest in the property in question has passed out of them, finds support in the danger of affording opportunity for fraud were such evidence admitted. It has been said that no title would be safe if declarations of a grantor out of possession could be received as evidence against his grantee. Lent v. Shear, 160 N. Y. 462, 55 N. E. 2. But with reference to receiving the schedules of bankrupts as evidence of the statements therein relative to their financial condition, no difference is apparent in respect to the danger of fraudulent admissions between the schedules of the voluntary and the involuntary bankrupt. Viewed pragmatically, there is as much reason, and no more, for the bankrupt to state honestly his assets and liabilities in the one case as in...