Opinion ID: 1507979
Heading Depth: 1
Heading Rank: 3

Heading: Vineland Farmers Corporation Transaction Item of $321.30.

Text: Vineland owed the Bronx Refrigerator Company $918 for storage of eggs on which the latter had a lien. Vineland claims that the bankrupt purchased these eggs at $1,239.30 by assuming the obligation of $918 to the Bronx Refrigerator Company and paying $321.30 to Vineland by check to the latter's order dated December 2, 1936, which was collected in due course. The books of the bankrupt show a purchase price of $1,239.30, but the books of Vineland only show a sale to the bankrupt at $918 and nowhere mention a payment of $321.30 to meet any further balance arising from the transaction. Moreover, Schatten, the president of Vineland, was requested to prepare a schedule showing all the merchandise sold by Vineland to the bankrupt from June, 1936, to February 2, 1937. This schedule was furnished and purported to show all payments made for such merchandise. It contains no payment of $321.30. Schatten was also requested to prepare a schedule of checks exchanged between Vineland and the bankrupt during the same period. The check for $321.30 does not appear on this schedule. Numerous false entries made to conceal the withdrawal of assets by Pinsky appear on the bankrupt's books. The referee was clearly justified in finding the $321.30 represented a fraudulent appropriation of assets of the bankrupt. There is no dispute as to its possession at the time of adjudication. We finally come to the question whether the items were in the possession or within the control of the respondents at the time when the turnover order was made. We need not go into the evidence on this point with respect to the item charged to Vineland. That respondent did not suggest that it did not have possession of the money represented by the check for $321.30. It limited its defense on the merits to evidence that the check was given in payment of a balance due on a sale of merchandise and did not represent an appropriation of assets. We have decided against Vineland on that issue. Indeed, the assignment of error (No. 7) directed to this item does not question possession at the time either of the adjudication or when the turnover order was made, but seems to recognize its existence. Accordingly the order as to this item should be affirmed. The items of $3,346.27 and $591.14 are more troublesome in view of Danish v. Sofranski, 2 Cir., 93 F.2d 424. That decision, however, is distinguishable on the facts. There two officers of a corporation were each held liable for the sum of $2,532.80 taken under the guise of excessive salaries, but held by the district court to be an appropriation of assets. The referee made a turnover order under date of March 2, 1937, and finally modified it on July 15, 1937, by reducing the sums originally found to those above stated. The abstractions began in 1934 and ended on March 15, 1935. Therefore, when the order of July 15, 1937, was entered, two and a half years had elapsed since the withdrawals of October, November and December, 1934, which formed the real basis for the turnover order, had occurred. It was not unreasonable to hold that under such circumstances no inference could be made that $2,532.80, taken long before, still remained in the possession of the taker. Inasmuch as the length of time between the taking and the turnover order was so great as to dispel any inference of control based on the withdrawals alone and no other evidence appeared on the record which would sustain an inference of continued possession, the order directing a turnover was properly reversed. In the present case, however, the misappropriations by Pinsky aggregated $6,648.05. More than two-thirds of this sum was taken in January, 1937, less than eleven months before the turnover order, and nearly all the rest within one year theretofore. Moreover, the property with which he was charged by the referee as of the date of bankruptcy was not shown to have been lost in any business and the contrary was found. The only attempt to explain any disappearance of property related to that put into the Harlem business. The referee found that his story about losses in that business and payments to persons wholly unspecified or not produced as witnesses, and his other attempts to account for the disposition of the property, were unbelievable. Pinsky testified that he was living with his father-in-law who contributed to the support of his family. He said that all the moneys he had got since the $600 or $700 that was left up in Harlem had come from his father-in-law who gives me living expenses (Minutes 156). He testified that he began working in the store of his brother-in-law Sam Golembe about April or May 1937, and that he candled eggs and went to the market every day to make purchases for the store. The foregoing evidence established that the money was not dissipated for living expenses. Indeed, Pinsky expressly disclaimed this except as to the $600 or $700 and the referee did not believe his explanation. We cannot say that the latter was not justified in finding that he retained possession or control of the various sums abstracted up to the time of the making of the turnover order. A contrary conclusion on our part would be giving too much weight to things we know nothing about and too little weight to an inference drawn by the referee as to continued possession of property. In Danish v. Sofranski, 2 Cir., 93 F.2d 424, the distinction is made between a complete denial by a respondent that he has ever received property of a bankrupt and an acknowledgment that he has received the property, where in each instance he has failed to account for its disposal. It is said that in the former situation the trustee need not prove the ability of the respondent to comply with a turnover order but that in the latter he must. It seems to us that such distinction cannot determine whether a turnover order should issue. Where he denies receiving, but the court finds that he did receive, we think that the result is legally the same as where he concedes possession. In each case there is ex hypothesi a finding of possession, in one based on an admission, in the other based on proof so compelling that the denial is of no avail. In each situation we think there is the same burden upon the trustee to prove possession at the time of the making of the turnover order. The result is determined either by evidence of possession at the time of the order or by the strength of the inference of continued possession, once possession is conceded or found to exist at the time of adjudication. The strength of the inference depends on the circumstances, which include the amount and nature of the property, the time which has elapsed, and the credibility of any explanation which the respondent may give. A distinction between the burden imposed on the trustee in cases where misappropriation by a respondent is admitted, and in cases where it is found to exist in spite of his denial, is a strong inducement to a fraudulent respondent to choose the former alternative. It is bound to become a favorite method of avoiding turnover orders in cases which do not differ essentially from those of unqualified denials of receiving except in the favorable result to the guilty party. Judge Swan's opinion in Re Schoenberg, 2 Cir., 70 F.2d 321, illustrates what we have just said. There the bankrupt transferred his property to a family corporation which he formed and to which he conveyed his merchandise in exchange for its capital stock. For more than a year the corporation conducted the business with these assets. Its books were not called for by the trustee and so far as appears, the proceeds received from disposal of the merchandise may have been used in business expenses and paying merchandise creditors. 70 F. 2d page 323. The referee had there made no finding that the respondent corporation had goods or their proceeds at the date of the turnover order. There was thus neither evidence of continued possession of all the merchandise, nor facts allowing an inference that it was retained to the date of the turnover order. An order directing delivery of all the goods could not therefore stand. In the present case, Pinsky testified that he kept no books in his Harlem business and the referee found continued possession down to the date of the turnover order. In view of the large amount of property taken, the time which elapsed between the taking and the turnover order, the attempted futile explanation of its disposition and the evidence indicating that there was no dissipation after adjudication either in business ventures or for living expenses, we think the finding of the referee was right and the district court was justified in affirming his decision. Order affirmed.