Court Opinion

ID: 9454320
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:43:15.871982+00
Date Added: 2024-06-11T17:34:03.951702
License: Public Domain

OPINION OF THE COURT
PER CURIAM.
James P. Butler, an individual bankrupt, appeals from an order of the district court affirming the referee’s denial of his discharge in bankruptcy. A discharge was denied under Section 14(c) (3) of the Bankruptcy Act (11 U.S.C.A. § 32(e) (3)),1 because it was found that the bankrupt, as a corporate executive, caused a bank to loan money to the corporation on the basis of false corporate financial statements. The case arose in the following way.
The Miller & Van Winkle Company, a New Jersey corporation, obtained a $50,-000 loan from the Franklin Bank on a demand note personally guaranteed, inter alia, by the bankrupt. The corporation executed an assignment of accounts, receivable, supported by invoices falsely showing shipments to customers. Shortly thereafter the corporation went into bankruptcy. Since a balance was still owing on the corporate loan, the bank sued and obtained a judgment against the bankrupt on his personal guarantee. In June, 1965, he filed a voluntary petition in bankruptcy and was thereafter adjudicated a bankrupt. The bank filed in his bankruptcy proceedings a proof of claim for the amount of its judgment, as well as an objection to his discharge.
The referee made, in pertinent part, the following findings:
(1) The assignments of accounts receivable to the Franklin Bank by the bankrupt constituted materially false statements in writing respecting the financial condition of Miller & Van Winkle Company, a corporation.
(2) The Franklin Bank relied on these assignments in extending credit to Miller & Van Winkle Company.
•X- * * * -X- *
(4) The bankrupt was an executive officer of the corporation within the meaning of Section 14(c) (3) of the Act.
He therefore concluded that the bankrupt should be denied a discharge under Section 14(c) (3). It is not disputed that the district court affirmed solely on the basis of the referee’s findings. This appeal followed.
The thrust of this appeal is directed at the correctness of the referee’s finding that the bankrupt was an executive of the corporation. We do not decide that question because of the incompleteness of the record in that it does not contain another important finding required to be made by a referee before he may deny a discharge under Section 14(c) (3). That finding would relate to whether the bankrupt can be charged with knowledge of the falsity of the assignment of accounts receivable either by a showing that the bankrupt knew at the pertinent time that the financial statements were false or *1061that he was recklessly indifferent in not knowing. Morimura Arai & Co. v. Taback, 279 U.S. 24, 49 S.Ct. 212, 73 L.Ed. 586 (1929); Schapiro v. Tweedie Footwear Corp., 131 F.2d 876, 878 (3rd Cir. 1942); In re Finn, 119 F.2d 656, 658 (3rd Cir. 1941).
There is a particular need in this case for a finding on the question of knowledge, for running through the bankrupt’s appellate brief is a denial that he may be charged with knowledge. Moreover, our examination of the testimony taken before the referee shows that, while his testimony was controverted, the bankrupt explicitly denied knowledge at the pertinent time of the falsity of the assignments or responsibility for their preparation.
Faced with the absence of a finding by the referee in a similar setting, this court sitting in banc ordered a remand to the referee for further hearing and determination. In the Matter of Barbato, 398 F.2d 572 (3rd Cir. 1968). Accordingly, we vacate the judgment of the district court and the order of the referee and remand the case to the referee for a further hearing to determine whether the bankrupt knowingly made or published or caused to be made or published the false financial statements or did so with reckless indifference to the facts. If the parties desire, they should be afforded an opportunity to supplement the record.

. The statute reads in pertinent part:
“(c) The court shall grant the discharge unless satisfied that the bankrupt has * * *
“(3) while engaged in business * * * as an executive of a corporation, ob-tamed for such business money or property on credit by making or publishing or causing to be made or published in any manner whatsoever a materially false statement in writing respecting * * * the financial condition of such * * * corporation.”