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merely a cover, put in his name to keep the interest of William P. Lally in the products and proceeds of the crops of the farm from his creditors, and that he was the real owner and lessee, and that his time and labor went to produce them, and that it was the real understanding between himself and his father that they were to be and were his and at his disposal as compensation for work done on the farm and in managing it and boarding the hired help. On the other hand, it is contended that the father, desiring to aid this improvident son and his family, and aid them in procuring and having a living, took this way of doing it, and of protecting himself and the son from a further accumulation of debts and liabilities, and that he had a right so to do. The contention is that this son was to have the living of himself and family from the proceeds of the farm as he went along, and nothing more, and that this was the understanding, and that he did have this, and that he at no time owned any interest in the stock or implements on the farm, or in the crops or products thereof or of the dairy. The special master has arrived at this latter conclusion. He had the advantage of seeing and hearing the witnesses, and his conclusions ought not to be lightly disturbed or overruled. The attorney for the bankrupt thus describes him:
“William P. Lally, the bankrupt, while a 'good worker,' is not and never will be capable of earning his own living, unaided. He has never succeeded in any business which he has undertaken, whether in speculating in hay, which enterprise resulted in several judgments and claims against him, or in running a thresher and silo filler, which culminated in the Norton judg. ment. Such being the case, the father, Thomas Lally, put him on this farm as his superintendent, under his own immediate direction, however, and so placed him in a position where he (William] could obtain his own living and a living for his wife and two small children."
[1, 2] It goes without saying that a court in bankruptcy ought to frown on and discourage any scheme or arrangement made in fraud of creditors, or entered into for the purpose of hindering, delaying, or defrauding creditors, or entered into for the purpose of covering or keeping the property or earnings, exempt from levy and sale on execution or legal process, from creditors. No citation of authorities is required for such propositions as these. In this case it was incumbent on the objecting creditor to show by a fair preponderance of the evidence, either an agreement or contract giving the son an interest in these farm products and the stock on the farm, one or both, or facts and circumstances from which it would be the duty of the court to find such an agreement. The findings of fact of a special master, or of a referee, in bankruptcy matters, stand in substantially the same position before the court as does the verdict of a jury. They are not to be disturbed, unless unsupported by the evidence or against the weight thereof. Poff v. Adams et al., 226 Fed. 187, 141 C. C. A. 185, and cases there cited. The court says:
“Creditors opposing a discharge have the burden of proving by satisfactory evidence the charges against the bankrupt of transferring or concealing his property with the intent to hinder, delay, or defraud creditors; but the findings of fact by the special master and the District Court will not be disturbed by this court, except upon the clearest conviction that the find
ings are not supported by the evidence. In re Hoffman (D. C.) 173 Fed. 235 ; In re Hatem (D. C.) 161 Fed. 896; In re Noyes Bros., 127 Fed. 286, 62 C. C. A. 218; In re Schulman, 177 Fed. 191, 101 C. C. A. 361; In re Buckingham v. Estes, 128 Fed. 584, 63 C. C. A. 20; Osborne v. Perkins, 112 Fed. 127, 50 C. C. A. 158."
In Re Braun, 239 Fed. 113, 152 C. C. A. 155, it was held that, in view of presumption of honesty, creditors opposing discharge on ground that bankrupt had been guilty of fraudulent transfer of his property have burden of proof. In Re Wix (D. C.), 236 Fed. 262, affirmed Sherwood Shoe Co. v. Wix, 240 Fed. 692, 153 C. C. A. 490, it was held that as the discharge in bankruptcy is a great privilege and right the burden rests on a creditor objecting to a discharge to show that the bankrupt is not entitled thereto.
While the burden of sustaining objections filed to the discharge of a bankrupt rests upon the objecting creditor, I think the reason for the rule rests on the basis that it is an independent proceeding, and that when the bankrupt comes into court with a proper certificate of conformity, showing he has performed all the acts he is required by the bankruptcy act to perform as preliminary to his discharge, the independent objections of creditors raise a new issue which they must sustain by proof. When the bankrupt applies for his discharge and shows conformity by the proper certificate, he is entitled thereto, unless it appears on objections sustained by evidence that he has in some way violated the provisions of section 14b of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 550 [Comp. St. $ 9598]), which declares:
"The judge shall hear the application for a discharge and such proofs and pleas as may be made in opposition thereto by the trustee or other parties in interest, at such time as will give the trustee or parties in interest a reasonable opportunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has (1) committed an offense punishable by imprisonment as herein provided; or (2) with intent to conceal his financial condition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained; or (3) obtained money or property on credit upon a materially false statement in writing, made by him to any person or his representative for the purpose of obtaining credit from such person; or (4) at any time subsequent to the first day of the four months immediately preceding the filing of the petition transferred, removed, destroyed, or concealed, or permitted to be removed, destroyed, or concealed, any of his property, with intent to hinder, delay, or defraud his creditors; or (5) in voluntary proceedings been granted a discharge in bankruptcy within six years; or (6) in the course of the proceedings in bankruptcy refused to obey any lawful order of, or to answer any material question approved by, the court: Provided, that a trustee shall not interpose objections to a bankrupt’s discharge until he shall be authorized so to do at a meeting of creditors called for that purpose."
