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IN RE RE-BO MFG. CO.

May 20, 1950

In re RE-BO MFG. CO., Inc.


The opinion of the court was delivered by: KAUFMAN

Petitioners, J. B. Belcher & Sons, Inc., Ronceverte Lumber Co., Inc., Holston River Lumber Co., Inc., and Ferebee-Johnson Co., Inc., seek to review four orders of the Referee in Bankruptcy, dated April 18, 1950, declaring null and void liens against the debtor's property obtained within four months of the filing of the petition under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq.

The petition under Chapter XI was filed in this district on February 14, 1950. On January 25, 1950 and January 31, 1950 in four separate actions brought in Virginia to recover moneys due for goods sold and delivered, the petitioners caused warrants of attachment to be issued out of the Circuit Court of Bedford County, Virginia, and caused the sheriff of said county to levy against the property of the debtor, situated at debtor's plant in Virginia. Thereafter, the debtor commenced four proceedings before the Referee to vacate the attachment pursuant to section 67, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 107, sub. a. The issues raised by the answers to the petitions came on to be heard before the Referee on April 10 and April 11, 1950, and upon consent all petitions were heard together. The answers to the petitions to vacate the attachments admitted that the liens were obtained within four months of the filing of the petition under Chapter XI. The sole remaining issue was the insolvency on the date the liens were obtained.

 After a hearing before the Referee he found that on January 25, 1950 the debtor's unsecured liabilities were $ 31,841.29 and that the fair value of its assets on that date was $ 22,032.60 and that as a matter of law the debtor was insolvent.

 The petitioners on review contend that the testimony offered by the debtor to prove its insolvency was incompetent as a matter of law and as a result the debtor did not sustain its burden of proof.

 The petitioners further contend that the Referee erred in refusing to permit sufficient time to introduce evidence as to the real value of the debtor's assets.

 The two witnesses presented by the debtor for the purpose of establishing its insolvency on January 25, 1950 were John Forbes, who had been in the machinery business since 1907, and James R. Katzman, the president of the debtor corporation. Forbes was used by the debtor to establish the fair market value required by Section 1(19) of the Bankruptcy Act, 11 U.S.C.A. § 1(19), of the debtor's machinery and equipment. Katzman was used to establish the fair value of the debtor's remaining assets, such as raw material consisting of steel and lumber, parts, finished and unfinished products, the debtor's accounts receivable and cash on hand.

 With respect to the objection raised concerning the competency of the testimony of James R. Katzman, this Court can find no substance. The owner of an article being valued should certainly be allowed to estimate its worth; he is as competent to testify and perhaps more qualified to give value than one not as familiar with the article; the weight of his testimony, of course, is left to the Referee and the Court.

 It follows, therefore, that the president of the debtor corporation who has complete knowledge of the particular items should be allowed to estimate their worth. 3 Wigmore on Evidence, Section 716; Caten v. Salt City Movers & Storage Co., 2 Cir., 1945, 149 F.2d 428; Barrett v. Fournial, 2 Cir., 1927, 21 F.2d 298.

 The Referee found Katzman's testimony to be credible, and being mindful of General Order 47, 11 U.S.C.A. following section 53, this Court should not interfere with the trier of facts who has had the opportunity to weigh the evidence in the light of his reaction to the performance of the living witness who appeared before him. The District Judge in reviewing the acts of the Referee should not substitute his own judgment for that of the Referee who heard the evidence unless his conclusions are clearly erroneous, or his findings are based on incompetent testimony; in those instances there will be no hesitancy in reversing him.

 The Referee accepted Katzman's testimony, which was competent, respecting the fair market value of the debtor's remaining assets. This Court sees no reason to disturb so much of the Referee's findings as are based on Katzman's testimony.

 However, with respect to the testimony of Forbes, the question is squarely presented as to whether he was competent to testify respecting the fair market value of certain machinery and equipment listed on debtor's Exhibit 3. This Exhibit consisted of approximately two pages and contained a list of machinery and equipment in the debtor's plant. This list was handed to the witness Forbes by Katzman who testified that the list contained all of the machinery and equipment in the debtor's plant. The list contained a description of the particular machines and equipment. In most cases there was an identifying serial number alongside. There were many instances where no such identifications appeared next to the particular item. Forbes placed his valuations of the machinery and equipment in the left-hand corner of debtor's Exhibit 3 and gave a total value to this machinery and equipment of $ 5,355.

 The petitioners on this application contend that these same items had been valued by the debtor at $ 22,177.16 and that most of them had been purchased as used machinery and equipment. Forbes admitted that he did not inspect the machinery or the equipment but merely looked at the list and testified as to the value of the items listed thereon. He was only acquainted with the manufacture and approximate age of the items -- he could not state their age with more certainty than within a range of two or three years. There were several items of which Forbes did not know the make, age or condition and despite this a value was placed on them by him.

 The qualifications of a witness testifying as to value should meet ...


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