(45 S.Ct.)

does not apply. It follows that, in such cases, there is no reason for holding that an unfounded objection to jurisdiction over the subject-matter, in a special appearance and motion to quash the summons, waives objections to jurisdiction over the person. We hold that defendant did not by his motion waive his right to immunity from suit on plaintiff's claim in the Nebraska court or voluntarily appear and give that court jurisdic

tion.

As additional reasons for its conclusion, the Supreme Court said that the special appearance and motion to quash the summons were properly overruled, because there was no evidence to support the motion; that no objection was made during the first trial to the jurisdiction of the court, and that no mo- | tion for rehearing was made in that court after the filing of its opinion on the first appeal, "and the former decision of the court has become the law of the case."

*321

did not hold that defendant's failure at the first trial to insist that the district court again rule on the objection to jurisdiction operated to deprive him of the right to do so at the second trial. *The objection was well pleaded as a defense in accordance with the Nebraska practice. There is no reason why a defense pleaded, but not urged at an earlier trial, may not be insisted upon at a new trial. See Moulor v. American Life Ins. Co., 111 U. S. 335, 337, 4 S. Ct. 466, 28 L. Ed. 447. state court became the law of the case does The ruling that the former decision of the

not affect the power of this court to re-examine the question. Messinger v. Anderson, 225 U. S. 436, 444, 32 S. Ct. 739, 56 L. Ed. 1152; Grays Harbor Co. v. Coats-Fordney, 243 U. S. 251, 257, 37 S. Ct. 295, 61 L. Ed. 702; Georgia Ry. Co. v. Decatur, supra, 437 (43 S. Ct. 613).

It must be held that defendant plainly asserted and reasonably insisted upon his im

[9, 10] The facts on which the defendant's motion was based were not denied by plain-munity from suit on plaintiff's claim in the

*320

Nebraska court under section 10 of the Federal Control Act and the orders of the Director General. His objection to the jurisdiction should have been sustained. Judgment reversed.

(266 U. S. 321)

GERDES v. LUSTGARTEN.

tiff. The order of the district *court states that "being fully advised in the premises, the court does overrule said special appearance. The order overruling the motion was made March 13, 1920, some time before the decisions of this court which declared the validity and effect of the general orders on which plaintiff's motion was based. Missouri Pacific R. Co. v. Ault, supra, was decided June 1, 1921. Alabama, etc., Ry. Co. v. Journey, supra, was decided November 7, 1921. There had been a number of decisions (Submitted Oct. 13, 1924. Decided Nov. 24, holding General Orders 18 and 18-A invalid.3 The record does not show whether the district court followed these decisions, or, as suggested in the opinion of the Supreme Court, based its ruling on a lack of evidence to support the motion. There was no issue as to the facts on which defendant's motion was based, and it could not reasonably be held that he was bound to bring forward evidence to establish statements consistent

with the allegations of the petition, and which had not been questioned by plaintiff. Notwithstanding its reference to the matter, the Supreme Court, as we read its decision,

'General Orders Nos. 18 and 18-A were held invalid in Friesen v. Chi., R. I. & P. Ry. Co. (D. C.

Neb., Dec. 27, 1918) 254 F. 875; Haubert v. Baltimore & O. R. Co. (D. C. Ohio, Sept. 3, 1919) 259 F. $61; El Paso & S. W. R. Co. v. Lovick (Feb. 11, 1920) 110 Tex. 244, 218 S. W. 489, affirming (Tex. Civ. App., March 6, 1919) 210 S. W. 283, and overruling Rhodes v. Tatum (Tex. Civ. App., Oct. 16, 1918) 206 S. W. 114. See Benjamin Moore & Co. v. Atchison, etc., Ry. Co. (January, 1919) 106 Misc. Rep. 58, 174 N. Y. S. 60. And they were held valid in Wainwright v. Pennsylvania R. Co. (D. C. Mo., Oct. 22, 1918) 253 F. 459; Cocker v. New York, O. & W. Ry. Co. (D. C. N. Y., June 15, 1918) 253 F. 676; Johnson v. McAdoo (D. C. La., May 8, 1919) 257 F. 757; Russ v. New York Cent. R. Co. (Co. Ct., Feb. 20, 1920) 180 N. Y. S. 618. See Russ v. New York Cent. R. Co. (Dec. 29, 1919) 190 App. Div. 37, 179 N. Y. S.

310.

1924.)

No. 70.

I. Bankruptcy 407 (5)-Bankrupt, who obtained credit on materially false statement made for purpose of obtaining credit, not entitled to discharge on theory that creditor was not justified in relying on statement.

