Kentile Floors, Inc. v. Winham, 23565.
| Decision Date | 12 April 1971 |
| Docket Number | No. 23565.,23565. |
| Citation | 440 F.2d 1128 |
| Parties | KENTILE FLOORS, INC., Appellant, v. Clifford L. WINHAM and Corinne Winham, Bankrupts, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Beverly H. McConnell (argued), of Wilson & McConnell, Phoenix, Ariz., for appellant.
Rod Wood (argued), Stark & Wood, Phoenix, Ariz., for appellees.
Before MURRAH,* HAMLEY and BROWNING, Circuit Judges.
In this bankruptcy proceeding a creditor, Kentile Floors, Inc. (Kentile), objected on several grounds to the general discharge of the bankrupts, Clifford L. Winham and Corinne Winham, who operated Winham's Floor Coverings, a sole proprietorship. After a hearing, the referee held for Kentile on all grounds asserted, and denied a general discharge. On review the district court rejected the referee's findings and held that the Winhams were entitled to a general discharge. This appeal followed.
For a number of years the Winhams operated a small residential floor covering business in Phoenix, Arizona. In 1963 they ventured into the field of comercial floor coverings. Previously they had been procuring materials through Kentile's distributor. Discussions between the Winhams and representatives of Kentile, early in 1964, resulted in an arrangement involving purchases directly from Kentile.
Under this arrangement, Kentile granted the Winhams credit in the amount of $75,000, which was sufficient to handle the commercial jobs the latter then had under contract. Kentile thereafter extended credit whenever it filled an order for materials placed by the Winhams. When bankruptcy proceedings were instituted in 1965 the balance of the Winham account with Kentile was approximately $60,000.
Kentile's objections to discharge, upheld by the referee, but rejected by the district court, are based on section 14(c) (1), (c) (3) and (c) (7) of the Bankruptcy Act (Act), 11 U.S.C. § 32(c) (1), (c) (3) and (c) (7). The referee's findings of fact dealing with these objections are to be upheld unless they are clearly erroneous. See General Order in Bankruptcy, No. 47. This calls for a review of the entire record to determine whether a mistake has been made. Hudson v. Wylie, 242 F.2d 435, 450 (9th Cir. 1957). See also, United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).
One of the objections, based on section 14(c) (1) of the Act, is that the bankrupts knowingly and fraudulently concealed from the receiver, trustee and the court cash on hand and accounts receivable. This charge is based on the fact that, in their bankruptcy schedules and oral testimony at the first meeting of the creditors, they stated that they had only $24.50 cash on hand at the time of filing their petitions, whereas they actually had $2,175.00 cash on hand. The bankrupts also omitted from their schedules of assets, accounts receivable from the brother of the bankrupt Clifford L. Winham in the sum of $3,460.28, together with other receivables from employees, including the son of bankrupts, in the sum of $683.00.
The referee found the bankrupts knew of the existence of these assets when they filed their schedules. However, the record indicates that the omission of the assets from the schedules was the result of oversight and misunderstanding; in one instance a bookkeeper's clerical error, in the other, a misinterpretation of legal advice. The affirmance of the schedules under oath occurred under similar circumstances. The record therefore does not warrant the conclusion that these acts of the bankrupts were knowing and fraudulent.
Kentile's objection to discharge based on section 14(c) (7) of the Act, failure to satisfactorily explain losses of assets or deficiency of assets to meet liabilities, was upheld by the referee on the ground that the bankrupts were unable to state the amount of loss attributable to the various factors which the bankrupts testified caused their financial demise. Their explanation, instead, attributed the loss to the following four factors with no calculation as to the amount of loss these factors caused: bankrupts' lack of experience in commercial jobs, a loss on the Fort Carson job, a labor strike in Phoenix, and a loss on the Mayer Central job.
The business records of the bankrupts are complete and accurate. The trustee prepared the bankrupts' tax return from the business records for the period in question. The bankrupts suffered a substantial tax loss for this period. The amounts of the particular losses were available from the business records. There is no suggestion of culpable conduct in the management of the business. Even the trustee, Kentile's witness at the hearing, testified that there was nothing in the business records that would alert him to some area or account where an unusually large sum of money had disappeared. Kentile does not dispute the occurrence of the factors mentioned by the bankrupts, nor that they injured the bankrupts' business. Under all the circumstances, we do not think the explanation was unsatisfactory. Cf. Rameson Brothers v. Goggin, 241 F.2d 271 (9th Cir. 1957).
Kentile also objected to a general discharge because Winham's Floor Coverings obtained extensions of credit by publishing materially false financial statements. See section 14(c) (3) of the Act. Both the referee and the district court found materially false financial statements were published by the bankrupts as sole proprietors of Winham's Floor Coverings. The referee found that Kentile relied on the statements when it subsequently extended credit. The district court found that Kentile did not rely on the statements, and that Kentile had no right to rely on them.
The record discloses that Mr. Winham intentionally modified the true figures on his statement of financial condition for the purpose of showing a good statement. He acknowledged that he felt that if a correct statement were submitted, his credit would be curtailed. After receiving the statements, Kentile did extend further credit to Mr. Winham. While the law favors...
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Carto v. Oakley (In re Oakley)
...intentional departure from honest business practices where there is a reasonable likelihood of prejudice." Kentile Floors, Inc. v. Winham, 440 F.2d 1128, 1131 (9th Cir. 1971); see In re Luby, 438 B.R. at 826. In his memorandum, the plaintiff refers, inter alia, to 11 U.S.C. § 727(a)(4)(A), ......
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In re Matus
...2003(c). The debtor must fully disclose all information relevant to the administration of the bankruptcy case. Kentile Floors, Inc. v. Winham, 440 F.2d 1128 (9th Cir.1971); In the Matter of Garman, 643 F.2d 1252 (7th Cir.1980). See In re Robinson, 292 B.R. 599 (Bankr.D.Ohio 2003); Woolman v......
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In re Bursztyn
...cooperate with the trustee." U.S. Tr. v. Gardner (In re Gardner), 344 B.R. 663, 667 (Bankr.M.D.Fla.2006) (citing Kentile Floors, Inc. v. Winham, 440 F.2d 1128 (9th Cir.1971); N. Trust Co. v. Garman (In re Garman), 643 F.2d 1252 (7th Cir.1980)); see also In re Wimpee, 343 B.R. 845, 849 (Bank......
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Carto v. Doe (In re Oakley)
...intentional departure from honest business practices where there is a reasonable likelihood of prejudice.” Kentile Floors, Inc. v. Winham, 440 F.2d 1128, 1131 (9th Cir.1971); see In re Luby, 438 B.R. at 826. In his memorandum, the plaintiff refers, inter alia, to 11 U.S.C. § 727(a)(4)(A), w......