McKibbon v. Haskell

SANBORN, Circuit Judge. This is an appeal of creditors from an order granting a discharge to the bankrupt, Samuel Haskell. There are several specifications of error, but in our view of the case it will be necessary to consider but one, and that is that the court below found from the.record that the bankrupt did not, with intent to conceal his financial condition, fail to keep books of account or records from which his financial condition might be ascertained. Haskell was a merchant engaged in retail trade in shoes, clothing, and gents’ furnishing goods from 1895 until about December 14, 1906, when he was adjudged a bankrupt. He embarked in his business in Woodward, a small town in the state of Iowa, about 1895, with a capital of $400, with which he purchased a stock of goods of .the value of about $600, and he continued in business in that town until August, 1906, when he moved to Des Moines, Iowa. In January, 1905, he took an inventory of his stock, and found that he had merchandise worth about $5,000 and that he owed his bank $2,000 to $3,000. He never took an inventory thereafter. When he moved to Des Moines he paid the bank, but owed for merchandise about $1,200, and to relatives and friends, from whom he had borrowed money, about $1,796, in all about $3,000, and he had a stock of merchandise worth from $1,300 to $3,000, and some book accounts and fixtures. In the four months between his removal to Des Moines in August, 1906, and his adjudication in bankruptcy in December of that year, he purchased new goods of the value of $8,192.39, $3,000 of the purchase price of which was not due when he was adjudged a bankrupt. During these four months he sold in bulk out of this merchandise, at a discount of 25 per cent, from the 'cost price thereof, a lot selected by the purchaser, for which the bankrupt received $979.90, and a second lot at a discount of 10 per cent, from the cost price, from which he received $421, he paid all the friends and relatives from whom he had-borrowed money with the proceeds of these and other sales, and went into bankruptcy with a stock of merchandise which he scheduled at $2,415.43 and debts to the amount of more than $8,000. He kept no books of account whatever during- these four months. At one time he testified that he kept none in Woodward. At another time he testified as follows; ■ “Q. At the time you came down here, you owed more than you were worth? You brought down here about $3,000 worth of odds and ends? A. I had book. accounts, you know; fixtures. I think I had more than I owed. Q. How much book account did you have? A. I could not tell for sure how-much it was, for in moving they lost my book account. You see the way it was, wdien I had everything packed and put in the car, I sold my safe there and had to pack everything in a little box in the safe, and I left it with the drayman to pack. I left the books in the store, and gave the key to the dray-man to pack this along with the other stuff in the store Monday morning. This was Saturday night that I sold the safe. The agent at the depot claims that he opened up the car ánd saw it off, but I never got the book. I was [641] over there looking for it twice, but I never found it. There were notes in it, and book accounts, and a few such tilings that, belonged to me in the cash register, and book accounts we had from the old register there, that 1 never got. Q. What kind of books did you keep? A. It was a kind of file of bills, payment, and cash register, and there were cards inside of the leather, and the initial and the little cards I mentioned. Some had no credit. They had the charge upon it, and the party’s name, and that was torn up and put on the credit, the amount, and how much the number of the ticket was, and it was pnt in between that card. It was put in the files and lost. Q. It was what the grocery man would call a short account system? A. Yes; and some small accounts had been running on my ledger. Q. Have yon that ledger? A. My new ledger I have, but not the old one. That was oue thing I had the safe for, was the ledger.” The rational, if not the unavoidable, deduction from this testimony, is that the bankrupt had and kept a ledger while he was at Woodward; that in this ledger he entered the state of many, if not all, of his accounts, for, if he had not done so, the ledger would not haye been so valuable to him; that one of his reasons for owning a safe would have been to preserve this ledger; that he also had another account book, in which he kept upon cards, or upon the book itself, or upon both, statements of some if not all of his accounts. Whether or not the account books and files of accounts which he kept at Woodward correctly portrayed his financial situation may be questionable; but this evidence is conclusive to the effect that he kept at least two books of account, a ledger and an account book, before he moved to Des Moines, that he lost both of them when he left Woodward, that he never kept any books of account whatever thereafter, never entered on any account book or record any account or memorandum concerning any of his purchases of any of the $8,-192.39 worth of new merchandise which he bought, of his sale of more than $1,300 worth of these new goods in one lot at 25 per cent, less than their cost, of his sale of more than $460 worth of them at 10 per cent, less than their cost, of any of his other transactions whereby he disposed of more than $6,000 worth of goods in four months, of his payment of any of his debts to the amount of more than $1,700 to the relatives and friends from whom he had borrowed money, or of any of his other financial transactions after he went tO' Des Moines. The bankruptcy act, as amended in 1903 (Act Feb. 5, 1903, c. 487, § 4, 32 Stat. 797 [U. S. Comp. Stat. Supp. 1907, § 1026]), directs the discharge of a bankrupt unless he has— “(2) with intent to conceal Ms financial condition, destroyed, concealed, or failed to keep books of account or records, from which such condition might be ascertained.” The bankrupt failed to keep such books of account, or records, or any books of account, after he moved to Des Moines. Prior to that time he had kept books of account, a ledger and an account book. With what intent did he fail to keep books of account at Des Moines? That failure concealed his extraordinary purchase of new merchandise on credit, concealed his sales of this merchandise in bulk at less than cost and the use of its proceeds to pay his relatives and friends, concealed his financial condition even from himself, for [642] he testified that he did not and do.es not know what his condition actually was. The act of Congress proclaims the presumption and expectation of the law that honest merchants will keep account books which will disclose their true financial condition. In the absence of prevailing evidence to the contrary, every man is presumed to intend the natural and inevitable consequence of his acts, and the evidence which has been recited so strongly supports this legal presumption that it has overcome the persuasive presumption of the finding of the court below to the contfary, and has convinced that the bankrupt in this case failed to keep account books at Des Moines with intent to conceal his financial condition. In re Hanna, 168 Fed. 238, 93 C. C. A. 452; In re Schachter (D. C.) 170 Fed. 683; In re Koelle (D. C.) 171 Fed. 257; 2 Loveland on Bankruptcy (4th Ed.) 1317, 1320. The order granting the discharge must accordingly be reversed, and the case must be remanded to the court below, with instructions to deny the application for the discharge; and it is so ordered.