Novick v. E. P. Reed & Co.

LANNING, Circuit Judge. The District Court refused to discharge the bankrupt on the ground that he had, in May, 1908, violated clause 3, subd. “b,” of section 14 of the bankruptcy act. At that time the clause provided that the District Judge should hear the bankrupt’s application for a discharge and discharge him, unless he had “obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtaining such property on credit.” It appears that, on or about May 21, 1908, the Shoe & Leather Mercantile' Agency applied to the bankrupt for a written statement of his financial condition, saying: “This information is asked for and received in strict confidence for commercial use only.” [21] There is proof that some, but not all, of the objecting creditors were subscribers of the Shoe & Leather Mercantile Agency, and that some, but not all, of those subscribers received from the Mercantile Agency copies of the bankrupt’s statement. Which of the objecting -creditors were such subscribers, and which of them received copies of the statement, we do not know, except that E. P. Reed & Co. was one of them. Nor do the proofs show that any of the creditors, except possibly E. P. Reed & Co., relied upon the statement when the bankrupt’s present debts to them were contracted. The question, therefore, is, assuming the statement to have been materially false, 'whether E. P. Reed & Co. have any standing to object to the bankrupt’s discharge. The section of the law under consideration was materially modified by an amendment in 1910 (Act June 25, 1910,’ c. 412, 36 Stat. 839). It now provides that a bankrupt shall not be discharged if he has '‘"obtained money or property on credit upon a materially false statement in writing, made by him to any person or his representative for the purpose of obtaining credit from such person.” Collier, in commenting on tlie section as it stood before 1910, says that the crucial words were “such property.” No such provision is to be found in any ■other bankruptcy law. The history of the section shows that it is not to be too liberally construed, for the clause “or of being communicated to the trade” was stricken from it in Congress. Collier on Bankruptcy (8th Ed.) 287. “It would seem from this,” said the Circuit Court of Appeals of the Second Circuit in the Russell Case, 176 Fed. 253, 258, 100 C. C. A. 77, 82, “that the ordinary statement of financial condition made to a mercantile agency for general circulation among its inquiring subscribers would not be within the statute.” In that case it appears that Russell, in May, 1905, had made a statement of his financial condition to .a reporter of Bradstreet’s Commercial Agency; that on January 12, 1907, the Commercial Trust Company, to whom Russell hadl applied for a loan, .sought information from the Bradstreet Company as to Russell’s financial condition; that the Bradstreet Company delivered to the 'Trust Company a copy of Russell’s statement of May, 1905; and that on January 26, 1907, the Trust Company made to Russell the loan wdiich he desired. Concerning this transaction the Circuit Court ■of Appeals said: “If the statement of January 26tb, which Russell gave to the reporter sent to Mm by the Bradstreet Company, is to be considered as merely the usual commercial agency report filed with sneli agency to secure a rating, then, not having been made to the Trust Company for the purpose of obtaining the property or [on] credit, it is not within the language of the act.’’ [22] between the date of the bankrupt’s statement and the dates of sales-by E. P. Reed & Co. to the bankrupt forbids such inference. Its purpose seems rather to have been the general one of obtaining a rating by the Mercantile Agency to which it was sent. It was communicated to the Agency “in strict confidence for commercial use only.” If the “commercial use” was intended to be more than the use of the statement by the Agency in fixing a rating for the bankrupt, it is difficult to understand how it could have been regarded as a statement sent “in strict confidence.” On the proofs before us it is impossible to find that the case comes within the language of section 14b (3) as it stood in 1908. In re Dresser, 146 Fed. 383, 76 C. C. A. 655, is distinguished from the present case, because there the bankrupt delivered a false written statement of the financial condition of his firm to a broker, that the broker might use it in selling commercial paper on which his firm was liable. In re Pincus (D. C.) 147 Fed. 621, differs from this case becattse there the false statement to the mercantile agency was expressly declared to have been made “to form a basis for credit with the associate members” of the agency. In Re A. B. Carton & Co. (D. C.) 148 Fed. 63, it was distinctly held that: “The usual commercial agency report, obtained by an agency in order that it may give the new merchant a rating, and for general distribution among its customers, cannot be made the basis of successful action by an objecting creditor.” In the Augspurger Case (D. C.) 181 Fed. 174, the bankrupt delivered to a mercantile agency a written statement of his financial condition, in which he declared that the statement was designed as a basis for credit, and on which, with the other proofs before the court, it was found that the statement was false, and was knowingly made for the purpose of obtaining credit and property from the objecting creditor and any other merchant to whom the statement might be submit-ffie mercantile agency. (D C.) )174 Fed. 867, is a case where a bankrupt vol-’citation from any one, sent a false statement - express purpose of having it com- ,r'A [23] “This information is asked for and received in strict confidence for commercial use only.” ' If there were evidence that the bankrupt furnished the statement to the agency for the purpose of having copies of it sent to its customers, a different question would he presented to us. There is no such evidence. Accordingly, we think the order of the District Court is erroneous. The order is reversed, with costs, and the record will he remanded to the District Court, with instruction to enter a new order, overruling the specifications of objection to the bankrupt's discharge, and discharging him.