Court Opinion

ID: 9453835
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:25:37.022047+00
Date Added: 2024-06-11T17:33:49.723267
License: Public Domain

HASTIE, Chief Judge.
This appeal has been taken from an order dismissing a creditor’s objections to the discharge of a bankrupt general contractor. It was and is the contention of the creditor, a bonding company .which had provided performance and payment bonds covering construction projects undertaken by the bankrupt, that the contractor forfeited his right to a discharge by inducing the bonding company to become his surety through “a materially false statement in writing respecting his financial condition.” Within the meaning of section 14c(3) of the Bankruptcy Act, 11 U.S.C. § 32(c) (3).
A divided panel of this court affirmed the order granting a discharge and a rehearing before the court en banc has now been granted.
The members of the original panel and all of us now are agreed that in order to obtain performance and payment bonds the bankrupt gave the appellant a financial statement in which he greatly understated the amount of his outstanding obligations. We also agree that under section 14c of the Bankruptcy Act a discharge must be withheld if this materially inaccurate financial statement was made, as we said in an earlier ease, “carelessly and with reckless indifference” to the actual facts. In re Finn, 3d Cir.1941, 119 F.2d 656, 658. Accord, Morimura, Arai & Co. v. Taback, 1929, 279 U.S. 24, 49 S.Ct. 212, 73 L.Ed. 586; Woolen Corp. *574of America v. Gitnig, 3d Cir. 1929, 33 F.2d 259; In re Barbiere, E.D.Pa.1951, 97 F.Supp. 86, aff’d per curiam, 3d Cir. 1951, 192 F.2d 1018.
A majority of the original panel reasoned that the referee and the district court had found sub silentio and with justification in the record that the contractor’s false statement of his outstanding obligations had not been made with reckless indifference to the actual facts. However, a majority of the full court now concludes that the referee and the district court neither addressed themselves nor adverted to this critical issue and that the present record, though containing indicia of blameworthy indifference of the contractor to the actual amount of his outstanding obligations, shows such slight exploration of the relevant circumstances that the case must be returned to the referee for a further hearing and explicit findings and decision upon this aspect of the bankrupt’s conduct.
Before the referee, the bankrupt sought to exculpate himself by introducing testimony indicating that he did not concern himself with office work but merely sent an accountant to his office employees who supplied the data from which the accountant prepared the understatement of outstanding obligations. Apparently, the contractor’s employees gave the accountant only a list of bills received and unpaid, ignoring all other outstanding obligations not evidenced in this way.
It also appears in the testimony of the accountant that, after preparing the financial statement, he did not forward it to the bonding company. Rather, he “gave it to Mr. Barbato, it was up to him, he did what he wanted with it.”
In these circumstances, inquiry is appropriate whether the omitted obligations were of such nature and extent and whether the contractor’s attention to the entire matter was so minimal as to show that he was recklessly indifferent to the correctness of the statement.
It is also to be considered that a few months after submitting the false financial statement the contractor, with the aid of a new accountant, obtained for income tax purposes an accurate statement of his obligations which disclosed that the earlier statement of his outstanding obligations to the bonding company was grossly in error. The procedure on that occasion was quite different from that which resulted in the understatement to the bonding company. In the words of the new accountant: “So he then sat down with me and he pulled out contracts, I worked with Mr. Barbato. He sat down with me on each individual contract.”
It does not appear precisely when this accurate accounting was completed or when the contractor filed his income tax return reflecting it. However, in April and in June he obtained additional bonds, apparently upon the earlier inaccurate financial statement. The referee should determine whether he obtained any of these bonds after the complete accounting had disclosed to him the serious error in his earlier financial statement to the bonding company.
Other questions and other evidentiary matters may well be significant. These set out above are merely indicative of the need for a full exploration of whatever occurrences may be relevant to determination of the ultimate issue.
 Finally, as the majority opinion of the panel on first hearing points out, once it is established that a bankrupt has benefited from his issuance of a materially false written statement respecting his financial condition, the burden is then on him to show by way of excuse that his conduct was not attended by a blameworthy attitude or state of mind. In this case, the burden is on the bankrupt to establish that he was not recklessly indifferent to the actual facts in issuing his false financial statement.
The judgment will be reversed and the cause remanded for further proceedings consistent with this opinion.