In re Breitling , 133 F. 146 ( 1904 )

JENKINS, Circuit Judge

(after stating the facts as above). A discharge from one’s debts is a privilege created by the bankruptcy act upon condition of a surrender to creditors of all the property of the bankrupt, except such as is exempted from execution by the law of his domicile. There must therefore be entire good faith upon the part of the bankrupt. He must surrender his property fully. He may not retain that which should go to his creditors. His duties are specifically set forth in section 7 of the act of July 1, 1898, c. 541, 30 Stat. 548 [U. S. Comp. St. 1901, p. 3424]. He is not entitled to discharge if he has committed any of the acts specified in section 4 of the amendatory act of February 5, 1903, c. 487, 32 Stat. 797 [U. S. Comp. St. Supp. 1903, p. 411]. A discharge will be denied if he has committed an oifense punishable by imprisonment, as prescribed by the bankruptcy act, or if he has concealed any of his property with intent to hinder, delay, or defraud his creditors. The act requires the fullest disclosure, the utmost good faith, the surrender of all his estate not exempt by the act. It is well observed by Judge Brown that “a discharge in bankruptcy upon any other condition than the complete appropriation of every known asset legally available to creditors would not be only a glaring wrong to creditors, but contrary to every conception of a just system of bankruptcy.” In re Baudouine (D. C.) 96 Fed. 536, 539. If it be doubtful whether a specific item of property should go to creditors or be reserved by the bankrupt, it is not for him to constitute himself the judge, concealing the fact, but it is his duty to disclose the transaction, that the bankruptcy court may determine the right. In re Gailey, 62 C. C. A. 336, 127 Fed. 538.

Without question the claim against the Waldheim Cemetery Company should have been scheduled. This the referee concedes in his report. It was knowingly and designedly omitted by the bankrupt. This is conceded by him. But he insists that it was so done upon the advice of counsel. But advice of counsel cannot excuse violation of law. It may mitigate the act, according to the character of the advice and circumstances under which it is given. If the omission here were in the exercise of a supposed right under advice taken and given in good faith, the bankrupt might be absolved of the charge of making a false oath or of designedly concealing his estate from his creditors. To work such result, however, the facts must be fully and in good faith stated to counsel, and the act charged done innocently, and believing that he had been correctly advised. Whether the bankrupt here stands in such plight, depends upon the facts of the case, judged in the light of all the surrounding circumstances.

The bankrupt exhibits debts to the amount of $5,775.70. His assets consisted of accounts receivable stated to amount to $303.06, and not including the account against the Waldheim Cemetery Company, or against one Zahn, hereinafter referred to. Whether the scheduled accounts were collectible or not does not appear from the record. The bankrupt had also $100 in cash, household furniture specified and said to be of the value of $300, office and equipment of lumber yard described and stated to be of the value of $800, wearing apparel $75. All of this property except the accounts receivable and $100 in cash is claimed to be exempt, and in the schedule of exemptions the property, otherwise stated to be of the value of $1,100, is declared to be worth only $400, the precise amount of exemptions allowed by the statute of Illinois (2 Starr & C. Ann. St. 1896, p. 1887, c. 52, § 13). It is also to be observed that the original schedule exhibited a single account receivable of $13.75, the others being disclosed by the amended schedule filed 17 days after the filing of the original. These are circumstances, inconclusive, indeed, of themselves, but in connection with the other facts disclosed are not without weight in marking the purpose of the bankrupt in withholding a good receivable and appropriating it to his own use. The referee finds that the amount of the account of the Waldheim Cemetery Company was not scheduled, under the advice of counsel, and that the amount of it was collected by the bankrupt, and turned over to his lawyers to apply on their fees, and therefore the bankrupt is relieved of the fraudulent intent, although it is true, as the referee finds, that either the lumber or the claim against the company should have been scheduled. The finding is incorrect that the bankrupt turned over the amount of the account against the Waldheim Cemetery Company to his counsel'. The bankrupt, in his formal answer to the objections to the discharge so states, and that he had transferred the account to his counsel before verifying the schedule; but upon his examination before the referee he tells a different story. He does not there claim that any transfer of the Waldheim Cemetery Company account was at any time made to his counsel. It appeared that the $50 paid to counsel was paid partly in cash and partly by an order on one Zahn for $25, and this before the filing of the petition; and the bankrupt afterward collected the money from Zahn upon the order, and paid it to his counsel. Nor, as we understand the bankrupt’s evidence, was he advised by counsel that he had a right to retain this Waldheim account. He states that his recollection is that counsel advised him that he “was entitled to that in connection with what I had. It was represented to me that I was entitled to a preference of $400, and that I was justified in making that sale and not putting it in;” and when requested to state the language employed by his counsel, he answered that they said, “If you are entitled to that, inasmuch as you have only got what you indicate and you are entitled to an exemption of $400,” and that that was substantially all that they said. The bankrupt knew that he was entitled but to $400 exemptions. He also knew, for it was before him in writing in his schedules, which he verified, that he had specified the particular property not including the account which he claimed as exempt, and had stated its value at $400; that that property was otherwise stated in other schedules as worth $1,100. He knew that, retaining the Waldheim account as exempt, he would have a larger sum than the law allowed him, assuming that the property claimed as exempt was only worth the sum of $400, as stated. This question of fact rests upon the statement of the bankrupt. It does not satisfactorily appear that he fairly presented the case to his counsel, or that his counsel advised him that he was entitled to retain the account as exempt, in addition to the $400 of exemptions, claimed, or that he could properly omit it from the schedules. We should be loath to believe that counsel could so have advised him, and he has not called upon them to verify his statement, weak and inconclusive as it appears. The facts here which are fully established lead us to the conclusion that the bankrupt purposely retained and concealed from his creditors that to which he was not entitled, and knowingly made false oath to his schedules. The amount involved, it is true, is small, but the design to conceal was deliberate and is clear. We are indisposed to give countenance in the slightest degree to any act which shall withhold from creditors any part of the estate of a bankrupt which lawfully he should devote to the payment of his debts.

The decree is reversed.