FEDERAL REPORTER.
annul the general liability of parties under the common law, as well as under the commercial law." It is proper to say that I do not attach any weight to the fact that the respondent declined to insure the deck cargo. The claim is not founded on the contract of insurance, but on the obligations which the law is supposed to attach to the relations of the parties. Nor do I consider it important that the under /}nd over deck cargo belonged to the same person. The risk of that under was on the respondent, and if that above had been properly therea;; in pursuance of general custom so to carry-the sacrifice of it for the respondent's protection would, I believe, render hiI;ll liable. Deoree dismissing the libel.
IN
THE MATTER 0., PBTER HERDIO,
Bankrupt.
(Di8triot Ooun, W. D. PenMlIlMnilJ. February 14, 1880.) BANKRUPTOy-OPPOSITION TO DISOHARGlIl OJ' BANKRUPT-BURDEN OJ' l'Rooll'.-Although suspicious circumstances may 1n certain cases be suflicient to authorize a court to find the concealment or fra.udulent appropria.tion of money bya bankrupt, yet it is well settled that the bur. den of sustaining specifications of objection to the discharge of a bank. rupt rests upon the opposing creditors. Slil:E-l'ROPlIlR Boon OF ACCOUNT-DrscHARGE.-The provision of the bankrupt law which withholds a discharge, "if the bankrupt, being a merchant or tradesman, has not at all times, after the second day of March, 1867, kept proper books of account," applies only to merchants and tradesmen in respect to their business as such merchants and tradesmen.
In bankruptcy, on specifications of opposition to the bank. rupt's discharge. Henry C. Parsons, H. O. McOormick and Mr. Orocker, for opposing creditors. Olinton Lloyd and John M. Kennedy, for the bankrupt. AOHESON, J. Certain creditors of the bankrupt, Peter Herdic, having filed specifications of opposition to his discharge, they were referred to Fredetick E. Smith, Esq., register, with direotions to take testimony thereon and make report of the
IN RE PETER HERDIO.
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to the court. The register took and returned to the court the testimony offered by the respective parties, and made a report favorable to the bankrupt upon all the specifications. Upon the coming in of the register's report the case was fully and very ably argued by the counsel of the opposing creditors and of the bankrupt. Since the argument I have attentively read the testimony, and the case has received careful consideration. The circuit judge, McKennan, sat with me at the hearing, and the conclusions I have to announce were reached after consultation with him, and have his approval. The specifications of opposition are thirteen in number; but the fifth, sixth, seventh, twelfth and thirteenth were not pressed at the argument. In respect to them, therefore, I content myself with saying that the evidence does not sustain them, or any of them. The first and second specifications relate to the same matter, and may be considered together. They charge, in substance, that the bankrupt "has wilfully sworn falsely" in the affidavit attached to his petition, in this, that in his schedule he returns that he has no real estate in his possession or enjoyment, or which is held by any other person in trust for his use, (except as therein stated,) when in truth and in fact he was interested as the owner of the undivided one-third of certain lands in Potter county, Pennsylvania, then held in trust for him by one Jacob Tome, and which he did not return, but wilfully and fraudulently omitted from his schedule. The facts relating to these lands are as follows ': By deed bearing date October 19, 1?72, Jane Phillips conveyed to Jacob Tome, of Port Deposit, Maryland, 12 tracts of land in Potter county, Pennsylvania, contain'ng in the aggregate about 11,385 acres, for the consideration of $45,240. An article of agreement (not recorded) of the same date with this deed was entered into between Jacob Tome, Peter Herdic and A. G. Olmstead, which recites the purchase by these parties of said lands; that Tome had paid in hand one-third the purchase money, and was to pay the residue, which was secured by his mortgage, in one and two years, with interest; that the title was vested in Tome in trust for himself and
