Third Nat. Bank v. Schatten

• Decision Date: 07 February 1936
• Docket Number: No. 6876.,6876.
• Citation: 81 F.2d 538
• Parties: THIRD NAT. BANK v. SCHATTEN.
• Court: U.S. Court of Appeals — Sixth Circuit

81 F.2d 538 (1936)

THIRD NAT. BANK v. SCHATTEN.

No. 6876.

Circuit Court of Appeals, Sixth Circuit.

February 7, 1936.

E. J. Walsh, of Nashville, Tenn., for appellant.

Elkin Garfinkle and Jos. E. Pasternack, both of Nashville, Tenn., for appellee.

Before MOORMAN, HICKS, and SIMONS, Circuit Judges.

HICKS, Circuit Judge.

Appeal from an order granting a discharge in bankruptcy to appellee, Max Schatten, herein called the bankrupt.

The bankrupt applied for his discharge and appellant, Third National Bank, filed specifications of grounds of opposition thereto under section 14b (2) and (3) of the Bankruptcy Act, as amended (11 U.S. C. § 32 (b) (2) and (3), 11 U.S.C.A. § 32 (b) (2, 3), and the bankrupt answered. The matter was referred to the referee as special master for findings and report.

There were three specifications, to wit: (1) That on August 17, 1931, the bankrupt obtained an extension or renewal of credit by making to appellant a materially false statement in writing respecting his financial condition; (2) that on July 29, 1932, he likewise obtained an extension or renewal of credit by making to appellant a materially false statement in writing respecting his financial condition; and (3) that the bankrupt had failed to keep books of account from which his financial condition might have been ascertained.

The special master made no finding upon the third specification, and appellant did not except to his failure to do so. It was not therefore before the court, and is not subject to review here. Vehon v. Ullman, 147 F. 694 (C.C.A.7).

The special master found that the proof fully sustained the first and second specifications, and recommended that the discharge be denied. The District Court sustained the bankrupt's exceptions to the report and granted the discharge.

There was no substantial evidence to sustain the first specification, and the court was therefore right in overruling it.

The principal complaint is that the court erred in failing to sustain the specification based upon the financial statement of July 29, 1932. This statement was made at the request of appellant, and was signed by the bankrupt when he went to the bank to renew his note for $3,100. Fleming, assistant cashier of appellant and in charge of its credit department, personally assisted the bankrupt at his request in making out the statement upon a form used by appellant. Fleming filled in the appropriate blank spaces thereof in accordance with information furnished by the bankrupt. When the statement was completed, it was submitted to the bankrupt for his inspection, he signed it without reading it, and thereupon appellant permitted him to renew his note. The practice was similar to that followed by appellant in its dealings with the bankrupt on at least five previous occasions.

The statement showed that the bankrupt had quick assets of $5,395. made up of cash on hand and in banks and of merchandise; and current liabilities, exclusive of mortgages, of $4,700, made up of the note to appellant of $3,100 and accounts payable of $1,600.

The facts were as found by the special master, that on July 29, 1932, the bankrupt actually owed, in addition to the liabilities set forth in the statement and some other small ones not listed therein, a note of $300 to the Mutual Loan Bank of Nashville, and $2,800 to his children, and that his current liabilities therefore exceeded his current assets in the sum of $2,405.

Fleming testified that, had these facts appeared in the financial statement, the bank would not have renewed his loan for $3,100, and that he would have recommended that it be collected or secured.

In explanation of the minor discrepancies in accounts receivable, the bankrupt testified that he did not bring his books or memoranda to appellant, but gave the information based upon his recollection and estimate; that the $1,600 figure was an estimate in round numbers; that he did not intend thereby to conceal anything from appellant; and that "he did not go back to look up and figure how much he owed on the accounts, and that he was not requested to do so."

The bankrupt explained the $2,800 indebtedness to his children as follows: That each of his three children, after the death of their mother in February, 1931, became entitled to $1,000 in insurance money; that he received it as guardian and deposited it in various banks, and that soon thereafter he used it in his merchandise business; that he thought, at the time, it was his money as well as the children's, because he had paid for the insurance and was supporting and educating the children at his home. He said: "I am taking care of the children, because my wife has left me the three kids, I had to take care of them, I didn't know it was against the rule to use these kids' money, I figured the kids' money was to use as well as mine, I didn't figure I borrowed this money, I took it not knowing I could not do it, that it was against the law. * * *"

He further stated: "That he found that he had done wrong when" (on March 10, 1933) "he received a letter from the county court clerk asking him to make a report on what he had done with the money, and that the clerk had advised him to put it down in a book. He did not know that he was supposed to make a record of it; he then put it down in a book."

Evidently what the bankrupt meant...