Opinion ID: 1498179
Heading Depth: 1
Heading Rank: 1

Heading: For the use of Subscribers as a Basis for Credit and Insurance.

Text: As we have already seen in connection with the appellant's objections to Finding No. 1, a false statement made to a mercantile agency for general use is unquestionably a basis for the denial of a discharge. 1 Collier, § 14.42, p. 1357, supra. And the bankrupt's unsupported assertions of an honest intent will not overcome the natural inferences from admitted facts. Id., § 14.40, pp. 1353-1354. Finally, the statute itself is concerned not with the purpose for which a false statement is issued, but with the result that it accomplishes. The text of 11 U.S.C.A. § 32 sub. c(3) follows: The court shall grant the discharge unless satisfied that the bankrupt has    (3) obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a materially false statement in writing respecting his financial condition;   . It is significant that the statute in its earlier form, prior to the enactment of the Act of May 27, 1926, 44 Stat. 662, 663, did contain the phrase, for the purpose of obtaining credit from such person. We do not believe that the omission of these qualifying words from the later statute was merely an inadvertence on the part of Congress. In any event, a man is presumed to intend the natural consequences of his acts. The natural consequences of the appellant's giving a statement of his financial condition to a representative of a mercantile agency were those outlined in the blank itself  it would be used by subscribers as a basis for credit    3. The information contained in the financial statement of January 21, 1944, was knowingly false. It was acted upon by the Jorgensen company to its detriment, since after the statement was received by that company, it extended additional credit to the appellant in the amount of at least $2160. The appellant's principal objection to this finding  except objections repeated by him elsewhere in connection with other findings  is that it finds [sic] that the statement is false without mentioning any particular portion thereof. If the referee's findings are examined in their entirety, however, it will be observed that in No. 4 and No. 5, infra, he goes into the details that, according to the appellant, are missing in No. 3. In addition, the appellant objects to the referee's statement that said creditor had had dealings with the bankrupt in November, 1943, and called upon Dun & Bradstreet, Inc. for a credit report on the bankrupt. As to this assertion, the appellant makes the following comment: If there is any evidence that indicated that Earl [sic] M. Jorgensen Company had called upon Dun & Bradstreet for a credit report on the bankrupt we have been unable to find the same. The evidence is, nevertheless, there. H. H. Ahlskog, credit manager for the Jorgensen Company, testified: We applied at the time the account was opened for the Dun & Bradstreet report, in November, 1943. 4. The appellant's books showed his net worth as of December 31, 1943, to be $6937.44, while the net worth reported in the financial statement of January 21, 1944, was $41,500, though there had been no substantial change in his assets since the former date. The accounts receivable in the financial statement totaled $12,000, while their actual total was only $3,691.84. Although the financial statement valued the machinery and fixtures at $25,000, the actual cost of these items as shown by the books was only $7,554.73, and the actual market value, because of wartime conditions, was $18,000. Under this heading, the appellant's sole criticism centers about the referee's acceptance of the trustee's estimate of $18,000, instead of the appellant's figure of $25,000. Commenting upon the discrepancy between these two figures, the appellant says in its brief: We have the opinion  and strictly opinion  of two men both qualified to pass upon values of this kind. Are either of them liars or trying to misrepresent the true situation? We believe not, but they have honest differences of opinion as to the value thereof, etc. [Emphasis supplied] The variance in the opinions of the appellant and of the trustee as to the value of the machinery and fixtures constitutes a classical example of a conflict in testimony that it is within the peculiar province of a referee to resolve. As we have already shown, appellate courts are not inclined to disturb a referee's findings as to such matters, particularly when they have been adopted by the District Judge. It is not the belief of counsel as to the honesty of a witness that is of decisive weight here. It is the belief of the trier of fact, who heard the testimony, that is highly persuasive if not wholly controlling in an appellate court. 5. In preparing the financial statement furnished by him to Dun & Bradstreet, the appellant had before him monthly balance sheets showing accurately his financial condition, and showing that as of December 31, 1943, his net worth was $6937.44. Despite the fact that there had been no appreciable physical change in his assets since that date, the appellant in his financial statement reported his net worth to be $41,500. The appellant did not supply copies of his balance sheets then in his possession to the mercantile agency. The appellant is, in part, technically, but not substantially, correct in his statement that this finding is not supported by the record. It is true that the testimony of the man who prepared the appellant's balance sheets indicates that the sheet for December 31, 1943, was probably not delivered into the appellant's hands before some time in February, 1944, or after the financial statement had been given to Dun & Bradstreet. In quoting from the referee's finding on this point, however, the appellant omits all mention made by the referee of balance sheets generally, which were in the appellant's possession. The accountant who prepared these balance sheets for the appellant testified that his firm had brought the Advance Welding Works up to date from the middle of the year 1943, that from that time on it rendered the appellant's establishment regular monthly statements, and that the balance sheet for November 30, 1943, was probably delivered to the Advance Welding Works prior to January 21, 1944, when the appellant talked with Dun & Bradstreet's representative and signed the financial statement. Now, the November balance sheet showed the appellant's net worth to be $8,060.82, while, as we have seen, the net worth shown in the December sheet was $6,937.44. In other words, the November figure, as well as the one shown in the December balance sheet, was far below the $41,500 net worth reported by the appellant to Dun & Bradstreet. But if, from a superabundance of caution, we were to decline to accept the probability that the appellant had the November balance sheet before him when he gave his financial statement to the mercantile agency, it is beyond cavil that there was available to him the September sheet, which showed his net worth to be $12,863.18  still greatly at variance with the reported $41,500 figure. In this connection, and elsewhere in his brief, the appellant emphasizes that the representative of Dun & Bradstreet obtained the figures from the