Siegel v. His Creditors

Belcher, C. The respondent filed his petition in insolvency on the twenty-first" day of May, 1890, and- was thereupon adjudged to be an insolvent debtor. In due time he.applied to the court for a discharge from his debts, and two of his creditors, Walter M. Patrick and Jacoby Brothers, opposed the discharge. The specifications of the grounds of opposition, so far as they need be stated, were, that the respondent had been guilty of fraud, contrary to the true intent of the Insolvent Act, in that on the 5th of April, 1890, he, by false and fraudulent representations as to his financial standing, induced Patrick Brothers, the assignors of said Walter M. Patrick, to sell him certain goods, of the value of ninety-five dollars, on a four-months credit, which had not expired when he filed his petition in insolvency, and that he knew said representations to be false, and made them with the intent to deceive and defraud said Patrick Brothers; and also that respondent, for eighteen months prior to the filing of his petition in insolvency, was a retail dealer in boots and shoes, and did not during that time keep proper books of account. After trial, the court found, upon the issues raised by the pleadings, among other things, that the respondent obtained from Patrick Brothers goods of the value of ninety-five dollars, on a four-months credit, as alleged, but that it was not such a fraud as would prevent [412] the granting him a discharge from his other debts; and also, that respondent was a retail dealer in boots and shoes for the period of eighteen months immediately preceding the filing of his petition in insolvency, and that during that period, from time to time, he borrowed from one Nathan Siegel sums of money, in the aggregate amounting to $1,205; that no one of the sums so borrowed amounted to more than seventy-five dollars, and that each of the said sums was borrowed for a short time, and was repaid within two days; that no account of the said loans was kept on his books in the name of Nathan Siegel, “ nor any account thereof, except that the items of cash paid out to the said Nathan Siegel in payment of said loans were entered in the bank account kept by said Myer Siegel on his books of said business”; that otherwise respondent kept proper books of account, and that his failure to enter on his books, to the particular account of Nathan Siegel, the said temporary loans, was not such a failure to keep proper books of account as would authorize the withholding the discharge. A decree was accordingly entered discharging the respondent from all his debts, which, under the insolvent law of this state, were provable against his estate, and which existed on the twenty-first day of May, 1890, except the said debt of ninety-five dollars due to Patrick Brothers. From this decree the opposing creditors appealed, and have brought the case here for review on the findings. Section 49 of the Insolvent Act provides that no discharge shall be granted to an insolvent debtor if he has done or failed to do certain specified things, and, among others, if he “ has been guilty of fraud contrary to the true intent of this act”; and section 52 provides that “ no debt created by fraud or embezzlement of the debtor . . . . shall be discharged under this act, but the debt may be proved; and the dividend thereon shall be a payment on account of said debt.” Upon the authority of these sections, and the decisions of the courts in regard to similar provisions found in [413] the federal bankrupt act, it was decided by this court in the case of In re McEachran, 82 Cal. 219, that the fact that a particular debt was created by fraud was not ground for refusing a discharge from other debts; and the same doctrine was again declared in the case of Dyer v. Bradley, 89 Cal. 557. The fraud of which the respondent here was found guilty is not included in any of the grounds specified in section 49 for withholding a discharge, unless it is included in the clause quoted. Appellants, however, contend that that clause was intended to cover a case like this; that it was not in the bankrupt act; and that it must have been overlooked in making the decisions above referred to, and hence that those decisions should be reconsidered and overruled. We do not think this contention should be sustained. It is true that the clause quoted is not found in the bankrupt act; but in our opinion, it was not intended by it to change the rule many times declared by the bankruptcy courts in cases like this. It seems rather to refer to frauds which affect the mass of the creditors, and not some individual creditor alone. Nor was this clause-overlooked when the opinions in the cases criticised were written. Those decisions were mainly rested upon section 52, which seems plainly to imply that a discharge may be granted, notwithstanding there may be some debt which should be excepted from its operation, because it was fraudulently contracted. Appellants also contend that the discharge should have been denied, because respondent had failed to keep proper books of account; but the only fault found with his books is, that he did not keep in them, in the name of Nathan Siegel, an account of certain small sums of money borrowed from him, from time to time, during a period of eighteen months. It does not appear that there were ever any other business transactions between the parties, and the court finds that the small loans were paid back within two days, and the [414] payments were entered in the bank account kept by respondent in his books. One of the grounds specified in section 49 for refusing a discharge is, “if being a merchant or tradesman, he [the debtor] has not kept proper books of account." The evident purpose of this provision was to require every merchant or tradesman to so keep his books that any competent person, by an examination of them, could ascertain and determine the real condition of his affairs; and if they be so kept, though imperfect, inartistic, and inaccurate in unimportant particulars, they will be treated as “proper books of account.” Undoubtedly a trader should be held to the utmóst good faith and reasonable care in keeping accounts of his business as such; but he is not required to enter in his books accounts of outside matters. (In re Good, 78 Cal. 399.) The question, then, as to whether books are “ proper ” or not is one to be determined in each particular case by the facts and circumstances there shown. Here the testimony is not brought up in the record, and we have only the findings to look to. The presumption is, that every decision of a trial court is correct, unless error clearly appears. Looking, then, at the findings, does it clearly appear that the court below erroneously reached the conclusion that respondent’s books were not so improperly kept as to warrant the withholding his discharge? We think not. So far as we can see, the small sums of money borrowed from time to time may have been for purposes wholly outside the boot and shoe business; and if riot, the books, notwithstanding the failure to enter those items, may have sufficiently shown the real condition of respondent’s business affairs as a trader. In the case of In re Good, 78 Cal. 399, cited by appellants, it appeared that the insolvents borrowed ten thousand dollars to enable them to commence and continue their business, and that the money so borrowed constituted their capital stock. Ho account of this borrowed capital was entered in the books. As kept, the books [415] showed that the firm was in good condition, when in fact it was utterly insolvent. Under these circumstances, it was held that “ proper ” books were not kept, and that a discharge was properly denied by the trial court. That case is not in point here. In our opinion, the decree or order appealed from should be affirmed. Vanclief, C., and Haynes, C., concurred. For the reasons given in the foregoing opinion, the order appealed from is affirmed. Sharpstein, J., De Haven, J., McFarland, J.