W. S. Peck Co. v. Lowenbein

PRITCHARD, Circuit Judge. This is an appeal from the District Court for the Western District of North Carolina, sitting in bankruptcy, in Re W. S. Peck Company, Creditor, Appellant, v. Julius Lowenbein, Bankrupt, Appellee, and involves the question as to whether the appellee is entitled to a discharge in bankruptcy. The substance of the facts reported by the special master upon which he bases his conclusion is that on September 14, 1907, Lowenbein wrote a statement of the financial condition of the firm of Owens & Lowenbein addressed to W. S. Peck & Co., Baltimore, Md.; that Lowenbein wrote the statement at the dictation of Owens, and that it was based almost entirely upon the information which Lowenbein derived from Owens in the preparation of it; that matters in the statement other than those furnished by Owens were not misleading, being in the main true. It appears further from the testimony elicited in the examination that Owens was ostensibly a man of means at the time that he owned the stock of goods in his store at Asheville and had in control a considerable quantity of real estate in that city. The terms of the partnership were that Owens was to furnish the capital, and Lowenbein was to manage and conduct the business of merchandising in behalf of the firm and was to have an equal interest in the business. Lowen-bein had at the time he went into the business about $1,000 deposited in the bank at Asheville, and of this amount he expended in the way of expenses to New York and in payments of freights, etc., for the firm nearly $500. Soon after the firm commenced business, Lowenbein •was taken sick and carried to the hospital, and whilst he was there Owens proceeded to have the firm adjudged bankrupt. [180] The referee finds as a fact that in making the statement to Peck & Co. Lowenbein was not actuated by any fraudulent purpose, and it further appears that Lowenbein refused to join with Owens in demanding the personal exemption of $500 each allowed by the laws of North Carolina, and thus permitted the $1,000 which would have been taken from the stock of goods on hand at the time of the failure to go to the benefit of the creditors. However, upon these facts, the referee held that neither Owens nor Lowenbein were entitled to a discharge. The learned judge who heard the case below filed an opinion, in which, among other things, he said: “There can be no controversy in the ease as to Owens, because the testimony throughout shows that his statements were false and his conduct prompted by a fraudulent, intent. As to Lowenbein the special master says: T come to this conclusion (that Lowenbein is not entitled to a discharge) upon the authority In re Gilpin [D. C.] 160 Fed. 171, where the question whether the written statement, under section 14b (3) (Act July 1, 1898, c. 541, 30 Stat. 550 [U. S. Comp. St. 1901, p. 3427]), must have been made with a fraudulent intent, is exhaustively considered, and the conclusion is reached that such intent need not exist, but that it is sufficient within the meaning of the clause to bar a discharge that the statement be materially untrue.’ And he cites, also, In re Hardie [D. C.] 143 Fed. 607. Upon examination I find that the case referred to, In re Gilpin, was decided by the District Court of the United States for the Eastern District of Pennsylvania. This ease was carried by petition to revise for error of law to the Circuit Court of Appeals for the Third .Circuit, wherein the decision of the District Court was reversed. Gilpin v. Bank, 165 Fed. 607 [91 C. C. A. 445, 20 L. R. A. (N. S.) 1023]. Gray, Circuit Judge, in delivering the opinion of the court in the ease, said: ‘The bankrupt who has made to a creditor, for the purpose of obtaining credit, a false statement — that is, one intentionally and knowingly untrue — is unworthy of the privilege of a discharge under the act, and the court will act upon information brought to it of such an act by any party in interest. It will be at once conceded on all hands that such a bankrupt is unworthy, and should not receive the favor accorded by the law to the honest but unfortunate debtor.’ But it is further held in this ease that the statement upon which credit was obtained, and which was made for the purpose of obtaining credit, must not only be erroneous or untrue, but must import an intention to déceive and such a statement, in order to constitute a bar to discharge must have been knowingly and intentionally untrue. A case cited by the special master in addition to the one above referred to is In re Hardie (decided by the District Court of the United States for the Western District of Texas) 143 Fed. 607. That case was reviewed by the Circuit Court of Appeals for the Fifth Circuit and the decision of the District Court' reversed. Hardie v. Dry Goods Co., 165 Fed. 588 [91 C. C. A. 426, 20 L. R. A. (N. S.) 785]. Judge Pardee, delivering the opinion of the Circuit Court, held that ‘a material false statement in writing made by a partner in the ordinary course of business in the partnership in buying merchandise for the purpose of obtaining goods on credit, and by means of which they were so obtained by the firm, is not ground for refusing a discharge in bankruptcy to another partner who did not participate in the wrongful act and had no knowledge of it.’ ” This is a very full and complete statement of the facts, as well as the law, bearing on this subject. In the case of Gilpin v. Merchants’ National Bank, 165 Fed. 607, 91 C. C. A. 445, 20 L. R. A. (N. S.) 1023, the Circuit Court of Appeals for the Third Circuit passed upon this question, and Judge Gray, who delivered the opinion of the court, said: [181] “Bat, apart from the incongruity imported into this section of the bankruptcy act by such construction, it seems to us clear that the plain language o£ this third clause of section 14b requires that the written statement made by the bankrupt, for the purpose of obtaining credit, etc., should he knowingly and intentionally untrue, in order to constitute a bar to the discharge of the bankrupt. In other words, ‘false statement’ denotes a guilty scienter on the part of the bankrupt. This primary and ordinary meaning of the word ‘false’ cannot be ignored. It is the primary meaning given in the ordinary lexicons of the English language. Webster gives as its primary meaning: Tittering falsehood; unveracious; given to deceit; dishonest.’ As an adjective, it is correlative with the noun ‘falsehood.’ To charge a person witli making a false statement is equivalent to charging him with uttering a falsehood, and imputes moral delinquency to the person so charged. It is true that the wprd may have a secondary meaning in certain collocations, and he merely equivalent to ‘untruth’ or ‘incorrect’ But this is not the ordinary or usual signification attached to the word. To charge a person with making , false entries in books of accounts means something more than that incorrect or untrue entries have been made, and it has been so held by the courts in the consideration oí offenses of that character. The last edition of Bouvier’s Law Dictionary says of the word ‘false,’ that, when ‘applied to the intentional act of a responsible being, it implies the purpose to deceive.’ In Black’s Law Dictionary, under the title ‘false,’ it is said: ‘In law this word means something more than untrue. It means something designedly untrue and deceitful, and implies an intention to perpetrate some treachery or fraud.’ In a recent and well-accepted publication called ‘Words & Phrases,’ the word ‘false’ is thus defined: ‘False means that which is not true, coupled with a lying intent. Wood v. State, 48 Ga. 192, 297, 19 Am. Rep. 664’ False in jurisprudence usually imports something more than the vernacular sense ‘erroneous’ or ‘untrue.’ ” It was held by the Supreme Court of North Carolina in the case of Des Farges v. Pugh, 93 N. C. 31, 53 Am. Rep. 446, that insolvency and the concealment of the same are not sufficient to render a com tract null and void. In that case the court said: “The facts of insolvency and its concealment alone are not sufficient to enable the vendor to annul the contract. They must be coupled with the intent not to pay for the goods.” It is the evident purpose of the bankruptcy act to protect that unfortunate class of debtors who are unable to pay their debts by giving them a discharge, thus affording them an opportunity to engage in business again, while, on the other hand, it is manifestly intended to deny a discharge to those whose conduct has been such as to show that they obtained credit by false statements calculated and intended to deceive and thereby defraud their creditors. Construing the act with these ends in view, it would be manifestly unjust to deny a discharge to a debtor when it appears, as it does in this instance, that the statement which he made was not actuated by any fraudulent purpose. This finding of fact has been approved by the learned judge who heard the case below, and is within itself conclusive in so far as the question involved in this controversy is concerned. For the reasons stated, we are of opinion that the judgment of the court below should be affirmed. Affirmed.