The opinion of the court was delivered by: GOURLEY
The matter before the court in this bankruptcy proceeding relates to a petition for review from the referee's order denying a discharge to the bankrupts.
The court must pass upon the referee's findings of fact, adopt or modify them, or, if necessary, make findings of its own. Moonblatt v. Kosmin, 3 Cir., 139 F.2d 412.
The findings of a referee in bankruptcy on oral evidence are entitled to great weight. In re Barcia, 2 Cir., 147 F.2d 288; In re Morris, 7 Cir., 152 F.2d 178. They should be accepted by the District Court except in plain cases. Epstein v. Steinfeld, 3 Cir., 210 F. 236; In re Wolf, 3 Cir., 165 F.2d 707; In re Skrentny (Molner v. Skrentny) 7 Cir., 199 F.2d 488.
The facts appear to be as follows:
Para Equipment Company is a partnership composed of Edward Shapiro, Sophie Shapiro and Annette Greenberg. This partnership had its principal place of business in Sheffield, Warren County, Pennsylvania, where it was engaged in the manufacturing of wooden doors.
Para and the individual partners were indebted to Warren Bank and Trust Company and Reconstruction Finance Corporation, holding participation in the debt, on a note, dated June 9, 1948, for $ 150,000. The debt was evidenced by a judgment entered in the Court of Common Pleas of Warren County, Pennsylvania, on July 7, 1949, at No. 207 August Term, 1949. This debt was secured in part by an assignment of accounts receivable, dated July 7, 1949, by Para to Warren Bank and Trust Company. The assigned accounts receivable represented collateral in the sum in excess of $ 34,000 and was a material part of the security held by the Bank as collateral to the loan of Para, and represents a major part of the loss sustained by the bank and Reconstruction Finance Corporation when Para failed.
Under this agreement, Para assigned to the Bank certain accounts therein listed, together with accounts receivable that might thereafter be substituted. This assignment provided for the creation of a cash collateral account from the proceeds of the original assigned accounts receivable. Cash could be withdrawn by Para by substituting other accounts receivable for cash. By the terms of the assignment of accounts receivable, Para certified that all the accounts assigned therein, together with accounts receivable that might thereafter be substituted, would represent bona fide sales to the parties named therein according to their terms and specifications, that the amounts set forth as owing are actually owing with no set-off, defense, or counterclaim thereto and that any returned property, the original sale of which was the basis of assigned accounts receivable, will be held in trust for the bank as security for said loan.
Para and the respective individual partners thereof, were adjudicated voluntary bankrupts by action of the United States District Court for the Western District of Pennsylvania on November 4, 1949. The administration of the Bankrupts' Estates was entrusted to Wendell McMillen, of Sheffield, Pennsylvania, who was first appointed as receiver, and thereafter appointed as trustee.
The books of account of Para were not surrendered to Wendell McMillen, trustee, but were retained by Edward Shapiro, one of the bankrupts, and were reported in the custody of Lipton and Beiser, accountants, of New York City. Upon divers occasions Mr. McMillen demanded the books from Mr. Shapiro, without obtaining them. On June 29, 1951, Edward Shapiro delivered what he alleged were the books of Para at the office of referee in bankruptcy, James E. Marsh, Esq., in Erie, Pennsylvania, on the occasion of a hearing on specifications of objections to discharge filed by the Warren Bank and Trust Company on May 11, 1951. Examination of the books surrendered by Edward Shapiro disclosed the same to be incomplete. Later, on August 23, 1951, Wendell McMillen, trustee, received from Lipton and Beiser, accountants, additional books of Para.
The specifications of objection to discharge filed by the Warren Bank and Trust Company are as follows:
1. The Bankrupts have committed an offense under Section 152 of Title 18 of the United States Code punishable by imprisonment in that, after filing of the petition or petitions in bankruptcy, they have knowingly and fraudulently withheld from the trustee, who was entitled to their possession, the books of account of the Para Equipment Company.
2. 똖 said Bankrupt, Edward Shapiro, on divers occasions, obtained money on credit from the Warren Bank and Trust Company out of a cash collateral account held by the said Warren Bank and Trust Company in connection with a written agreement with Warren Bank and Trust Company and Para Equipment Company, providing for the assignment and collection of accounts receivable of Para Equipment Company as collateral security to a certain note of Para Equipment Company, dated June 9th, 1948, payable to the Warren Bank and Trust Company in the original amount of $ 150,000, by submitting to the said Warren Bank and Trust Company a written request for the substitution of an account receivable therein, and assigned to Warren Bank and Trust Company, for cash from said collateral account, when to the knowledge of said Edward Shapiro said account receivable therein described and assigned did not represent a valid and existing claim by Para Equipment Company against the debtor therein named, to-wit:
(a) On March 18, 1949, Invoice No 7676 for 240 doors sold and shipped to Eastern Plywood & Door Company, 831 Clinston Street, Jamestown, New York, for the net amount after discount of $ 1951.80, on which no invoice and no merchandise were delivered to Eastern Plywood & Door Company, and on which Para Equipment Company received from Warren Bank and Trust Company cash in the sum of $ 1951.80 from said cash collateral accounts.
(b) On February 26, 1949, Invoice No. 7231 for 430 doors sold and shipped to Toledo Sash & Door Company, 901 Hoag Street, Toledo, Ohio, for the net amounts after discount of $ 3527.37, on which the order was cancelled before delivery and on which Para Equipment Company received from Warren Bank and Trust Company the re-assignment of Invoice No 7151 evidencing indebtedness of Wells ...