Herdic and Olmstead; that the lands were to be sold at such times and prices as the parties should think advisable, and until sold Herdic and Olmstead should pay Toma on two-thirds of the amount of each payment of purchase money made by him at the rate of seven per cent. per annum, and each party should pay one-third of the taxes; that when the lands were sold Tome should be first reimbursed the purchase money paid by him, and the balance of the proceeds of sale should then be equally divided between the three parties. Jltcob Tome paid the entire purchase money. Herdic lmid his stipulated share of the interest which accrured up to October 19, 1875, but he paid no interest subsequently accruing. The parties made no sales or any part of these lands. They were never able to dispose of them at an advance, or, indeed, for the price Tome had paid for them. Herdic being in arrear for his share of the taxes, his interest in said land was sold for taxes at treasurer's sale, on June 10, 1878, and purchased by Jacob Tome, to whom the treasurer of Potter county execnted a deed. Mr. Tome testifies that he and Olmstead have been and are willing to sell these lands at what they cost, and even for less. From the uncontradicted evidence it is manifest that at the time when the bankrupt made his affidavit these lands were not worth the money Jacob Tome had invested in them. The bankrupt's interest in them. was, therefore, of no value whatever had it then been redeemed and unencumbered. But it appears that whatever redeemable interest the bankrupt then had wa.s encumbered by unimpeachable liens, amounting to far more than the value of the entire 12 In explanation of the omission from his schedule of his interest in these lands, Mr. Herdic testifies: "It had been sold at treasurer's sale, and I didn't think it belonged to me." Under all the circumstances I accept this explanation as reasonable and truthful. Certainly the evidence does not warrant the harsh conclusion that the bankrupt "has wilfully !iworn falsely" touching this matter.
IN RE PETER HERDIC.
24:5
'.rhe third and fourth specifications relate to the alleged concealment by the bankrupt of certain personal property. The third specification charges that the bankrupt has concealed and failed to deliver to his assignees $25,000 which he r.eceived from Jacob Tome a few months before the filing of his petition in bankruptcy. The fourth specification charges the like concealment of and failure to deliver to the assignees the sum of $10,000, which it is chn,rged the bankrupt delivered to his friends to purchase at sheriff's sale, for his use and benefit, his household goods and other property, and that the money was so applied. It appears that on January 24, 1878, Mr. Herdic received from Jacob Tome the latter's notes for $25,000, given in the purchase of certain bonds issued by the Minnoqua Springs Improvement Company. On or about that date Herdic discounted Tome's notes at Philadelphia. Out of the proceeds Herdic paid $10,010.69 to the Manufacturers"National Bank of Philadelphia, in discharge of his indebtedness to that bank. This is proved by John W. Moffly, president of the bank. Mr. Herdic testifies to other proper payments, in discharge of his liabilities, made with the moneys realized from the discount of the Tome n9tes. After these payments there remained in his hands about $10,400, which he brought to Williamsport. At that time W. F. Reynolds & Co.,. the plaintiffs in a judgment against Herdic, had an execution for $10,000 in the hands of the sheriff of Lycoming county. This execution had issued January 22, 1878. Undoubtedly, the evidence shows that it was originally the intention of Mr. Herdic to apply the $10,400 he brought from Philadelphia to the Reynolds execution. But he soon found himself hopelessly by other creditors and abandoned his purpose to payoff Reynolds & Co.'s judgment. 'He testifies that he applied the whole of the $10,400 to the payment of debts and to the maintenance of his family, and that it was all so used within two months after he got it. To some extent he particularizes his expenditures. It certainly would have been more satisfactory had his testimony on this subject been IT.ore explicit. He swears positively, however, that no
246
FEDERAL REPORTER
part of this money was furnished to friends to be used in pur· chasing in his property at sheriff's sale, and in this he is not contradicted. It is not pretended that there is any direct evidence that any of the money in question was used for the purchase charged in the fourth specification. But the coud is asked to draw such inference. I agree with the learned counsel for the creditors that suspicious circumstances may be so strong as to authorize a court to find the concealment or fraudulent appropriation of money by a bankrupt. But I altogether fail to find such circumstances in this case. It is well settled that the burden of sustaining specifications of objection is upon the opposing creditors. It is always a fair presumption that the bankrupt has acted with integrity. The eighth specification charges that the bankrupt has wilfully sworn falsely in the affidavit attached to his petition, in that he has wilfully omitted from his schedule certain amounts received by him on August 26, 1878, to-wit: from J. W. Maynard, $5,000; from Guy W. Maynard & Co., $3,579.42; and from G. W. Maynard & Co., $27,572.67. To sustain this specification the opposing creditors rely upon certain entries in the books of the bankrupt made on said date, whereby the accounts of the persons above named arerespectively credited with the sums mentioned. But the evi· dence is plenary that the bankrupt did not receive, at that time, said sums, or any part thereof. This specification therefore falls. The said entries are part of those which are the foundation of the eleventh specification, and were made under the circumstances and for the purpose hereinafter stated. The ninth specification charges that the bankrupt, l1aving knowled.ge that Charles E. Gibson had proved a false and fictitious debt against him of $3,900, did not disclose the same to his assignees within one month after he acquired such knowledge. I am by no means prepared to say that the evidence warrants the conclusion that Gibson's proof of debt is of the character here alleged. But if this ever so clearly appeared, it would be essential to show that the bankrupt had knowledge of the fact in order to sustain this
