The opinion of the court was delivered by: BYERS
Hearing on bankrupt's petition to review an order granted by the Referee on May 25th, 1939, directing the bankrupt to turn over to the trustee the sum of $4061.78.
The petition upon which the proceeding was initiated recites the diversion by the bankrupt from his creditors to himself of the following sums of money as shown by his books which indicate that he collected various items, cash, checks and notes, but did not deposit them in the bank account maintained by him in connection with his clothing business, namely:
April $ 809.00
Total $ 4411.78
The Referee has found that the evidence sustains the petition and has granted the order as stated, crediting the bankrupt with $350.00 paid by him from the foregoing total, to the New York Credit Men's Association in connection with a General Assignment which he made to that organization or its nominee on August 30th, 1938.
On October 21st, 1938, an involuntary petition in bankruptcy was filed, because a 40% settlement offered in the assignment proceedings, failed of unanimous acceptance. Apparently it was deemed possible to effectuate such a settlement through the coercion of bankrutpcy.
Over 500 pages of testimony have been taken, largely devoted to unproductive colloquy and repetitious so-called cross-examination. Finally the bankrupt admitted the receipt by him of the items above referred to, and that they were not deposited in his bank account, but were taken by him for personal uses, apparently without any consideration of the rights of his creditors.
So much of the Referee's order is therefore not under attack.
At least since the case of In re Schlesinger, 2 Cir., 102 F. 117, it has been the law in this circuit that an individual bankrupt may be held responsible to his trustee for funds diverted by him into his own pocket which in justice and equity belong to his creditors. The inquiry here comes down to the mere question of the amount which should have been embodied in the order.
The alleged errors complained of are 14 in number, and will be the subject of such comment as they seem to require:
1. There was no application to adjourn the hearing further on April 25, 1939, for the purpose of examining the bookkeeper, hence there was no error in denying it. The subject is briefly referred to in the memorandum disposing of the petition to review the order denying the application to reopen.
2. If there were error in signing the turnover order without notice, and it is not here stated that there was, the bankrupt could have cured it by moving to resettle, which he failed to do.
3. The findings of the Referee are not contrary to the evidence.
4. The Referee correctly found that there was no documentary evidence of payments which the bankrupt said he made to his father or brother. There were checks produced of payments to his doctor, thus tending to discredit the bankrupt's testimony as to large cash payments of amounts that he could not -- so he said -- recall. In other words this specification of alleged error is not correctly drawn.
5. The Referee did not state that the bankrupt was required to present documentary proof of these alleged payments, he merely noted his failure to do so. A reading of the bankrupt's testimony at the first meeting of creditors, and in this proceeding, indicates to this court that a minimum requirement of corroboration would be the ...