Lockhart v. Edel

• Decision Date: 23 January 1928
• Docket Number: No. 2653.,2653.
• Citation: 23 F.2d 912
• Parties: LOCKHART v. EDEL et al.
• Court: U.S. Court of Appeals — Fourth Circuit

23 F.2d 912 (1928)

LOCKHART v. EDEL et al.

No. 2653.

Circuit Court of Appeals, Fourth Circuit.

January 23, 1928.

Sherman P. Bowers and Harry C. Hull, both of Frederick, Md., for appellant.

Benjamin H. McKindless, of Baltimore, Md. (Derlin McKindless, of Baltimore, Md., on the brief), for appellees.

Before PARKER and NORTHCOTT, Circuit Judges, and HAYES, District Judge.

NORTHCOTT, Circuit Judge.

This is an appeal by Allen B. Lockhart, bankrupt, from the final order of the District Court of the United States for the District of Maryland, entered May 12, 1927, denying and refusing the bankrupt a discharge. On August 9, 1922, involuntary proceedings in bankruptcy were instituted against Smith, Lockhart & Co., a copartnership, of which appellant, Lockhart, was a member, and on the same date appellant filed a voluntary petition in bankruptcy, and was adjudicated a bankrupt. On August 7, 1923, appellant petitioned for his discharge in bankruptcy, and on the 4th day of February, 1927, notice of said application was given to the creditors by the referee. On the 10th of March, 1927, the objecting creditor, Edel, filed objections to the discharge.

Appellant raises two questions: First, whether or not the exceptions to the specifications in opposition to the discharge should have been overruled; and, second, whether or not the court in refusing a discharge erred as to the merits of the case. We are of the opinion that the specifications were sufficient and that the court's action in overruling the demurrer was proper.

As to the second question, it appears that the copartnership, of which appellant was a member, was engaged in a general brokerage business, which included purchasing for its customers and selling to them on the installment plan certain stocks or other securities, to be delivered to the customers when payments were completed. The firm sent out statements soliciting these purchases by customers, and upon the receipt of orders for purchases and the payment of the initial installment would notify the customers that the stock or the security had been purchased and was being held for their account, and would immediately begin charging customers interest upon the deferred payment. It is admitted that for some time prior to the bankruptcy, and for some time prior to the transaction with appellee Edel, the partnership was wholly and totally insolvent, and that at the time of bankruptcy the liabilities exceeded the assets more than $2,000,000.00. It is a proven fact in the record that purchases were not made as represented to the 2,500 customers of the partnership, among them appellee and objector Edel. In fact, the financial condition of the partnership precluded the conduct of the business as it was represented by the partnership to have been conducted.

To prevent the discharge of a bankrupt, there must be proof of some specific ground that comes within the scope of the act of Congress. In re Johnson (D. C.) 215 F. 748. "Congress intended that the bankrupt should be discharged, unless the statutory grounds of objection to the discharge are made out clearly." In re Morgan (C. C. A.) 267 F. 959.

Provisions of the section relating to bankrupt's discharge are not to be extended by construction, and the provisions as to discharge are to be construed liberally in favor of the bankrupt. International Shoe Co. v. Kahn (C. C. A., Fourth Circuit) 22 F.(2d) 131; Remington on Bankruptcy, § 3216.

"A false statement on which a bankrupt obtained money or property on credit, which will bar his discharge, under Bankruptcy Act, § 14b, subd. 3 (Comp. St. § 9598), must be a financial statement, as distinguished from a mere misrepresentation" (In re Morgan, supra), and under the amendment to the Bankruptcy Act of May 27, 1926 (11 USCA § 32), which we think applies...