Court Opinion

ID: 9651218
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:10:30.664993+00
Date Added: 2024-06-11T18:12:30.973744
License: Public Domain

CLARK, Circuit Judge
(dissenting).
This bankrupt, when engaged in a sizable department store business with his first wife some years ago, had acquired — and in fact retained till now — substantial debts; at some time he turned over to her real estate consisting of seemingly extensive store and apartment property and later started again in a business here considered so small that his lack of any records whatsoever is held justified. But as the referee well said, “There isn’t the slightest chance, in this proceeding, for the creditors to determine whether the bankrupt is telling the truth. He knew he had the old debts on his shoulders. Barring unusual circumstances he was bound to go more deeply into debt.” There were other things, too, which justified the referee’s lack of warmth towards the bankrupt: the latter’s ability substantially to finance the purchase for his wife of a Pontiac automobile used by him in his business; his hedging about his capacity to write numbers or keep accounts; his lack of frankness as to the government’s claim for an income tax, which he appears to have paid — however ascertained or computed. Most cases of discharge require ultimately a decision as to the bankrupt’s honesty and veracity — questions best decided by the trier who has actually observed the man before him. Hence in practice we follow the referee’s judgment unless, of course, his law is mistaken or his findings “clearly erroneous” — as we have done already this year in some half dozen cases. See my dissent in Benjamin v. Jaspan, 2 Cir., 1944, 144 F.2d 58, a case where — contrary to the trend of view here —a referee was reversed for being too lenient as to a bankrupt’s books. Such cases suggest ambiguous conflicts unless they are resolved upon their particular facts; for my part I would not only sustain, but agree with one referee in believing Benjamin, and another referee in disbelieving this bankrupt.
Therefore, if this were treated only as a question of fact for the individual case, Klein v. Morris Plan Industrial Bank of New York, 2 Cir., 132 F.2d 809, 811, 144 A.L.R. 1278, I should not be disposed to object. But the reversal of the referee’s findings— and of the district court’s affirmance as well- — appears to make it a rule of law that the smallness of a business may justify the lack of any records. A test based on size of the business appears generally to have been rejected; it is rather the complexity of the business or occupation and the affording of means of ascertaining the bankrupt’s “financial condition and business transactions,” in the statutory language, which should constitute the test. Cf. 1 Moore’s Collier on Bankruptcy, 14th Ed. 1940, 1336, and 1943 Cum.Supp. 161-163, citing cases. Hence, as the cited cases show, a wage earner whose condition is easily ascertainable may be excused from keeping books where the owner of a retail business should not be. But it is also clear that no records more elaborate than this purpose requires need be kept; thus, invoices, sales slips, and cancelled checks were held sufficient in Hedges v. Bushnell, *6210 Cir., 106 F.2d 979. Ignorance, however, as we have held, is not an excuse. In re Herzog, 2 Cir., 121 F.2d 581, certiorari denied Herzog v. Dorman, 315 U.S. 807, 62 S.Ct. 640, 86 L.Ed. 1206. Learned investigators have pointed out how generally lack of records is a warning signal of a weak or tottering business, and have intimated that the courts have done rather less than they should in attempting to enforce some standards, at least, of adequate records. Douglas, Some Functional Aspects of Bankruptcy, 41 Yale L.J. 329; and Corstvet, Inadequate Bookkeeping as a Factor in Business Failure, 45 Yale L.J. 1201, cited in the Klein case, supra. A judicial principle finding justification for lack of any records at all in the trifling nature of the business, without respect to the general credibility of the bankrupt or his past business experiences or practices, seems to me both undesirable and not consonant with the statute. I would affirm.