Sternburg v. M. Cohen & Co.

• Decision Date: 18 December 1918
• Docket Number: 1375.
• Citation: 254 F. 1
• Parties: STERNBURG v. M. COHEN & CO. et al.
• Court: U.S. Court of Appeals — First Circuit

254 F. 1

STERNBURG v. M. COHEN & CO. et al.

No. 1375.

United States Court of Appeals, First Circuit.

December 18, 1918

Charles H. Dow, of Boston, Mass. (Samuel Sigilman, of Boston, Mass on the brief), for appellant.

Joseph B. Jacobs, of Boston, Mass. (Jacobs & Jacobs, of Boston Mass., on the brief), for appellees.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

ANDERSON Circuit Judge.

This is an appeal from an order of the District Court refusing the bankrupt his discharge. The appellees set forth four objections to the petition for discharge, the first of which is:

'That with intent to conceal his financial condition he destroyed, concealed and failed to keep books of account or records from which such condition might be ascertained.'

The District Court sustained the first objection, and on that ground refused the discharge. The remaining objections were not passed upon.

The essential facts are as follows: On December 19, 1916, an involuntary petition was filed by three friendly creditors against Israel Sternburg. Prior to adjudication terms of composition were offered which were referred to the referee to ascertain and report the facts. The referee reported against the offer, and the composition was not confirmed. The bankrupt's petition for discharge was referred to the same referee to ascertain and report the facts. In the referee's report concerning the discharge he incorporated by reference the report made by him in relation to the offer of composition.

It appeared that the bankrupt conducted a retail clothing store on Castle street, Boston, selling wholly for cash, his receipts averaging from $200 to $300 a week; that his expenses for rent, light, help, and his own drawing account of about $60 per week, were $125. In the spring of 1916 the bankrupt got hard up for money, and went to everybody he could to raise it, paying money lenders at the rate of one per cent. per month. He borrowed from relatives and others with whom he long had had friendly relations. As to the lack of books, the referee found in his first report, filed June 19, 1917, as follows:

'Although the bankrupt had some years before kept a book of account, I do not regard his failure to keep books in connection with his business conducted on a cash basis as sufficient to sustain the specification, but taken in connection with his failure to account for or deposit moneys after November 13, 1916, except for the one deposit of $307 on December 1, I regard such conduct as evidencing an intent to conceal his true financial condition. The transfer of a policy of insurance to his wife, on which he subsequently paid a premium in a substantial sum, the purchase for his wife of a valuable garment even after the filing of the petition in bankruptcy and payment therefor out of funds of which he was trustee for his creditors, and also the loss of at least $50 of such moneys in playing cards with Simons and Einstein, and the giving of a note to his nephew, Lew Goldman, for $250, the same being for certain commissions on sales extending over a long period on a percentage basis, which the bankrupt himself seemed in some doubt about, are important upon the question of good faith and proper conduct, which are essential elements in cases where composition is offered to one's creditors.'

In his second report, filed March 5, 1918, the referee, dealing with substantially the same specifications, found as follows:

'As to the others (i.e., the specifications), as pointed out in my former report, there was here a clear preparation for bankruptcy by the transfer of a policy of insurance to his wife, and preferential payments (for, while the petition was not voluntary, it was friendly), but the policy had little or no paid-up value, and its transfer was a matter of record. Preferential payments, though in this case, I believe, clearly recoverable, and furnishing the basis for my recommending that the proposed composition was not for the best interests of creditors, will not in and of themselves bar a discharge.

'On the remaining specifications it comes to the matter of whether a cash business, such as this was, requires the keeping of books, as the whole contention on the score of concealment of assets has to do with the disposition of a sum not exceeding $100, and probably even less, being the difference between undoubted expenses and receipts which have now to be established by oral evidence. It has been impossible for me to regard the transactions of this bankrupt in any other light than that of a man struggling to get out of his difficulties, and that there was from start to finish no actual intent to conceal his true financial condition. I think the case clearly distinguishable from In re Kaplan (D.C.) 245 F. 222, both as to the conduct of the bankrupt before as well as after the petition was filed.'

The District Court at the conclusion of the arguments gave oral judgment (thereafter reduced to writing) as follows:

'It is evident that we are dealing here with a bankruptcy which was essentially fraudulent; and the bankrupt's acts and omissions are to be considered with that fact in mind. The failure was carefully prepared for, weeks ahead. Up to November 13th there had been deposits of more or less regularity in the bank. Beginning on that date they entirely ceased, with one exception (said to have been of borrowed money), which was made to meet a note coming due. As to how much money was taken in during the five or six weeks between that time and the appointment of the receiver on December 29, 1916, there is not a scrap of written evidence, and no evidence at all except the oral testimony of the bankrupt. He was carefully forelaying for bankruptcy during this interval, paying up the notes on which his brothers-in-law had indorsed, giving bonds (which would be avoided by bankruptcy), with them or other relatives as sureties, to dissolve attachments, etc. Although the gross receipts of his business were about $250 a week, and he saw failure ahead, he kept absolutely no accounts of any kind. Even after the petition was filed he continued to make preferential payments to protect relatives, and to use money which he then had for gambling at cards. The amount so lost was not, on his own statement, large, but it was substantial. See In re Shrimer (D.C.) 228 F.

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