Before MARIS, KALODNER and STALEY, Circuit Judges.
Can a bankrupt be denied his discharge in bankruptcy on the mere showing that, in his capacity as president of a corporation of which he was a stockholder, he gave a false financial statement with respect to its corporate assets which induced a loan to the corporation?
This is the primary question presented by this appeal by a bankrupt from the affirmance by the District Court of the Order of a Referee in Bankruptcy denying his discharge.
The denial of the discharge was premised by the Referee on the bankrupt's alleged violation of the provisions of Section 14 sub. c(3) of the Bankruptcy Act as amended.*fn1
Section 14 sub. c(3) provides:
"c. The court shall grant the discharge unless satisfied that the bankrupt has * * * (3) obtained money or property on credit, or obtained an extention or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a materially false statement in writing respecting his financial condition; * * *."
A detailed statement of the litigation and the transaction on which the Referee based his finding that there was a false statement given by the bankrupt in negotiating a loan for his corporation is stated in the margin.*fn2
The Referee made the specific finding that the bankrupt in his capacity as president and general manager of a corporation made a false statement as to its assets and obtained credit for it as a result. The record sustains that finding. Additionally, although he did not do so in specific terms, the Referee found the bankrupt was "a large stockholder" of the corporation. That is apparent from the fact that in concluding the bankrupt had violated the provisions of Section 14, sub. c(3) he said:
"It has been settled by the Supreme Court of the United States that it is sufficient for the bankrupt to have received indirectly the benefit from the false statement as by credit given to a corporation of which the bankrupt was the president, general manager and large stockholder."
The record, however, utterly fails to support the Referee's determination that the bankrupt was "a large stockholder" in the corporation. Indeed, it is bare of any proof as to the extent of the stock holdings of the bankrupt; there is only testimony to the effect that he was a stockholder - nothing more, nothing less. Moreover, there is nothing in the Referee's statement of facts or in his conclusion of law which gives any light as to his reason for finding that the bankrupt was "a large stockholder". Apparently the Referee based his finding on "speculation" or "intuition".
On that score, we have on previous occasions held that "A finding of fact must have more substantial foundation than an intuition * * *." and that while the trier of the facts "'* * * has the pri-mary function of finding the facts * * *. weighing the evidence, and choosing from among conflicting factual inferences and conclusions those which it considers most reasonable' it is well-settled that speculation cannot be substituted for proof and 'the requirement is for probative facts capable of supporting, with reason, the conclusions expressed in the verdict.'" In re Tueders' Estate, 3 Cir., 1947, 164 F.2d 128, 133; Sharon Herald Co. v. Granger, 3 Cir., 1952, 195 F.2d 890, 895.
Under the circumstances we are constrained to reverse the judgment of the District Court (affirming the Referee's determination) that there had been a violation by the bankrupt of Section 14, sub. c(3). The absence of proof as to the extent of the bankrupt's stock interest in the corporation makes academic here the holding of the Supreme Court in Levy v. Industrial Finance Corporation, 1928, 276 U.S. 281, 48 S. Ct. 298, 72 L. Ed. 572, relied on by the Referee, or Wilensky v. Goodyear Tire & Rubber Co., Inc., 1 Cir., 1933, 67 F.2d 389, and In re Licht, D.C.E.D.N.Y.1930, 45 F.2d 844, cited by counsel for the objecting creditors in support of the judgment of the District Court. In the Levy case the bankrupt was a large stockholder in the corporation and in both the Wilensky and Licht cases he was the sole stockholder.
It may be observed, with respect to the Levy case that it involved the construction of Section 14, sub. b(3)*fn3 of the Bankruptcy Act of July 1, 1898, c. 541, 30 Stat. 550; June 25, 1910, c. 412, ...