Under Bankruptcy Act, § 14b, as amended by Act June 25, 1910 (Comp. St. § 9598), bankrupt, who obtained credit on materially false financial statement, made for purpose of obtaining credit, will not be discharged on theory that creditor, because of lapse of time, was not justified in relying on statement, and in such case lapse of time is only material in determining whether credit was extended within the period intended, while the statement was still binding on the bankrupt, and whether creditor in fact extended the credit on the faith of the instrument.

2. Bankruptcy

409(1)—Showing of intent to conceal financial condition necessary to bar discharge on ground that bankrupt failed to enter certain indebtedness in his books.

To bar discharge of bankrupt for failure to enter certain debts in books of account, under Bankruptcy Act, § 14b, as amended by Act June 25, 1910 (Comp. St. § 9598), intent to conceal financial condition must be shown.

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

1106(4)

No evidence was introduced before the referee under the specification of opposition re

3. Appeal and error Supreme erty on credit upon a materially false stateCourt may determine questions of fact not ment in writing, made by him to any person decided by District Court or Circuit Court of or his representative for the purpose of obAppeals, or may remand case to District taining credit from such person. * Court, or if facts had been decided by District Court may remand to Circuit Court of Appeals. Where questions of fact essential to deter-lating to the books of account. As to the mination of case were not determined by either District Court or Circuit Court of Appeals, Supreme Court may either determine the questions on an independent examination of the testimony, or may remand the case to the District Court for further proceedings, in order that they may be determined in the lower courts; but if facts had been specifically decided by the District Court, and only the Circuit Court of Appeals had failed to pass on them, it would have been proper to remand the case to the Circuit Court of Appeals.

ion of the Court.

Lustgarten, the respondent, was adjudged bankrupt in an involuntary proceeding in the Southern District of New York. He duly filed an application for discharge. Two creditors filed objections, specifying four grounds of opposition, which were referred to the referee.2 Thereupon an order was made directing the trustee to prosecute the specifications at the expense of the estate.

Only two of them are here involved: One alleging that Lustgarten had failed to keep proper books of account, and the other, that he had obtained credit from the Corn Exchange Bank, an objecting creditor, upon a false statement in writing.

Section 14b of the Bankruptcy Act, as amended by the Act of June 25, 1910, c. 412, 36 Stat. 838 (Comp. St. § 9598), provides that the judge, on hearing a bankrupt's applica

*323

tion for discharge *and the pleas and proofs
made in opposition thereto, shall "discharge
the applicant unless he has
(2)
with intent to conceal his financial condition
failed to keep books of account or
records from which such condition might be
ascertained; or (3) obtained money or prop-

*

1 Gen. Ord. No. 32.

Gen. Ord. No. 12, cl. 3.

obtaining of credit, it was shown that on
January 6, 1920, Lustgarten gave the Bank a
signed statement setting forth his financial
condition on December 15, 1919, and showing
a net worth of more than $58,000. This state-
ment recited that it was made "for the pur-
pose of obtaining loans," and stated that:
"This statement is to be regarded by Abra-
ham Lustgarten and by The Corn Exchange
Bank as continuous and binding, and to form
a true statement as to the assets and liabil-
ities of the undersigned, and other matters,
to be relied upon by The Corn Exchange
Bank upon application by the undersigned,
for all loans until another statement in writ-
ing shall be substituted for this, or this
statement recalled.
And further,
whenever my financial condition is changed
materially from the financial condition
shown in the above statement. I agree to no-
tify the said Bank at once of such change,
whether applications for further loans are
made or not." There was conflicting evi-

dence as to whether or not the statement as

to Lustgarten's financial condition was materially false. In October and November, 1920, and February, 1921, the Bank, on his applications, made him three loans, aggregating $11,000. He had meanwhile given the Bank no notice of any change in his financial condition; and there was no evidence that it had in fact substantially changed.

*324

*The referee reported that, without deciding the "difficult" question of fact whether Lustgarten's statement to the Bank was false when given, and assuming that the Bank had relied upon it in extending the credits, he was of opinion that it had no right so to do, since in view of the financial depression prevailing in 1920, the "reasonable time" for which the statement remained a "continuing statement" had expired when the credits were extended; and he recommended that the discharge be granted.

The District Court, at a hearing on the referee's report-apparently assuming, but not deciding, that the financial statement was false and that the Bank had relied upon it -held that as the statement was a continu

The

ing one and provided for notice of any mate-
rial changes, the Bank had a right to rely
court also considered the specification relat-
upon it until such notice was given.
ing to the books of account, and upon the
evidence that had been taken before the ref-

No reason was stated for considering this specification, which, apparently, had not been relied on before the referee.

