The opinion of the court was delivered by: NEAHER
These are two appeals from decisions of the bankruptcy judge dismissing specifications of objection against Salvador Vecchione ("Vecchione, Sr.") and Salvador Vecchione, Jr. ("Vecchione, Jr.") and granting each of them a discharge in bankruptcy. By agreement of the parties, the specifications of objection against both bankrupts were tried in one non-continuous seven-day hearing before the bankruptcy judge.
Thirty-six specifications were filed against Vecchione, Sr. and 41 specifications were filed against Vecchione, Jr. Many of the specifications call into question a series of asset transfers from the bankrupts to their wives, including transfers of interests in personal dwellings, cars and money. The specifications also allege a failure to list monies allegedly owed to the bankrupts.
The bankruptcy judge concluded that appellants had failed to sustain their burden of proof on all specifications of objection as to both bankrupts and granted the discharges. On this appeal, appellants raise three principal claims of error. First, they contend that the bankruptcy judge improvidently exercised his discretion in placing the burden of proof upon them. Second, they argue that the bankruptcy judge erred in not considering all of the asset transfers and the parallel course of conduct of both bankrupts in deciding the crucial questions of the bankrupts' intention to secrete assets and defraud creditors. Third, they assert that the bankruptcy judge erred as a matter of law by finding that a contract which provided for the bankrupts to receive various sums of money was subject to a condition precedent which never materialized and thus did not obligate the bankrupts to list as assets monies to be received thereunder.
For the reasons stated below the decision of the bankruptcy judge is affirmed in part and reversed in part.
Vecchione, Sr. had been the president of Salro Manufacturing Corporation ("Salro") from its inception in 1953 until September 1972, when he resigned. In 1964, Salro acquired certain equipment from CIT Leasing Corporation ("CIT") under a lease-purchase arrangement, which obligated Salro to make yearly payments of approximately $14,000 until June 30, 1971. Vecchione, Sr. guaranteed Salro's performance under that agreement. In July 1969, Salro defaulted on this obligation. At the time of default, Salro owed CIT a balance of about $42,000, which was more than adequately secured by the machinery itself.
Also in 1964, Vecchione, Sr. guaranteed Salro's debt to A.I.C. Financial, Inc. ("AIC"). This loan, which approximated $65,000 as of August 1969, was also secured by Salro's equipment. Vecchione, Sr. had to deposit $15,000 as collateral with AIC as a condition for receiving the financing.
In June 1965, Vecchione guaranteed Salro's obligations to one of its suppliers, Harshaw Chemical Company ("Harshaw"). Salro defaulted on this obligation and Harshaw recovered a judgment against Vecchione, Sr. in September 1971 in the Nassau County District Court.
In 1964, Vecchione, Sr. and the objecting creditor, Joseph Fleres, were the major stockholders and operating principals of Salro. On May 29, 1968, Vecchione, Sr. agreed to purchase Fleres' interest in Salro (83,392 shares) for $100,000, paying $29,000 down and the balance of $71,000 in 60 monthly installments (approximately $1,200 each) plus 6% annual interest on the unpaid balance. Under the agreement, Vecchione, Sr. received 20,000 Salro shares upon payment of the $29,000 and the balance of Fleres' shares (63,392) were placed in escrow as security for the notes. The agreement further provided for the return to Fleres of the 63,392 shares should Vecchione, Sr. default on the notes.
Vecchione, Jr. became involved in Salro in 1968, first as comptroller and later as treasurer. In 1969, he guaranteed Salro's obligations to AIC and also deposited $15,000 as collateral with AIC.
In August 1969, Salro filed a petition under Chapter XI of the Bankruptcy Act. This action was precipitated by AIC's refusal to continue financing Salro's operation. At that time, Salro had also incurred a liability for withholding taxes to the federal government.
In August or September 1969, Vecchione, Sr. defaulted on his commitment to Fleres and the 63,392 shares were returned to the latter.