247
specification. Of such knowledge on the part of the bank. rupt there is no evidence. Gibson's proof, indeed, was sworn to at the office of Mr. Herdic, before Mr. Hinkley, a notary public, who had been, and perhaps then was, in the bankrupt's employ. But it does not appear tha.t Mr. Hinkley had any reason to doubt the correctness of Gibson's claim. Mr. Herdic himself took no part in the preparation of Gibson's proof, did not examine it, and was not consulted with respect to it. The tenth specification charges that the bankrupt, being a merchant, has not at all times since the second day of March, 1867, kept proper books of account, in that such books do not show what moneys were received and what disposition was made of them. And the eleventh specification charges that he has not kept proper books of account, in that on the twenty-sixth of August, 1878, three days before the filing of his petition in)ankruptcy, he caused 15 pages of entries to be made in his day-book of business transactions, amounting to at least one million of dollars, and most of said transactions having occurred several years prior to said entries. These specifications designate the bankrupt as a "merehantj" and the evidence, I think, does show him to have been a dealer in lumber, as a merchant within the meaning of the bankrupt law. His transactions in lumber seem to have been principally as a partner with other parties, but to some extent he was individually a dealer in lumber. Besides his dealings as a lumber merchant, Mr. Herdic had very large business transactions. He ex.tensively bought and sold real estate, was largely engaged in laying street pavements, and carried on other enterprises of magnitude, which bad no connection with his business as a merchant. The bankrupt law withholds a discharge "if the bankrupt, being a merchant or tradesman, has not at all times, after the second day of March, 1867, kept proper books of account." This requirement applies only to merchants and tradesmen, {Blumenstiel, 521,) and as to them must be understood as requiring the keeping of proper books of account only in re,gpect to the bankrupt's business as a merchant or tradesman.
248
If he has kept such books he is entitled to his dischal'ge, although he may not have kept proper books of account touching other business transactions. It was strenuously urged at the argument that the bankrnpt was not entitled to his discharge because he had kept no cash-book or proper cash account, and authorities were cited to show that the failure by a bankrupt, he being a merchant or tradesman, to keep a cash account, is good ground for refusing his discharge. The opposing creditors produced in court, and deposited with the clerk, five books of the bankrupt, viz.: One blotter, one marked "Journal E," one ledger, marked "C," and two bills payable books. But these are a part only of the books kept by the bankrupt. At page 118 of the testimony the register notes an offer of evidence by the creditors of "all the books delivered by Peter Herdic to the assignees," and these are there stated as "Ledgers A, Band C, J oumals A, B, C, D and E, book of bills two books of bills payable, two blotters, and J onrnal B and Ledger B, labeled 'Po H.'s." But, as I understand the evidence, this formal offer does not embrace all the books of account which the bankrupt kept; for the assignees and Mr. Hinkley testify that still other books of ar,connt of the bankrupt, by and with the acquiescence of the assignees, were delivered into their actual custody, but for sa'::J-keeping "ere left at Mr. Herdic's office. Not having before us all the books, It is impossible to decide by inspection whether or not a proper cash account was kept. Hesort must therefore be had to the testimony. The following question and answer appear in the testimony of C. C. Taylor, the book-keeper: Question. "Where is the cash-book of Mr. Herdic?" Answer. "He didn't keep any." Page 88 of evidence. It ,,,ill be observed that the witness does not say that Herdic k0pt no cash account, and from his testimony, as a whole, the inference is a fair one that a proper cash account was kept. Upon this subject Mr. Hinkley, an expert in book-keeping, was examined on behalf of the creditors, and was asked by their counsel the following question: "Where is the cash-book of Mr. Peter Herdic?"
