Court Opinion

ID: 6898082
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:52:02.79325+00
Date Added: 2024-06-11T16:06:04.502059
License: Public Domain

O’CONNELL, Circuit Judge
(dissenting).
While I accept the majority’s statement of the question presented for our determination, to wit, whether the district court’s affirmance of the referee’s finding was such a plain mistake that it would result in the defeat of justice, I can come to no other conclusion than that the affirmance of the lower court has precisely that result.
I appreciate that findings of the referee are to be accorded great weight, particularly when the findings have been affirmed by the bankruptcy court. Our court nonetheless has jurisdiction, and should exercise that jurisdiction, to reverse findings which are “clearly erroneous.” See In re Levy, 2 Cir., 1937, 92 F.2d 436, 437; Schapiro v. Tweedie Footwear Corp., 3 Cir., 1942, 131 F.2d 876, 878; Silver v. Rosenberg, 2 Cir., 1944, 139 F.2d 1020, 1021; and see 8 Remington on Bankruptcy, 3d Ed., § 3795, page 121. In my opinion, the findings in the instant case are “clearly erroneous.”
The reading of the record leaves me free from any doubt that here we have a bald, bold, deliberate, premeditated fraud, — the transfer of property for the sole purpose of defrauding the bankrupt’s creditor.
The primary issue is one of intent. This is a mixed question of fact and law. Even as a question of fact, it is reviewable on appeal since it is the ultimate fact question, thus one of law. See Schapiro v. Tweedie Footwear Corp., supra. Intent is always elusive. It cannot be hoped that a debtor, having fraudulently acted, would so admit in explicit words. Explanation by way of “window dressing” is to be expected. Intent then must be gleaned from the bankrupt’s conduct, from his motives, and from his testimony. It is, therefore, the duty of the court to sift the evidence and make the proper inferences therefrom.
What was the motivating force which, after some 20 years, caused the bankrupt to act so suddenly? Was it the asserted moral obligation to his wife that he now found so convenient, or the more cogent reason that such transfer had the double-barreled effect of defrauding his creditor and at the same time retaining to himself, for all practical purposes, the same asset which he had before such transfer?
In 1922, the bankrupt purchased his home for an undisclosed amount and gave a mortgage in the amount of $10,000. There is no evidence that his wife contributed any of the purchase price. He took title in his name only. In 1927, he recast the indebtedness upon his home by a first mortgage to J. B. Jones in the amount of $8,500. No testimony is offered as to who furnished the funds that went to reduce the mortgage from $10,000 to $8,500. Both he and his wife signed the bond and mortgage. He did not at this time transfer the property to a tenancy by the entireties. Could it be for the reason that at that time there was no occasion for taking steps calculated to defraud his creditors ? The amount due on the mortgage was reduced to $7,500 by two payments of $500. At neither of such times was there a transfer of the property to an estate by the entireties. In the meantime, the bankrupt became indebted to one Philip Remstine, who, in due course, demanded payment. Such payment being denied, suit was instituted in *712the state courts for its collection. The bankrupt did not answer on the merits, and so, on September 25, 1945, judgment was entered against him in the sum of $14,216.-05. It is significant to note that title to the property, in the name of the bankrupt alone until the happening of these events, was not transferred until after he had abandoned his defense to the action in the state courts. It is also significant to note that at the time of the conveyance of the property, the bankrupt did not have any other assets with which he could have settled the claim of Remstine. Having placed his property beyond the reach of his creditor, he filed a voluntary petition in bankruptcy six months later.
After the first hearing, the referee had no difficulty, on the testimony of the bankrupt, in finding a fraud upon the creditor. I fail to discover evidence adduced at the second hearing that would support a different conclusion. The $750 payment made to reduce the mortgage indebtedness was held to have been furnished by the wife from her independent funds, and to represent a substantial part of the equity of the property. Even if it could reasonably be held that such small amount represented such equity in this property, the claim of the wife to the money as her individual property must be rejected.
This claim is bottomed on the assertion that $600 was derived from First World War bonus bonds given to her by the bankrupt: “Whenever the Government gave them out, that is when Mr. Wolf turned them over to me. When Mr. Wolf received them. ‘Here,’ he said, ‘Here they are for all the suffering I have caused you in your life.’ ” The flaw in this story lies in the following provision contained in the bonds in question, prohibiting the very act asserted by the wife and upon which the referee relied for his conclusions : “This bond is- not transferable, assignable, subject to attachment, levy or seizure under any legal or equitable process, and is. payable * * * only to the registered owner, or in case of his death or incompetence to the representative of his estate and upon the presentation and surrender of this bond with requests for payment on the bade hereof duly executed.”
Likewise, the wife’s claim to the War Bonds as her individual property must fall, for these bonds, in the face amount of $150, were purchased out of “money that was given to me [wife] to run the house.” In Walker v. Commissioner of Internal Revenue, 3 Cir., 1947, 160 F.2d 313, this court had occasion to consider whether funds a wife had remaining in her possession after paying the household expenses out of allowances “to run the house,” made to her by the husband, were her individual property. This court affirmed the Tax Court ruling that such savings remained the property of the husband. I see no reason why the same ruling should not apply in cases involving discharge from bankruptcy.
The standards to which a debtor must conform before he is entitled to the benefits of the Bankruptcy Act, 11 U.S.C.A. § 1 et seq., are aptly stated in Re Becker, D.C.N.Y. 1901, 106 F. 54, 56, affirmed per curiam 2 Cir., 1901, 112 F. 1020: “A discharge is intended to relieve misfortune, but it must be misfortune coupled with absolute honesty. It is the reward which the law grants to the bankrupt who brings his entire property into court and lays it, without reservation,, at the feet of his creditors. This much the law demands. Where it is evident that he is scheming to be relieved of his debts while holding property which should be applied to their payment, he is not entitled to consideration from the court of bankruptcy. The discharge is denied.” (Emphasis supplied.)
I would reverse.