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

(45 S. Ct.)

eree upon a closely related specification not at that time the false statement was still in here involved, held that the fact that the force and binding upon the bankrupt, to be books did not show an indebtedness which

Lustgarten claimed to have owed his nephew, constituted a failure to keep proper books and that the intent to conceal his financial condition was reasonably to be inferred. The discharge was accordingly denied.

*326

determined *according as it is found that the
sale on credit was or was not the proximate
* and that
result of the statement
its original falsity was or was not the thing
that worked the mischief."

#

We think that these two cases embody, in substance, the rule that should be here ap

On an appeal by Lustgarten from this order, the Circuit Court of Appeals-without passing upon the question whether the finan-plied. cial statement was false, and expressing doubt whether on the testimony it could be said that the Bank had relied upon it-held that, in any event, on account of the lapse of time between the making of the statement and the obtaining of the loans and the gen

*325

eral *financial conditions then prevailing, the
Bank "was not justified in relying upon the
statement,"5 And on the testimony relatingly
to the books of account, the court found that
the failure to make entries showing the in-
debtedness to Lustgarten's nephew was due
to inadvertent and faulty bookkeeping and
"not to any intent to conceal financial condi-
tions." The order of the District Court was
accordingly reversed, with instructions to
grant the discharge. In re Lustgarten, 289
F. 481. Thereafter this writ of certiorari
Gerdes v. Lust-
was granted the trustee.
garten, 262 U. S. 741, 43 S. Ct. 705, 67 L. Ed.

1209.

In

Under the Bankruptcy Act the discharge is to be denied if it is shown that the bankrupt "obtained money or property on credit upon a materially false statement in * ** * for the purwriting, made by him The only essenpose of obtaining credit." tials to the statutory bar, in so far as relates to the present question, are: (a) That the written statement was made for the purpose of obtaining credit; (b) that it was materialfalse; and (c) that the credit was obtained If these are established the vice upon it. inherent in the original falsity of the statement is not remedied by the lapse of time; and if the creditor extends credit upon such a false statement while it is still in force and binding upon the bankrupt, within the time in which he intended it should serve that end, it does not lie in his mouth to say that by reason of extrinsic circumstances the creditor was not justified in relying upon it. In short, the lapse of time is only material in determining whether credit was extended within the period intended, while the statement was still binding on the bankrupt, and whether the creditor in fact extended the credit upon the faith of the statement. Here Lustgarten's statement expressly recited that it was made "for the purpose of obtaining loans" from the Bank, and that it should be regarded by himself and the Bank as "continuous and binding" and relied on by the Bank "for all loans" until changed or recalled. Lustgarten applied for the loans in question without either changing or recallAnd it is entirely clear ing the statement.

[1] 1. On the question of the continuing effect of a false financial statement, there is a conflict of opinion between the Circuit Court of Appeals for the Second Circuit and those for the Third and Fifth Circuits. Ragan v. Cotton (5th Circ.) 200 F. 546, 550, 118 C. C. A. 640, it was held that where a bankrupt had made a false financial statement for the purpose of obtaining credit, which provided that it should be binding for continuing credit unless changed, and a creditor had relied upon such false statement in extending credits for purchases made from nine to twelve months thereafter, the dis- that the loans were made while the statecharge should be denied. And in Haimowichment was still binding upon him and serving v. Mandel (3d Circ.) 243 F. 338, 342, 156 C. the end which he intended, as shown both C. A. 118, 122, it was held that where a bank-by its *plain and unambiguous provisions and rupt had made a false financial statement as by his own conduct in pursuance thereof. a basis for obtaining credit, and seven months thereafter, within the time in which the bankrupt "intended the statement to serve that end," creditors had been induced by its falsity to extend credit to him, the discharge was barred. There the court said that the test whether a false statement given upon one date and acted upon at a later date, operates as a bar to a discharge, is "whether

The referee had found that this other specification was not sustained by the proof; and it was disregarded by the District Court.

In thus holding the Circuit Court of Appeals followed its earlier ruling in Re B. & R. Glove Corporation, 279 F. 372, involving the right of a credior to reclaim property sold a bankrupt on the faith of a continuing financial statement.

#327

We therefore conclude that the Circuit Court of Appeals was in error in holding that, irrespective of the questions of the falsity of the statement and the reliance of the Bank upon it, the discharge should be granted upon the theory that the Bank was not justified in relying upon it when the credits were extended; and that if the statement when made was materially false and the Bank made the loans in reliance upon it, the discharge should have been denied.

