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Appeal from the District Court of the United States for the Southern District of New York; Learned Hand, Judge.

In the matter of bankruptcy proceedings of Morris Marcus. From an order granting the bankrupt a discharge (192 Fed. 743), Thomas F. Molloy and another, as administrators, and certain other creditors, appeal. Affirmed.

Noble & Camp, of New York City (W. Cleveland Runyon, of New York City, of counsel), for appellants.

Myers & Goldsmith, of New York City (E. J. Myers, of New York City, of counsel), for appellee.

Before LACOMBE, WARD, and NOYES, Circuit Judges.

PER CURIAM. There were three specifications of objection to discharge.

[1] 1. It was contended that Marcus had within four months prior to bankruptcy paid $4,500 to.his wife, who had thereafter given $1,250 of that sum to the bankrupt to enable him to go to Europe and see friends there, with a view to obtaining further capital to put into the business. The special master held that, so far as the evidence showed, the payment to the wife was for borrowed money due to her; and that, although the payment might have been preferential, it did not constitute a transfer or concealment with intent to hinder, delay, or defraud creditors. What she might do with the money after she received it in payment of the debt to her was, of course, her own affair. The District Judge confirmed the special master's report, and we find no sufficient basis in the record for holding that Marcus concealed assets from the trustees.

[2] 2. It is contended that Marcus made a false oath in this pro ceeding. The District Judge has discussed this objection at some length, and we concur in his disposition of it. The particular answer relied upon was to a question directed to his financial condition at a particular time. The condition of insolvency is a complex one, and we would hestitate to hold a man guilty of false swearing, because in the course of an extended examination he made some misstatement of his want of knowledge of his insolvency at a particular time. In the present case it is difficult to say that the bankrupt testified with any positiveness as to his knowledge of insolvency at a particular time and then denied it. We are not satisfied from the evidence that the bankrupt swore falsely, and then corrected it by making a true statement. We see no reason to reverse the decision below on this objection.

(3] 3. The last objection is that the bankrupt, or rather his firm, with intent to conceal its financial condition, failed to keep books of account or records from which such condition might be ascertained. There seems to be no criticism of the general manner of keeping the books. The bookkeeper was a competent man, and did his work faithfully. The criticism stated in the brief is that no such inventory was ever made as would enable the condition of the firm to be shown accurately. The evidence shows that what is meant by this statement merely is that there was not each year a stock-taking and inventory on which the merchandise in hand was stated not at cost, but at its

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value at the time the annual inventory was prepared. It appears, however, that when the firm was organized, about five years before, Marcus contributed a stock of goods which he brought over from his former business. The items of this stock, valued at cost, were all set down in the books, but these entries were made in pencil, because there was some dispute between the partners as to what discount there should be made from the cost price. From the beginning a merchandise account was kept, and the evidence indicates that from the original pencil entries and the merchandise account it was possible at any time to prepare an inventory which would show with substantial accuracy what goods the firm had on hand. This would not show the "exact status" of the firm, as appellant calls it, because it would not give the value of the merchandise at the time the inventory was made. But we do not understand that the bankrupt act requires a new inventory to be taken every time there is some fluctuation in the actual selling value of the stock on hand, so that the revised estimates of value may be from time to time recorded on the face of the books. It seems to us that the books of this firm were so kept as to show what goods they had on hand, stated at their cost value, and that a person familiar with the particular trade could estimate with reasonable accuracy what discount there should be made from cost, in order to ascertain the financial condition.

[4] But, even if the financial condition could not be accurately determined from the books, it does not follow that the objection should be sustained. The firm employed a thoroughly competent bookkeeper, and left the books in l'is charge without themselves interfering with the manner in which he performed his skilled duties. There is nothing to show that either member of the firm was an experienced bookkeeper, or that either of them supposed that the man they employed for the purpose was not doing his work properly. The act does not refuse discharge because the books have been so kept as to make it difficult, if not impossible, to get an exact financial condition without further examination. The failure to keep sufficient books of account must have been with intent on the part of the bankrupt to conceal his financial condition. Such books may be inaccurate on account of misunderstanding, inadvertence, mistakes, and other reasons consistent with a desire that they should truthfully show the real conditions. There is no evidence in this record which would warrant a finding that the books were kept as they were-whether complete or incomplete with intent on the part of Marcus to conceal his financial condition.

