In re Freeman
In the Matter of Joseph FREEMAN, Bankrupt
- Proceeding
- district
- Area
- other
- Panel
- Byrne (author)
Analysis
Medical Finance Corporation petitioned for review of a Referee's order granting a discharge to a bankrupt who had failed to disclose a judgment debt on a financial statement provided to a lender. The District Court reversed the order, holding that the bankrupt failed to prove non-reliance on the false statement and waived his right to a discharge by failing to appear at the hearing.
| What the court decided | The model |
|---|---|
Reversal of the Referee's order granting the bankrupt's discharge.“The order granting a discharge is reversed.” | agree with court The court correctly applied the burden-shifting framework for false financial statements under the Bankruptcy Act. The record establishes that the bankrupt made a false statement by omitting a known judgment debt. Under the cited authorities, the burden shifts to the bankrupt to show that the creditor did not rely on the statement. The bankrupt failed to appear and offered no evidence to rebut the creditor's testimony of reliance. Furthermore, the court correctly noted that failure to appear at the discharge hearing constitutes a waiver of the right to discharge under 11 U.S.C.A. § 32, sub. e. The decision follows logically from the statutory requirements and the uncontradicted evidence. |
The order itself: sound — The order is sound. It correctly identifies the legal standard for denying discharge based on a false financial statement, specifically the burden on the bankrupt to prove non-reliance. It properly applies the 'partial reliance' doctrine and distinguishes the cited case of In re Anderson based on the presence or absence of conflicting testimony. It also correctly applies the waiver provision for failure to appear at the discharge hearing. The reasoning is complete and supported by the cited authorities.
Opinion — Byrne
BYRNE, District Judge.
Medical Finance Corporation has petitioned for a review of the Referee’s order discharging the bankrupt. The petitioner is a creditor who objected to the discharge of the bankrupt on the ground that the bankrupt obtained money and property from the Aetna Finance Company by making and publishing a false financial statement.1 It is undisputed that the bankrupt obtained a renewal or extension of a loan from Aetna 2 at a time when there *438was an outstanding judgment against him in favor of the objecting creditor, in the amount of approximately $2,000. Nor is it disputed that he did not list this indebtedness on the financial statement given to Aetna. Only three creditors were listed on this financial statement followed by the notation, “This is all we owe on bills.”
Even where there has been a false financial statement, a discharge will not be denied unless there was reliance on the statement. Where it is shown that a false financial statement has been made, the burden is on the bankrupt to show that there was no reliance on the statement. Morris Plan Industrial Bank v. Parker, 1944, 79 U.S.App.D.C. 164,148 F.2d 665; In re Savarese, D.C.N.Y.1944, 56 F.Supp. 927; In re Neuman, D.C.Mont.1917, 251 F. 667. In the instant case the bankrupt made no showing of non-reliance; indeed he was not even present at the hearing on the objections to his discharge.
According to the Referee’s certificate on review, one Jack Boecher, Regional Manager of the Aetna Finance Company, testified that on or about December 8, 1954, he renewed or extended a loan to the bankrupt in the amount of $250; that he had no knowledge of the existence of a debt by judgment in favor of the objector; that the financial statement was presented to his company before the extension; that if he had known of this judgment, “the method of repayment of the judgment might have affected the loan”; that he relied upon the statement and other factors in extending credit.
The testimony of Aetna’s manager that he “relied upon the statement and other factors” is not contradicted. A creditor need not have relied solely on false information given out by the bankrupt; partial reliance is sufficient. Yates v. Boteler, 9 Cir., 1947, 163 F.2d 953; Banks v. Siegel, 4 Cir., 1950, 181 F.2d 309; In re Philpott, D.C.W.Va. 1940, 37 F.Supp. 43.
In his certificate on review, the Referee states, “The situation appeared to be very similar to that found in the case of In re Anderson [D.C.], 104 F. Supp. 599.” In the Anderson case the bankrupt testified the loan officials told him it was not necessary to put down the names of all his creditors. This testimony was contradicted; the trier of fact believed the bankrupt and resolved the conflict in his favor. Here there is no conflict. The facts are uncontradicted.
The Referee should have denied the bankrupt’s discharge either on the basis of the evidence before him, or on the ground that by failing to appear at the hearing on objections the bankrupt waived his right to a discharge. 11 U.S.C.A. § 32, sub. e. The order granting a discharge is reversed.
. 11 U.S.C.A. § 32, sub. c(3).
. The objecting creditor in this case is not the alleged defrauded creditor. However, creditors other than the defrauded creditor may oppose a discharge on the “false financial statement” grounds of 11 U.S.C.A. § 32, sub. c(3). In re Haggerty, 2 Cir., 165 F.2d 977; Remington on Bankruptcy, Vol. 7, 5th Ed., Sec. 3325.