[2] 2. An examination of the evidence in reference to the books of account discloses no error in the finding of the Circuit Court of Appeals that Lustgarten's failure to make the entries of the indebtedness to his neph

ew was not due to any intent to conceal his added, notwithstanding Bankruptcy Act, § 57j financial condition; and, on the contrary, (Comp. St. § 9641), providing for disallowance leads us to the conclusion that this finding of debts due to United States as "penalty," in is in accordance with the greater weight of view of distinction made in such act of 1916 between penalty and interest, by provision for 5 the evidence. Under the Bankruptcy Act, per cent. penalty and provision for such monthhowever, such intent must be shown in orderly 1 per cent. interest, a penalty being a means to bar the discharge.

of punishment, and interest a means of compensation.

[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Interest (On Money); Penalty.]

On Writ of Certiorari to the United States Circuit Court of Appeals for the Second Circuit.

[3] 3. The question then arises as to what disposition we should now make of the case. The material questions of fact in reference to the financial statement, upon which the decision must ultimately depend, have not as yet been determined in the courts below. They were not decided by the referee who heard the testimony; they were apparently assumed by the District Court; and they were not passed upon by the Circuit Court of Appeals on account of its ruling in reference to the lapse of time. We may now either determine these questions upon an independent examination of the testimony, or remand the case for further proceedings in order that they may be determined in the lower courts. Cole v. Ralph, 252 U. S. 286, 290, 40 S. Ct. 321, 64 L. Ed. 567. If they had been specifically decided by the District Court and only the Circuit Court of Appeals Atty. Gen., and Mr. Sewall Key, of Washing

had failed to pass upon them, an appropri*328

ate course would be to remand the case to the Circuit Court of Appeals. Lutcher Lumber Co. v. Knight, 217 U. S. 257, 268, 30 S. Ct. 505, 54 L. Ed. 757; Brown v. Fletcher, 237 U. S. 583, 588, 35 S. Ct. 750, 59 L. Ed. 1128. But since they were not expressly decided by the District Court, we conclude that, under all the circumstances, we should take the course adopted in Marconi Wireless Co. v. Simon, 246 U. S. 46, 57, 38 S. Ct. 275, 62 L. Ed. 568, that is, reverse the decrees in both the courts below and remand the case to the District Court. If it be determined that the financial statement was materially false and that the Bank made the loans in reliance upon it, the discharge should be denied; otherwise it should be granted.

The decrees of the District Court and of the Circuit Court of Appeals are accordingly reversed, and the cause is remanded to the District Court for further proceedings in accordance with this opinion.

Reversed and remanded.

In the matter of the bankruptcy of the J. Menist Company, Inc. Order of District Court, affirming referee's order disallowing in part the claim of the United States, opposed by Edward H. Childs, trustee in bankruptcy, was affirmed by the Circuit Court of Appeals (In re J. Menist & Co., 290 F. 947), and claimant brings certiorari. Reversed.

Mr. Solicitor General Beck, of Washington, D. C., Mrs. Mabel Walker Willebrandt, Asst.

ton, D. C., for petitioner.

*305

*Mr. Moses Cohen, of New York City, for respondent.

*306

*Mr. Justice MCKENNA delivered the opinion of the Court.

The collector of internal revenue of the Second district of New York filed a claim against the trustee in bankruptcy of J. Menist Company, Inc., Edward H. Childs, in the sum of $2,421.75, plus 5 per cent. penalty and 1 per cent. interest per month thereon until paid. The claim was for an additional income tax for the year 1917.

The justification for the claim, as stated by the Circuit Court of Appeals, is:

"Act of October 3, 1917 (40 Stat. 300, § 212), making section 14a of the Act of September 8, 1916 (39 Stat. 756), applicable to taxes under the 1917 act."

By section 14a of title 1, part 2 of the act of 1916, it is provided that:

66

$307

* * To any sum or sums due and *unpaid after the fifteenth day of June in any year, or after one hundred and five days from the date on which the return of income is required to be made by the taxpayer, and after ten days' notice and demand thereof by the collector, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due."

As an element for consideration in connection with section 14a is section 57j of the Bankruptcy Act (Comp. St. § 9641). It reads

as follows:

"Debts owing to the United States, a state, a county, a district, or a municipality as a penalty or forfeiture shall not be allowed except

(45 S.Ct.)

in excess of the legal rate of interest is to be treated as a penalty and not allowed."

We are unable to concur. It makes the rate of interest that of a particular locality, differing with the locality-in New York, as said by the government, 6 per cent.; in the Middle West, 8 per cent.; and on the Pacific Coast, 10 per cent.-and abridges or controls a federal statute by a local law or custom, and takes from it uniformity of opAeration. Besides, the federal statute is precise, and it is made peremptory by the distinction between "penalty" and "interest," and if it may be conceded that the use of the latter word would not save it from condemnation if it were in effect the former, it cannot be conceded that 1 per cent. per month-12 per cent. a year-gives it that illegal effect, certainly not against legislative declaration that is within the legislative em-power, there being no ambiguity to resolve.