appellant in the haphazard fashion of a hasty interview, which lasted only five minutes. The short answer to all this is that, if the interview was indeed hasty or haphazard, the fault lay with the appellant himself. According to the appellant's version, he refused to give a detailed financial estimate, said that he would rather not give out any, and finally compromised by giving the agency's representative round-figure estimates in response to certain questions. The appellant blames the agency's indifferent, inefficient, and loose manner of handling his report, for whatever misleading information was received by the Jorgensen company. He also blames the representative for having been so haphazard and hasty in his interview. We do not believe that these strictures against Dun & Bradstreet and its interviewer are justified. In the first place, the appellant misconceives the relationship of the parties when he describes Dun & Bradstreet as the agent of the creditor and not of the bankrupt. This is not the law. In Re Cloutier Bros., supra, 228 F. at page 570, the Court said: The mercantile agency is to be regarded as the representative of the debtor, and his agent for the purpose of obtaining credit by means of exhibiting a false statement. In the second place, the appellant was under no compulsion, either legal or moral, to give out any statement whatsoever. But having elected to release certain figures pertaining to his business, it was his duty, both legal and moral, to see to it that those figures were as accurate as he could make them. It is clear that he did not put out the necessary effort to make his information conform to this high standard. If the interview was hasty or haphazard, it was, we repeat, the appellant's fault. In Morris Plan Industrial Bank v. Lassman, 2 Cir., 116 F.2d 473, the court said: When a lender asks a borrower how much he owes, and the borrower sets a figure without qualification, the lender properly understands that the borrower is telling what he knows; not indeed accurately to the cent, but certainly that he is not speaking at random. If he is merely guessing at the right amount  which it is necessarily within his power to ascertain  his answer is untruthful unless he in some way conditions it. It may be morally worse to tell what he knows to be false, but it is as deliberate a deceit to give an appearance of accuracy to what one knows to be a shot in the dark. [Many cases cited] 6. The appellant's offer of proof as to the activities of his employees subsequently to January 21, 1944, could not in any way affect the truth or falsity of the financial statement prepared by him on that date. The offer of proof rejected by the referee related to alleged embezzlements committed by the appellant's bookkeeper and the appellant's general manager on dates subsequent to the signing of the financial statement of January 21, 1944. It would serve no useful purpose to set out the alleged irregularities in detail, since we agree with the referee that they could not affect the truth or falsity of the statement of January 21, 1944. Suffice it to say, we have carefully read the proffered evidence, and find it wholly irrelevant to the issues here presented. 7. The appellant prepared the financial statement of January 21, 1944, and furnished it to Dun & Bradstreet for credit purposes, knowing that the information and amounts contained therein were false. Even if he did not actually know that the information was false, he furnished it with such a reckless and willful disregard for the truth that his conduct was tantamount to an express knowledge of the falsity of the information. The appellant's first objection to this finding is that it is squinting. We fail to see how the evidence can support both theories, he declares. A careful reading of the finding, however, discloses that it is in the alternative. Such a finding is permissible, especially when it deals with a party's state of mind, or intent, and where the legal consequences are the same no matter which alternative is accepted. The word false as used in 11 U.S.C.A. § 32, supra, has been defined by the Supreme Court as being made and acquiesced in either with actual knowledge that it was incorrect, or with reckless indifference to the actual facts, without examining the available source of knowledge which lay at hand, and with no reasonable ground to believe that it was in fact correct. Morimura, Arai & Company v. Taback, 279 U.S. 24, 33, 49 S.Ct. 212, 215, 73 L.Ed. 586. The rest of the appellant's argument under this heading is devoted to placing the blame upon Miss Irma Bernardi, who is described in the brief as an inexperienced bookkeeper, for the appellant's misstatement of his accounts receivable. Miss Bernardi, it should be noted, was not the bookkeeper who was accused of irregularities. The appellant testified that, when he was interviewed by the mercantile agency's representative, he turned to Miss Bernardi and asked her what the figures for the accounts receivable were. She then gave him the amount that appears upon the financial statement of January 21, 1944. That amount, $12,000, was admittedly erroneous, because it did not reflect the fact that $5,654.85 of the accounts had been factored with Universal Factors, less a reserve of $626.07. This item of accounts receivable, however, is the only one as to which the evidence showed Miss Bernardi erred. It is true that she did give the appellant the figures on the cash in bank and the accounts payable. The estimates on the merchandise and on the machinery and fixtures, however, were admittedly made by the appellant himself and given by him to the agency's representative. The appellant testified on at least three separate occasions regarding his interview with the man from Dun & Bradstreet. Although there were some discrepancies in these three statements, we have adopted in the foregoing paragraph the version selected in the appellant's brief; namely, that the estimates on the worth of the merchandise and of the machinery and fixtures were the appellant's own. In our discussion of Finding No. 4, supra, we have pointed out that there was support in the record for that finding, to the effect that, although the financial statement valued the machinery and fixtures at $25,000, the actual market value, because of wartime conditions, was $18,000. For that false estimate, at least, the inexperienced bookkeeper could not be blamed. As to the appellant's general argument that a business man has a right to rely upon his bookkeeper, we may make the passing observation that the tendency among business men to blame their subordinates for their own shortcomings is so common as to be almost a matter of judicial notice. We do not rely, however, upon judicial notice in connection with this familiar fact of life, since, as we have just seen, the record makes such reliance unnecessary. As we scan the entire transcript, we are compelled to the conclusion that the appellant has not discharged his heavy burden in this court of overturning the referee's findings on conflicting evidence, after those findings have been adopted and the referee's order based thereon has been affirmed by the District Judge. Accordingly, the order of the court below is affirmed.