RAGAN, MALONE & CO. v. COTTON & PRESTON et al., 200 F. 546

PARDEE, Circuit Judge (after stating the facts as above).

The evidence taken before the referee shows without substantial dispute or doubt that Preston, for the firm of Cotton & Preston, made the statement in writing as alleged in the opposition of Ragan, Malone & Co.; that it was made for the purpose of obtaining credit and continuing credit for the firm of Cotton & Preston; that credit was obtained thereon at various dates up to March 6, 1908; that the said statement was false as a whole, and materially false in respect to the amount of capital of the firm at the commencement of business and as to liabilities generally and particularly as to indebtedness to Mrs.

Cotton, the wife of the senior member of the firm. The referee who heard the matter seems to have tried the case largely on demurrers, general and special, to the objections urged against the discharge, and, after much discussion of matters of evidence and law, his report concludes as follows: ]' conclude that the third ground of the bankrupts’ special demurrer, which raised the point that this statement could not be made the basis of the credit for the particular goods for which the bankrupts are now indebted to the objectors, should be sustained.

The uncontradicted evidence beiug that the goods were obtained from six to nine months prior to the filing of the petition in bankruptcy, oil a statement made a year and six months before the tiling of the petition in bankruptcy I conclude that these are not such goods as were obtained on a false statement in writing such as. is contemplated by

section 1-fb ('•’>) of the Bankruptcy Act [Act June 25, 1910, e. 412, 36 Stat. N39 <IT. S. Comp. St. Snpp. 1911, p. 1496)]. The only remaining charge against the bankrupts being founded purely on a difference of opinion as to the value of The meicbaudise comprising the capital with which this firm, began business, r do not think that, this is such a material discrepancy as would justify this court in declining to grant a discharge to these bankrupts.

Tile special master ascertains from the record before him that these bankrupts were allowed an exemption by the trustee, to which Kagan, Malone & Co. tiled their exceptions, which were overruled, and the exemption allowed. An appeal was taken as to this decision to the referee, and the District Judge has affirmed the decision on the homestead matter. Kagan, Malone & do. then filed their intervening petition to recover certain goods found in the possession of- the bankrupts, alleging that they were obtained by fraud; the identical statement herein involved being used as a basis for the claim of fraud.

This intervening petition was denied by the referee, to which decision an appeal was entered to the District Judge, and the decision of the referee has also been sustained. Criminal proceedings have also been brought in the criminal court in the city court of Atlanta against IF. IF. Brest on, and charges are now pending against him there, and it appears on the very statement involved here. The bankrupts have filed their applications for discharge, and Kagan. Malone & Co. are found opposing their applications.

"While every legal advantage should be taken by the creditor to bring bis guilty debtor to justice, tbe special master cannot refrain from expressing the opinion that this case has assumed more the attitude of oppression than of a just prosecution. I therefore recommend that the objections filed by Iiagan, Malone & Co. to the application of these bankrupts for their discharge should be overruled and dismissed.

There is considerable discussion in the briefs as to the effect, legal and moral, of the declaration in the first paragraph of the statement made by Preston, to wit: “This statement shall be binding for each purchase now or hereafter made, unless changed by written authority from the undersigned.” And it is argued that, as the bankrupts before adjudication had paid for the first purchase of goods obtained under the statement, Ragan, Malone & Co. had no right to rely upon it as a basis of credit for any subsequent purchase.

The account of Ragan, Malone & Co. with the bankrupts appears to be a running account, covering purchases from time to time for a little over one year, on which the credits made at no time left the account fully paid up, so that it is only an assumption, depending upon the correct imputation of payments, to say that the first purchase was ever fully paid for. But, be that as it may, the parties agreed that the statement should be binding for continuous credit.

The evidence is that it was relied upon by the creditors in the subsequent credits, as well as in the first, and we know of no reason to go behind the agreement. The other matters mentioned by the referee as reasons for the recommendation can have no effect as against the clear language of clause 3 (b), § 14, of the Bankruptcy Act, as follows: “

(3) Obtain money or property on credit upon a materially false statement in writing made by him to any person or representative for the purpose of obtaining credit from such person.” The statement to Ragan, Malone & Co. was made by Preston to obtain credit from them, and, being materially false, must be taken as barring his discharge. The evidence shows that Cotton, the other partner, had nothing to do with making the statement, and does not show that he authorized it, or ever ordered goods upon the strength of it. Under the decision of this court in Hardie v. Swafford Bros. & Co., 165 F. 588, 91 C. C.

A. 426, 20 L. R. A. (N. S.) 785, the judge a quo was authorized to grant the discharge to Cotton. The statement of Preston was made for the firm, and the firm had the benefit thereof, and we think it clear that the firm is not entitled to a discharge. The decree of the District Court, rendered on the 23d day of May, 1912, and the preliminary decree of September 30, 1910, are reversed, and the cause is remanded, with instructions to grant a discharge to E. S. Cotton individually and as a member of the firm of Cotton & Preston, and otherwise to dismiss the application of F. F.

Preston and Cotton & Preston for a discharge.