The order of the District Court is affirmed.

In re LACHENMAIER.

GERMANIA NAT. BANK OF MILWAUKEE V. LACHENMAIER.

(Circuit Court of Appeals, Seventh CircuitJanuary 7, 1913.)

No. 1,906.

1. BANKRUPTCY (8 51*) - VOLUNTARY AND INVOLUNTARY PROCEEDINGS.

Whete, after the institution of an involuntary bankruptcy proceeding, the bankrupt filed a voluntary application for adjudication, under which he was adjudged a bankrupt and his estate settled, the proceedings taken in the voluntary proceeding could not be attributed to the involuntary proceeding.

[Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. $ 49; Dec.

Dig. 8 51.*] 2. BANKRUPTCY (S$ 44, 81*)—PROCEEDINGS-VOLUNTARY AND INVOLUNTARY.

In an involuntary petition in bankruptcy, the creditors must allege, in addition to jurisdictional facts, that the defendant is insolvent, and has committed an act of bankruptcy within the preceding four months, while a voluntary petitioner need only aver that he owes debts which he is unable to meet and that he desires to take the benefits of the bankruptcy act; he not being required to admit that he is insolvent, or that he has committed any act of bankruptcy.

[Ed. Note.--For other cases, see Bankruptcy, Cent. Dig. $8 43-46, 59,

113–118, 125; Dec. Dig. $$ 44, 51.*] 3. BANKRUPTCY (8 99*)-DISCHARGE-RES JUDICATA-INVOLUNTARY PROCEED

ING-DISMISSAL.

If an alleged bankrupt resists an involuntary proceeding, a judgment of dismissal is not res judicata of the right of the bankruptcy court to administer his estate, and is not a bar to a voluntary proceeding which is founded on a different right.

[Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. 88 136, 146;

Dec. Dig. $ 99.*] 4. BANKRUPTCY (8 47*)-NATURE OF PROCEEDING-INVOLUNTARY PETITION

PENDENCY_EFFECT.

Mere pendency of an involuntary bankruptcy petition does not deprive the court of jurisdiction to receive and consider a voluntary petition.

(Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. 88 165–183, 257;

Dec. Dig. $ 47.*] & BANKRUPTCY (8 100*)—VOLUNTARY PETITION-PENDING INVOLUNTARY PRO

CEEDING,

The filing of a voluntary petition in bankruptcy cannot be made a lawful basis for entering an adjudication or taking any other step in a pending involuntary proceeding.

(Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. 88 60, 131, 141

144; Dec. Dig. $ 100.*] 6. BANKRUPTCY (8 49*)—INVOLUNTARY PETITION-VOLUNTARY PROCEEDINGS.

It is only where, by reason of the time elapsed between the filing of an involuntary bankruptcy petition and the filing of a voluntary petition, creditors, through the trustee, might not be able to recover property and avoid preferences, that the court will suspend the voluntary petition or set aside proceedings based thereon in order that the involuntary proceeding might be expedited.

[Ed. Note.-For other cases, see Bankruptcy, Dec. Dig. $ 49.*) Appeal from the District Court of the United States for the Eastern District of Wisconsin; Arthur L. Sanborn, Judge. •For other cases see same topic & $ NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

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In the matter of bankruptcy proceedings of Fred Lachenmaier. From an order granting the bankrupt a discharge, the Germania National Bank of Milwaukee appeals. Reversed and remanded.

Emil J. Gehrz, W. H. Austin, and Gustave G. Gehrz, all of Milwaukee, Wis., for appellant.

David E. Johnson, of Milwaukee, Wis., for appellee.
Before BAKER, SEAMAN, and KOHLSAAT, Circuit Judges.

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BAKER, Circuit Judge. An objecting creditor appeals from an order granting the bankrupt a discharge. Objection was under section 14b (5) (Act July 1, 1898, c. 541, 30. Stat. 550 (U. S. Comp. St. 1901, p. 3427]) that within six years the bankrupt had been granted a discharge in voluntary proceedings.

Whether steps in the prior proceedings were taken in fact (apart from the legal effect of the steps) on a voluntary or on an involuntary petition is readily determined by the record.

