testified not only that he, himself, never reported the alleged burglary loss to the police, but also that he dissuaded a private night watchman from so doing. His son, Harold, offered the improbable explanation that sometimes it is easier to recover stolen property by means of "stool-pigeons" and that they preferred to change a recovery by that method. Similar glaring improbabilities are contained in the record, but discussion thereof needlessly would prolong this opinion.
With regard to the Trustee's contention as to the costs of sales, it would appear that the Referee erred in failing to apply the presumption raised by Section 21, sub. l, of the Chandler Act, supra. The lack of books, records or accounts showing the cost of sales is not in dispute. However, since the petition in bankruptcy was filed on July 15, 1938, over two months prior to the effective date of the Act, September 22, 1938, the Referee was of the opinion that this portion of the new Act had no application to the turn-over proceedings instituted on January 4, 1939. He predicated his ruling on the ground that to apply the new Act would be to disturb a "fixed right" of the bankrupt. With this conclusion I am unable to agree. Section 6, sub. b, of the amendatory Act, 11 U.S.C.A. § 1 note, provides: "Except as otherwise provided in this amendatory Act, the provisions of this amendatory Act shall govern proceedings so far as practicable in cases pending when it takes effect; * * *."
The foregoing section must be interpreted in light of the construction of similar provisions in previous amendments to the Bankruptcy Law that, absent a contrary expression of intention, the statute may be applied retroactively only with respect to matters of procedure and may not be regarded as disturbing pre-existing "vested" rights: In re John G. Gasteiger & Co., Inc., 2 Cir., 25 F.2d 642. In the recent case of In re Schireson, C.C.E.D. Pa. June 22, 1940, 45 F.Supp. 416, Judge Kirkpatrick observed: "The decisions * * * in which courts have refused to make the Chandler Act applicable to proceedings instituted before its enactment were in cases in which the retroactive application of the Act would operate to divest liens, destroy priorities, or to take away interests in property which existed before the Chandler Act became law."
The Referee's error flowed from his construction of Section 21, sub. l, as dealing with substantive or, as he termed it," fixed" rights. This section merely creates a presumption (absent under the prior bankruptcy law) in situations where a bankrupt fails to keep books and consequently fails to record cost of purchases and of sales. Presumptions being merely rules of evidence, Meeker v. Lehigh Valley R.R., 236 U.S. 412, 430, 35 S. Ct. 328, 59 L. Ed. 644, Ann.Cas.1916B, 691, and it being well established that there is no "vested" right in a rule of evidence, Luria v. United States, 231 U.S. 9, 26, 34 S. Ct. 10, 58 L. Ed. 101, it would appear that the Referee erred in finding a "fixed" right involved in the instant controversy. It may be noted also that this conclusion is supported by the recent case of In re Fisher, D.C., 32 F.Supp. 69, in which the court ruled, without discussion, that Section 21, sub. l, supra, applied to turn-over proceedings although the bankruptcy petition in that case was filed on June 28, 1938, nearly three months before the effective date of the Chandler Act.
As previously indicated, the Referee made no findings of fact concerning the dispute relating to the closing inventory. Since this case must be referred back to the Referee, he should make specific findings in this regard in the subsequent proceeding.
The final objection to be considered is that of Epstein who denies that there is any evidence to show that either he or the bankrupt corporation possessed or controlled $4,000 in merchandise or its cash equivalent at the time of the petition in bankruptcy or thereafter. Although it is true that the Trustee has the burden of establishing by clear and convincing evidence the fact of possession by the bankrupt, Oriel v. Russell, 278 U.S. 358, 49 S. Ct. 173, 73 L. Ed. 419, proof as to this may be circumstantial as well as direct. Where the trustee establishes the recent possession of the missing merchandise by the bankrupt, a rebuttable presumption of continued possession and control arises and, as stated by Judge Chesnut in his admirable discussion of the entire problem in Re Fisher, D.C., 32 F.Supp. 69, at page 73: "* * * then the burden shifts to the latter to account for its non-production, or to show inability to comply with a 'turn-over' order". In the foregoing case, the court observed also: "The referee seems to have attached considerable importance to the lapse of time between the bankruptcy on June 28, 1938 and the application for the turn-over order about a year later, as bearing on the presumption as to continued possession. While this may apply to the merchandise itself, it does not equally apply to the probable proceeds of the disposition of the goods."
In his brief, counsel for Epstein and the bankrupt corporation has indicated a desire to adduce additional evidence on this phase of the case should the matter be referred back to the Referee and, consequently, I make no ruling here on the application of the previously stated principles to the instant case.
Before making an order, the referee should take into consideration: "* * * that the making of a turn-over order is a serious step in a bankruptcy proceeding which may involve further important consequences; and before it is finally made the fullest opportunity should be given to the parties, and especially to the bankrupt, to submit all available testimony that can have a proper bearing on the issue. Even if the bankrupt still fails to give any credible explanation of the disposition of the missing merchandise * * *, or otherwise to account therefor, still the turn-over order should not be passed if the referee is satisfied from further evidence that it is entirely beyond the power of the bankrupt to comply with the order." Ibid. See also May v. Henderson, 268 U.S. 111, 120, 45 S. Ct. 456, 69 L. Ed. 870. It must be reiterated, however, that where a presumption of continued possession is raised, it is incumbent upon the bankrupt either to account for the nonproduction of the property or to show his inability to comply with a turn-over order.
The parties should feel entirely free to offer further evidence regarding any fact questions still to be determined by the referee, and, if he desires, Epstein should be permitted to offer testimony to rebut the presumption raised by Section 21, sub. l, of the Chandler Act.
The case is hereby referred back to the Referee with instructions to proceed in accordance with this Opinion.
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