249
To which he answered: "For his individual use he kept no cash-book. For his lumber accounts cash-books were These books are at the office," Page. 58. This witness further testifies: "As I stated before, he had kept lumber books, and that these lumber books are cash-books." Id. Again, in his examination in chief, he was asked: "Did he keep any individual cash account?" To which he answered: "He did in his individual lumber books." Page. 59. In the cross-exami. nation of this witness the following questions and answers occur: Question. "Were there regular books of account, cashbooks and others kept, showing his transactions in lumber?" Answer. "There were." Page. 62. · ". · Q. "Were those books properly kept, showing the transactions in lumber, in your judgment as a book-keeper?" A. "Yes, sir." This evidence stands uncontradicted. I now approach what I consider the most doubtful question in the case. On August 26, 1878, three days before the filing of the petition in bankruptcy, by the direction of Mr. Herdic, fifteen pages of entries were made in his books, aU under said date, and aggregating considerably more than $1,000,000. Did these entries concern Mr. Herdic's business as a merchant? This, it seems to me, is the vital question, for if they relate to transactions distinct from his business as a lumber merchant, it is immaterial that they were not duly made in the proper course of book-keeping. I fail to discover in the testimony of the witnesses anything to show to what branch of the bankrupt's business the entries in question relate. But an inspection of the books themselves has satisfied me that a large proportion thereof, both as respects number and amount, have no connection whatever with the lumber business, but relate to other matters. As to the nature of many of the entries I can form no opinion. A few seem to have relation to the bankrupt's business as a merchant, but this I cannot affirm certainly. The evidence, however, does show that the making oHnese entries was a trausaction entirely free from any taint of fraud. The purpose was tn close worthless accounts, and old accounts long previously settled, but never entered on the books. The
250
entries were made after consultation with Register Smith. and under his advice, with a view to excluding from the schedule worthless accounts. It is not shown that the entries in any wise worked injury to the bankrupt's estate or were pr'3judicial to creditors. Upon the whole, therefore, I am brought to the conclusion that neither the tenth nor the eleventh specification has been sustained. The specifications of opposition having been disposed of upon their merits, it has been deemed unnecessary to consider the exceptions thereto filed by the bankrupt. I am of opinion that all the specifications should be overruled, and the bankrupt granted his discharge, upon the pre- ' sentation of the register's certificate of his conformity to the provisions of the law. And it is so ordered. MoKENNAN,
J. 1 sat at the argument of this case with the
district judge, in order that the delay in the final determination of it, which might result from an appeal to the circuit court, might be avoided, The foregoing opinion, therefore, is to be understood as expressing the views of both of us, and as practically deciding the controversy.
FRICK 'V. THE COUNTY OF CHRISTIAN.
(Circuit Court, D. Kentucky. March 4, 1880.) AWARD-COUNTY COMMISSIONERS-RATIFICATION.-An award will not be vacated for want of authority in the county commissioners to make the submission at the instance of a party to the arbitration, when such award has been approved by the county court and the money paid by the county in pursuance of the same. SAME-MISTAKES OF FACT.-A demurrer to a bill to set aside an award will not be Bustained, where the award was based upon mistakes of fact which bad not been called to the attention of the arbitrator at the time the award was made, and which, if known, would have changed the result of the award.