A plan to revitalize Salro was worked out between Vecchione, Sr., Vecchione, Jr., Fleres and two companies, of which Abraham Zion was a principal, Rotomotive, Inc. ("Rotomotive") and Rotodyne, Inc. ("Rotodyne"). By agreement dated September 19, 1969, Rotomotive purchased all Salro stock owned by Vecchione, Sr. (103,392 shares), and Jr. (13,379 shares), for an unspecified consideration. In March 1970, Rotomotive agreed to purchase the 63,392 shares retaken by Fleres for a specified consideration and Vecchione, Jr. agreed to guarantee Vecchione, Sr.'s debt to Fleres. Both Vecchiones agreed to waive any rights they had to the return of their $15,000 deposits with AIC. Salro's Chapter XI plan was confirmed in March 1970.
Vecchione, Sr. again defaulted on his obligation to Fleres in September 1970.
Both bankrupts filed their petitions on May 30, 1972, apparently as a result of being pressed by Fleres.
The nature and extent of the asset transfers underlying many of the specifications of objection and other salient facts are essentially undisputed and will be briefly related below.
On April 1, 1965, Vecchione, Sr. conveyed his interest by the entirety in his one-family residence in Malverne, New York, to his wife, Mary, for $6,000. At the time of the transfer there was an equity of $15,000 to $20,000 in the property. In 1970, he transferred his 1965 Cadillac automobile to his wife in partial repayment of money he owed her and because she was paying the automobile bills. On July 1, 1970, he turned over to her a $8,075 check he had received from the Salro Pension Fund. Between October 1, 1969 and May 30, 1972, he gave her a total of $15,723.45 and between June 30, 1970 and May 30, 1972 he gave her a total of $14,552.34. These figures are the totals of regular deposits made by Mary Vecchione in various bank accounts during those periods.
There is no doubt that during the periods here in issue Mary Vecchione was not gainfully employed and any deposits she made were of funds earned by her husband. Both Vecchione, Sr. and his wife testified that during their entire 39 years of marriage, Vecchione, Sr., has followed a practice of turning over to his wife his entire earnings (less an amount he retains for personal expenses), out of which she pays all household expenses and keeps for herself any surplus. It was this surplus which constituted the regular bank deposits made by her.
Periodically, Vecchione, Sr. borrowed money from his wife for use in his business. These loans, which aggregated tens of thousands of dollars, also came from this surplus. No records of these loans or repayments were kept, but Vecchione, Sr. testified that he believes he still owes his wife from ten to fifteen thousand dollars. His wife was not listed as a creditor in this proceeding.
Until 1965, Mary Vecchione deposited funds given her by her husband in bank accounts bearing both their names as joint tenants. That year she began closing the joint accounts and opening new Totten trust accounts bearing the label Mary Vecchione in trust for Salvador Vecchione. This process was completed sometime in 1968.
On October 20, 1969, Vecchione, Jr. conveyed his interest in his personal dwelling in Malverne, New York, to his wife, Isabel, for $5,000. The house was originally purchased in 1963 or 1964. At the time of the sale, there was an equity of $12,000 or $13,000 in the property.
Sometime during 1969 or 1970, he transferred his 1969 Chrysler station wagon to Isabel in consideration for her agreeing to meet the then outstanding installment obligations of $1,400. The car had cost $5,200 when purchased new in 1968. Isabel's 1963 automobile was used as a trade-in on that purchase.
On February 5, 1971, he transferred shares of the Axe Science Corporation, a publicly-held mutual fund, to Isabel. On July 1, 1970, he gave her $1,605 received by him from the Salro Pension Fund. Between October 1, 1969 and May 30, 1972 he gave her a total of $15,446.51 and between May 4, 1972 and May 30, 1972 he gave her $3,533.56. Additionally, on July 7, 1971, he gave his wife $1,000 and his mother $3,000.
In June 1968, Isabel withdrew the balance of $215 from a joint account at the Dollar Federal Savings & Loan Association and with that money opened a new savings account at that same branch in the name of Isabel Vecchione in trust for Salvador J. Vecchione.
As with Vecchione, Sr. and Mary, there is no claim here that funds deposited by Isabel were earned by her. Rather, deposits made by her are attributable to the excess of Vecchione, Jr.'s earnings over household expenses and an amount he retained for personal use.
The thrust of appellant's many specifications of objection is that as soon as each of the bankrupts became financially obligated, he began a systematic plan to nominally divest himself ...