Court Opinion

ID: 3595913
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:43:21.025948+00
Date Added: 2024-06-11T13:57:08.806500
License: Public Domain

John A. Dilliard, the appellant, president of the State Title and Mortgage Company, was convicted of violating section 47 of the Insurance Law and section 665, subdivision 3, of the Penal Law. In substance these sections make it a misdemeanor knowingly to make or publish a false statement as to the financial condition of a corporation (§ 665) or to represent that certain assets are in the possession of the corporation which are not actually possessed by it. As part of the indictment the appellant was charged with issuing a statement of condition, dated December 31, 1932, which showed the State Title and Mortgage Company to possess $400,000 in cash more than it actually had. The facts disclosed at the trial as to this item are as follows.
On December 30, 1932, the day before the date of the statement of condition, the State Title and Mortgage Company had $145,105 cash on hand and in banks, of which a considerable portion was held by it as agent *Page 416 
and only $9,908.68 of which was general funds. On that day the appellant telephoned the president of a trust company and arranged for a loan of $400,000. The exact terms of the loan are not directly available. The president could not, at the time of trial, recollect the conversation except that he had given instructions to one Barnewall about the loan. The appellant himself, although he had previously characterized the transaction as merely "window dressing" refused to take the stand and he was joined in this refusal by Mr. Skiffington, the vice-president of the State Title and Mortgage Company, who signed the note. On the day of the loan a time certificate of deposit was issued providing that thirty-one days of notice had to be given prior to the withdrawal of the money. This certificate of deposit was never delivered to the State Title Company but was retained by the trust company and had marked on it the words "in safe keeping only." The signature of Barnewall, to whom the president had given instructions, also appears on the face of the certificate of deposit. On January 3, 1933, the first business day after December 31, 1932, the loan of $400,000 was immediately repaid. Thereafter between January 10, 1933, and January 17, 1933, statements of condition of the State Title and Mortgage Companyas of December 31, 1932, were made out and sent to the State Insurance Department. Annexed to the final statement of condition of January 16, 1933, is an affidavit of the appellant wherein he swears that he supervised the preparation of the statement. Over 3,000 copies of the statement were subsequently made and copies were sent to Moody's Investors Service and to Dun and Bradstreet.
The contention of the State is that the alleged loan was a sham and colorable transaction, that it was made for the purpose of misleading the public and furnishing an entirely false picture of the financial condition of the State Title and Mortgage Company, and that the appellant Dilliard knowingly issued the false statement. *Page 417 
Two questions are presented: First, are the statutes, under which the appellant has been convicted, intended to apply to such transactions as the one here alleged, where the statement of condition seemingly reflects a transaction that took place?Secondly, was the evidence submitted by the State such that a jury would not be justified in finding the defendant guilty beyond a reasonable doubt?
As to the first question, the clear purpose of the statute is to compel a statement deliberately issued to the public to record the facts truthfully. It is not to be defeated by the juggling of figures or by bookkeeping legerdemain. If a transaction is created to inflate values falsely and so to mislead and defraud the public, the ostensible "correctness" of a bookkeeping entry, which records the transaction, does not serve to redeem the falsity of a statement of condition knowingly issued thereon. The pretense of truthful recordation cannot prevail over the basic falsity of the statement. So in the case at bar, if $400,000 were borrowed with the intent or under such restrictions and an agreement that the money was not to be available or used, and the entry was for the purpose only of apparently inflating the cash resources of the corporation, then the transaction was a violation of both statutes under consideration.
We turn, therefore, to the second question — has the State presented sufficient evidence to warrant the finding of the jury that the transaction was colorable and that Dilliard was implicated therein? The exact terms of the loan are not available from the testimony of either party. The president could not recollect; the appellant refused to testify save his characterization of the transaction before a Moreland Commissioner as for the purpose of "window-dressing." We must depend, therefore, on the other facts in the case plus appellant's own admission. It is undeniable that the money was borrowed the day *Page 418 
before the date of the statement of condition and repaid the day after. Not only was it untouched during that period, but it was not available for use if the State Title and Mortgage Company had desired to use it. The certificate of deposit provided that the money could not be withdrawn without thirty days' notice; it was never delivered to the corporation but was retained by the trust company; and indeed had marked on it "for safe keeping." From all this the jury could infer what had transpired, for "there is no surer way to find out what the parties meant, than to see what they have done." (Insurance Co. v. Dutcher, 95 U.S. 269,273.) There are claims that the blame should be placed on the subordinate employees who, it is suggested, may have acted without authority, although there is nothing in the record to substantiate this. It was well within the province of the jury to determine whether a subordinate employee of a bank with no motive and without authority would proceed to tamper with a loan of nearly half a million dollars. In addition we have the added fact that the signature of the employee to whom the president gave instructions concerning the loan appears on the restricted certificate. Why was he not called to substantiate this defense if it in fact existed? It is asserted that the transaction was valid since the statement of condition was approved by the State Insurance Department. The Insurance Department, however, need not determine the validity of the report but need only make certain that such report is filed. Certainly the Legislature has not given to the Superintendent of Insurance the authority to grant a dispensation from the punishment for a breach of the statute.
All these facts present ample proof to bring the case well within the province of the jury and justify their inference of the nature of the transaction. But as if to fix the guilt beyond peradventure we have the testimony of the admission of appellant himself in this connection, as already pointed out. When interrogated *Page 419 
before a Moreland Commissioner, he himself said that the transaction was for purposes of "window-dressing," that is for the purpose of representing the assets of the corporation to be other than they were.
Upon this record the guilt of appellant is clear. Practices such as here presented should not readily be condoned. The complexities of the operation must not be allowed to obscure its illegality. Large aggregations of capital have their great community benefits but great benefits carry equally great obligations, not the least of which is that they must be headed by executives who know and practice character and honesty. Otherwise the consequences often are disastrous and far reaching. I am unable to agree that it can be said that there was no evidence to justify the jury in finding the defendant guilty beyond a reasonable doubt.
With regard to the items dealing with the listing of the pledged securities I concur with the majority, but in relation to the listing of the $400,000 as cash on hand or in banks, the judgment of conviction should be affirmed.
CRANE, Ch. J., LEHMAN and LOUGHRAN, JJ., concur with HUBBS, J.; FINCH, J., dissents in opinion, in which O'BRIEN and CROUCH, JJ., concur.
Judgment reversed, etc. *Page 420