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In re Pioch

decided: August 9, 1956.

MATTER OF WILLIS C. PIOCH, BANKRUPT, WILLIS C. PIOCH, APPELLANT.


Author: Kalodner

Before GOODRICH, KALODNER and HASTIE, Circuit Judges.

KALODNER, Circuit Judge.

This is an appeal from the affirmance by the District Court of the Order of the Referee in Bankruptcy denying a bankrupt his discharge on the ground that he had violated the provisions of Section 14, sub. c(4) of the Bankruptcy Act as amended,*fn1 in that he had within twelve months preceding the filing of his bankruptcy petition transferred his automobile to his employer with the intent "to hinder, delay and defraud his creditors."

The Referee made the following factual findings:

Willis C. Pioch, the bankrupt, purchased a new 1953 Buick automobile (in March, 1953) for $3,600.00. In order to complete the purchase he obtained a bank loan of $2,700.00 (The amount of the loan was actually $2,750.00). The loan was repayable in monthly installments of $135.00 or $150.00. The bankrupt made the required payments for a period of three months and then being without funds he was unable to make any future payments. He went to his employer and after apprising him of his financial plight, they entered into an arrangement whereby the bankrupt transferred title to the automobile to his employer "without receiving for the aforesaid transfer any consideration". The employer then proceeded to make the payments due upon the bankrupt's loan. The bankrupt continued to use the car as he had in the past; "he claimed that he needed to use the automobile to carry out his duties as a salesman". At the time of the transfer the bankrupt owed approximately $2,500.00 on his loan; $700.00 less than its then value. The automobile was the bankrupt's only asset at the time of its transfer.

Based upon these factual findings the Referee made the further finding that "the bankrupt, by his conduct in the transfer of the said automobile, placed it out of his control and possession and made it impossible for the trustee to recover any equity ($700.00) in the car for the benefit of the creditors of the bankrupt and that the bankrupt transferred the car with the intention to hinder, delay or defraud his creditors."

The District Court on review held that "The Referee's conclusion that the bankrupt intended to hinder, delay, and defraud his creditors must be affirmed by this court unless it is clearly erroneous"; and, since "With but one exception, the Referee's Findings of Fact (upon which he based his conclusion) are supported by the record" his disposition required affirmance. The "one exception" to which the District Court referred, was the Referee's finding that there was an absence of consideration for the bankrupt's transfer of his auto to his employer. On that score the District Court specifically found that "His (the Referee's) finding that the bankrupt's transfer of his auto was without consideration is erroneous in that there was consideration consisting of the transferee's payment of the bankrupt's debt to the (his) bank".

Before proceeding further it must be pointed out that the District Court erred in its view that "The Referee's conclusion that the bankrupt intended to hinder, delay, and defraud his creditors must be affirmed by this court unless it is clearly erroneous".

With respect to the Referee's "conclusion" it must immediately be noted that it was in the nature of an ultimate finding of fact and on that score it is well-settled that such a finding is but a legal inference from other facts*fn2 and as such is subject to review free of the restraining impact of the so-called "clearly erroneous rule" applicable to ordinary findings of fact by the trial court.*fn3

Our problem then is to determine whether the evidence on which the Referee premised his ultimate finding of fact of proscribed conduct on the part of the bankrupt measures up to the applicable standard of legal proof.

Applicable to the issue are these well-settled principles:

To bar the bankrupt's discharge there must be an actual fraudulent intent on the part of the bankrupt to hinder, delay or defraud his creditors and constructive intent is not sufficient;*fn4 the reasons for denying a discharge to a bankrupt must be real and substantial, not merely technical and conjectural;*fn5 speculation cannot be substituted for proof and the requirement is for probative facts capable of supporting, with reason, the conclusions of the trier of fact;*fn6 the burden of proof is on the objecting creditor to prevent the bankrupt's discharge, otherwise stated, the objecting creditor must make out a prima facie case;*fn7 the right to a discharge is statutory and Section 14 of the Bankruptcy Act must be construed strictly against the objecting creditor and liberally in favor of the bankrupt;*fn8 and "it is not so much the acts of the bankrupt that will prevent his discharge, as it is the intent with which he acts."*fn9

In the instant case the Referee failed to set forth the evidence upon which his ultimate fact finding and conclusion of law with respect to the alleged violation were premised, as he was required to do under General Order 47, Section 30 of the Bankruptcy Act.*fn10 As we pointed out in In re Leichter, 3 Cir., 197 F.2d 955, 957, the failure to comply with General Order 47 would alone require reversal of the Referee's denial of the discharge. However, even assuming that there had been compliance with General Order 47, the record itself discloses that the Referee erred in his determination that the bankrupt had violated Section 14, sub. c(4). The Referee's "Memorandum" discloses that the sole premise of his determination was the mere act of the transfer of the automobile and its use thereafter by the bankrupt. Said the Referee:

"I find that the bankrupt, by his conduct in the transfer of the said automobile, placed it out of his control and possession and made it impossible for the trustee to recover any equity in the car for the benefit of the creditors of the bankrupt and that the bankrupt transferred the car with the intention to hinder, delay and defraud his creditors. It is plain that the transfer was made in order to allow the bankrupt to have ...


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