February 7, 1910, at 10 a. m., three creditors filed their petition in an involuntary proceeding against Lachenmaier, and at the same time placed in the marshal's hands for service a subpæna and an order to show cause why the prayer of the petition should not be granted. Both were made returnable on February 12th, and were served on the defendant at some unstated time on February 7th. Marshal's return was filed on February 11th. The record discloses no further steps in said involuntary proceeding.

February 7, 1910, at noon, Lachenmaier filed his voluntary petition, with schedules of debts and of property.

February 7, 1910, at 1:30 p. m., the District Judge entered an order that, "the petition of Fred Lachenmaier that he be adjudged a bankrupt having been heard and duly considered, the said Fred Lachenmaier is hereby declared and adjudged a bankrupt accordingly," and at the same time entered a further order reciting that "Fred Lachenmaier on February 7, 1910, was duly adjudged a bankrupt upon a petition filed in this court by him on February 7, 1910," and sending the case to the referee for "such further proceedings therein as are required” by the Bankruptcy Act. And it was upon the court's confirmation of proceedings before the referee under said order of reference that Lachenmaier's discharge was obtained.

[1] We have found nothing in the provisions or in the purpose of the bankruptcy act that would attribute to the involuntary proceeding, the adjudication of bankruptcy and the further steps resulting in the discharge, which were actually had in the voluntary proceeding.

(2-4] Though both proceedings aim at the same general result, there is a material difference between an involuntary and a voluntary petition. In the involuntary petition the creditors must allege, in addition to jurisdictional facts, that the defendant "is insolvent” and “has committed an act of bankruptcy" within the preceding four months. Section 3b. Of the five acts of bankruptcy defined in section 3a, the first three are fraudulent acts of the defendant, the fourth is his having made a general assignment or applied for a receiver, and

203 F.3

the fifth is his prior written admission of his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground. But the voluntary petitioner need only aver that he "owes debts” which he is unable to meet and that he desires to take the benefits of the Bankruptcy Act. Section 4a. He does not have to admit that he is "insolvent," much less that he has committed any "act of bankruptcy" within the preceding four months. If a defendant resists an involuntary proceeding, a judgment of dismissal therein is not res adjudicata of the right of the bankruptcy court to administer the defendant's estate, and is not a bar to a voluntary proceeding, which is founded on a different right. And so the mere pendency of an involuntary petition could not deprive the court of jurisdiction to receive and consider a voluntary petition. Re Flanagan, 5 Sawy. 312, Fed. Cas. No. 4,850; Re Stegar (D. C.) 113 Fed. 978.

[5] Nor can the filing of the voluntary petition be a lawful basis for entering an adjudication or taking any other step in the involuntary proceeding. Not only does the voluntary petition lack all professions of being an appearance and answer in the involuntary proceeding, but, in effect, it repudiates the material and necessary allegations of the involuntary petition.

[6] Ordinarily it is in the interest of creditors to have the adjudication entered at once upon the voluntary petition. They thereby obviate the expense, difficulty, and delay incident to establishing issues which the defendant may vigorously oppose. It is only where, by reason of the time elapsed between the filing of the involuntary petition and of the voluntary, creditors through the trustee might not be able to recover property and avoid preferences, that the court will suspend the voluntary petition or set aside proceedings based thereon, in order that the involuntary proceeding may be pushed. In such cases the bankruptcy court undoubtedly has full power to do equity. Re Dwyer (D. C.) 112 Fed. 777; Gleason v. Smith, 145 Fed. 895, 76 C. C. A. 427.

In the present case, not only did the creditors fail to move to set aside the proceedings on the voluntary petition, but it is apparent that there was no legal or equitable ground on which to bottom such a motion, for, the petitions having been filed on the same day, the creditors lost no advantage, but, on the contrary, had the benefit of an adjudication without delay or expense and of their debtor's being unable to get another discharge within six years. And, of course, the voluntary petitioner is equally bound, for he neither moved nor had cause for moving to vacate and dismiss his own proceeding.

The prior proceedings resulting in the discharge of Lachenmaier were therefore had and entered in law as well as in fact upon the voluntary petition.

The order is reversed, and the cause remanded for further proceedings in consonance herewith.

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