The opinion of the court was delivered by: SCHOONMAKER
The bankrupt petitioned for a discharge. Two creditors, i.e., the Trustees of the First National Bank & Trust Company of Greensburg, Pa., and Commercial Investment Trust, Inc., filed specifications of objections.
The case was referred to the referee in bankruptcy as special master to pass on these objections. He has filed his report recommending the dismissal of all the objections filed to the discharge of the bankrupt. The case now comes to the attention of this court on exceptions to the report of the special master.
The first specification of objection involved a false financial statement. This statement under the heading "Liabilities -- notes payable to others" showed $2,980, whereas the true amount was at least $6,300. Under the heading "Liabilities upon Customers' Accounts, Sold, Assigned or Pledged," the statement shows "None," whereas the true statement of this item would have been at least $4,907.34.
Under the heading: "Miscellaneous -- Any Individual Debts not Included in the statement," the statement showed "No", whereas a true statement would have been at least $4400.00. Under the heading "Liabilities -- Mortgages or Liens on Real Estate," the statement showed $5,000, whereas a true statement would have been at least $44,500. The statement in these particulars was admitted by bankrupt to be false and was so found by the special master. This statement was also rendered to the First National Bank & Trust Company of Greensburg. As to its materiality the special master has found as follows: "It can be reasonably contended that certain of these were concerning material matters, altho it is difficult for the referee to understand the materiality of some of the matters complained of -- as for example, the matter of mortgages covering real estate which the bankrupt had not included in his financial statement, in the absence of clearer testimony relative to the bankrupt's obligations on bonds accompanying the said mortgages."
The special master has held that this false statement, although on material matters except possibly as to mortgage indebtedness, is not a bar to discharge, because the proofs did not show credit or extension of credit was obtained from the bank thereby. In this we believe he fell into error. Arthur Humphrey, who is vice president of the bank and a member of the finance committee of the bank, and who had occasion to deal with the bankrupt in the matter of loans and extension of loans already made, testified that this financial statement was used by him and the officers of the bank "to arrive at a conclusion as to the right of Hochberg to borrow"; (Test. pg. 26), and, further, that after its receipt, this statement was the basis of all renewals. (Test. pg. 31).
The special master was of the opinion that this evidence was not sufficient to bar a discharge because it did not appear that the bank would have withheld credit, had it known the true facts. In this he fell into error, for the courts have held that partial reliance on a false statement is sufficient to bar a discharge. Mullen v. First National Bank of Ardmore (C.C.A.) 57 F.2d 711; In re Slohm (D.C.) 10 F.Supp. 351; In re Muscara (D.C.) 18 F.2d 606; In re Applebaum (C.C.A.) 11 F.2d 685.
The only possible opposing testimony to that offered by Humphrey was that of David Hudson, a vice president of the Union Trust Company, who became vice president of the First National Bank & Trust Company when that company took over the assets of the Union Trust Company. Hudson became vice president of the First National Bank & Trust Company and served on its finance committee. He testified that he would not say in the case of renewals, the financial statement of the person involved was considered; and in the case of this financial statement of Hochberg, he would not say it was considered as they were trying to get payments out of Hochberg. (Test. pg. 41). This hardly rises to the dignity of conflicting testimony to that of Humphreys, who testified that he had charge of all loans other than real estate loans, and that in such capacity he had occasion to deal with Hochberg as to extension of his loans; that in so doing he used this financial statement, and that all renewals were made on the strength of it.
Our conclusion is that this objection should be sustained, because it is established by the clear weight of testimony that this false statement was made for the purpose of obtaining credit, and that credit in the matter of extensions of loans was in fact made in reliance upon it. This exception to the special master's report will be sustained.
The second specification deals with the refusal of bankrupt to answer material questions. The special master has recommended the dismissal of this specification, because the specific questions were not approved by the referee. It does appear, however, that when a question was propounded to the bankrupt on the same matter covered by the specific questions, he refused to answer. The bankrupt made the following objection:
"2. Is there a record in your books showing what moneys you callected on C.I.T. Corporation accounts which you did not pay over to C.I.T. Corporation?
"Mr. Eicher: This is objected to as incompetent, irrelevant and immaterial and only done preparing for a criminal case.
"The Referee: Objection overruled. Let the question be answered."
Then follow particular questions relating to the C.I.T. matter which the ...