The opinion of the court was delivered by: BYERS
This is a petition to review the decision of a Referee granting a discharge to a bankrupt who was the endorser upon the note of a corporation of which he owned substantially all of the stock. A loan was sought from the First National Bank of Merrick, L.I., N.Y., and as a condition of its grant the individual endorsement by the bankrupt was required; before the loan was approved in that form, the individual submitted a financial statement which the Referee finds to have been false; if his opinion is understood, he is of the further view that the bank relied upon the false element in the statement, but since the loan was made to the corporation he says: '* * * the bankrupt received no part of this loan, except such as may have come to him through the ordinary course of business of the corporation in the way of salary.'
Again: 'The bank at the time the loan was made, made no title searches in connection with any of the properties listed in Mr. Slocum's financial statement, and presumably the bank would have made the loan without the inclusion of this 13 room house in the statement. It would have made a substantial loan without this house, but the amount might have been less.'
In his opinion, this item was not a decisive factor, which leads him to believe that the misrepresentation was not made with such 'reckless indifference to the consequences of the bankrupt's acts that he should be charged with knowledge of its legal effect.'
He says: 'I find that the inclusion of Item 3 in Schedule 7 of Objecting Creditor's Exhibit 1 was not a willful and intentional false act.'
The foregoing indicates the important aspect of this motion, although there were two specifications, and reference to the second will be made later.
There are no separate findings of fact and conclusions, which is probably to be accounted for by the absence of conflicting testimony touching material matters.
The objection was made by the Reconstruction Finance Corporation, which assumed 60% of the loan made by the bank on or about August 29, 1946.
The loan had been sought by Slocum Industries, Inc., in the sum of $ 150,000, which was later increased to $ 160,000, and was arranged as the result of negotiations between the bankrupt, Henry Mills Slocum, and Mr. A. B. Weller who was President of the bank, and was to be secured by mortgages covering chattels and real estate. In connection with the proposed personal endorsement of the corporate note, the bankrupt received from the bank a printed form bearing the number CR. 107, entitled 'Statement Form Suggested by Federal Reserve Bank of New York' 'Personal'
It constitutes objecting creditor's Exhibit 1, and a portion of the contents bearing the number 7, and the title 'Real Estate Owned', is the subject of a typewritten attached memorandum headed 'Schedule Seven' on which five are improved. Item 3 reads as follows: '13 Room House, plot 150 feet x 150 feet, Freeport, New York, cost $ 32,000, fire insurance $ 52,000, mortgage none.'
The testimony of the bankrupt is that he acquired this property in 1944, deeded it to his wife in 1945, and that it constituted the dwelling in which he and his wife resided. Also it appears that the financial statement was required in order that the loan should be approved at the figure of $ 160,000, because an earlier statement of the same type ('Bankrupt's Exhibit A for Identification') was deemed not to reflect a sufficient net worth on the part of the bankrupt to induce the bank so to make the loan.
The status of that statement in the record is somewhat obscure since it was not received in evidence, but it is referred to in the decision of the Referee at page 124, in which he contrasts the net worth therein shown of $ 273,640 with that shown in objecting creditor's Exhibit 1, of $ 314, 554, and reference is made to the fact that when the bank approved a $ 150,000 loan about July 29, 1946, and Mr. Slocum stated the need of the corporation to lie in the higher sum, the President said that it would be necessary for Mr. Slocum to furnish a personal statement 'showing an increase in his net worth of $ 35,000 to $ 50,000'.
Specification of Objection No. 1 has to do with this subject, and alleges that the bankrupt obtained money on credit by making and publishing a materially false statement in writing respecting his financial condition 'in that he listed therein a 13 room house located at Freeport, New York, having an estimated value of $ 52,000, as an asset, whereas in truth and in fact said house was then owned by Gertrude M. Slocum, his wife; the said bank relied thereon.'
From what has been recited, it will be seen that the falsity of the bankrupt's statement is conceded; the only question is whether the Referee has correctly appraised the evidence, which consists in the testimony of the bankrupt, the President of the bank, and Wachsman, the Treasurer of the bankrupt's corporation, concerning the extent to which the bank in fact relied upon the misrepresentation; and whether the latter was indeed unintentional and casual.
The Referee says, for instance, that the statement 'was prepared by the Slocum Industries, Inc., typed by a secretary, and given to him (the bankrupt) to sign; that he signed it without study, and did not realize that the 13 room house was included in this schedule. * * * The bankrupt knew that the property, the 13 room house, belonged to his wife at that time, and he believed that Mr. Weller knew that the property had been ...