The language used plainly and unequivocally indicates that the allegations and proofs in opposition to a discharge are to precede any proofs on the part of the bankrupt, and expressly states that the bankrupt is to be discharged "unless he had,” etc. It is very clear that the commission of some act which will defeat a discharge is to be made to appear by evidence,
In re Cooper, 230 Fed. 991, 145 C. C. A. 185 (2d Circuit) is not to the contrary:
In that case it was made to appear that the bankrupt owned certain lots at one time prior to his bankruptcy (not at a remote time). He had not included such property in his schedules. The bankrupt, on application for discharge, testified he had sold these lots prior to his bankruptcy. There was no other witness as to such sale, and there was no corroborative evidence of such alleged sale. It appearing positively on the part of the objecting creditors that the bankrupt owned the lots shortly before bankruptcy, it was held by Judge Hand and also by the Circuit Court of Appeals that this made it incumbent on the bankrupt to show by satisfactory evidence that he had sold such lots before bankruptcy. This was not a holding that in the first instance it was the duty of the bankrupt to prove he did not own real estate, or the lots in question at the time of his bankruptcy, but that the objecting creditors having shown that he did the burden then fell upon the bankrupt of showing he had disposed of them, and that he had failed so to do.
In the instant case the objecting creditor was under the necessity of relying on the testimony of the father of the bankrupt and that of Migs Peck, mainly, and this fact is given due weight.
If it had appeared that this son, the now bankrupt, was, or ever had been, a good business man, one who had been successful, even in a moderate degree, in accumulating property in business, or by savings from his labor, the case would be different; but, as seen, it is conceded on all hands that he was such a person as would not be expected to save, or accumulate from any source, and in the absence of evidence that he did it does not follow that because he worked the farm he owned an interest in the stock or implements on or products of the farm. The evidence and concessions on all hands show a very good reason why the father would not have been a party to the creation of a situation which would give the son an ownership in any of the products of the farm, other than the right from time to time to supply his table for himself and family and purchase necessary clothing. It cannot be denied that the father, from his own means and on his own credit, had the right to support this improvident son and his family in such lawful manner as he saw fit to adopt.
I fail to find such satisfactory evidence that the method adopted was to cover or conceal from creditors the earnings of the son, now bankrupt, as demands a refusal to confirm the report of the special master. We may suspect that such was the purpose, and the loose methods pursued give some basis for such suspicion; but, at the same time, fatherly kindness and interest in the son and grandchildren, combined with family pride, will excuse a failure to exercise that strong and direct control over the management of the farm and business methods of the son in conducting it as would make plain to the world the exact relations existing. There is no evidence that what the son received from time to time by way of housing and board for himself, wife, and children was inadequate compensation for the services rendered. It is true that it does not satisfactorily appear what the son
did with all the money he received; but this appears to have been due to lax bookkeeping, or no bookkeeping, rather than to an intent to conceal or defraud. The father seems to have kept a firm hand on the proceeds of the hops, and to have dealt with them and their proceeds as his own. This fact is inconsistent with ownership of the lease and products of the farm by the son, or with any concession by the father that they were the property of the son.
 Únder subdivision 4 of section 14 of the Bankruptcy Act, to defeat his discharge, the bankrupt, at some time "subsequent to the first day of the four months immediately preceding the filing of the petition," must have transferred, removed, destroyed or concealed, or permitted to be removed, destroyed or concealed any [some) of his property with intent to hinder, delay or defraud his creditors,” and to constitute an offense under section 29b which will bar a discharge, so far as applicable in this case, the bankrupt must have "knowingly and fraudulently concealed while a bankrupt *
from his trustee any (some of the property belonging to his estate in bankruptcy,” or "made a false oath
in, or in relation to any [his) proceeding in bankruptcy.” It has been several times decided that to sustain either of these charges the evidence must be clear, convincing and satisfactory. It is not enough that strong suspicion is created by the testimony. The inferences should be such as to carry conviction, not, however, beyond a reasonable doubt, but such as to satisfy the reasonable mind.
The question of discharge is a civil action or proceeding, and not a criminal case, although it may involve a criminal act or acts, and in such caso it is the duty of the court or jury to resolve the issues of fact according to a reasonable preponderance of the evidence. United States v. Regan, 232 U. S. 37, 47, 48, 34 Sup. Ct. 213, 58 L. Ed. 494. Here the evidence is such as to be consistent with honesty of purpose in making the arrangement testified to by the father of the now bankrupt between himself and Miss Peck, and that such arrangement was made, not to hinder, delay, or defraud creditors, or conceal any property of the son, or his earnings, but to assist him in making and having an honest living for himself and his family. See cases cited in 7 C. J. pp. 390, 391.
The case is not one where the court would be justified in reversing or disregarding the findings and conclusions of the special master, and his report will be confirmed.
CARBON STEEL CO. V. LEWELLYN, Internal Revenue Collector.
(District Court, W. D. Pennsylvania. January 14, 1919.)
INTERNAL REVENUE O “MUNITION MANUFACTURERS”—PERSON SUBJECT TO
A steel company, contracting to deliver howitzer shells to a foreign government, which manufactured bars from which shells are made and turned them over to subcontractors for completion, retaining ownership, paying subcontractors, and afterwards delivering shells under its contracts, is subject to tax imposed on "munition manufacturers" by Act Sept. 8, 1916, § 301 (Comp. St. § 633644b), upon the "entire net profits actually received
from the sale" of the shells under contract.
At Law. Action by the Carbon Steel Company against C. G. Lewellyn, Collector of Internal Revenue for the T wenty-Third District of Pennsylvania. Judgment for defendant.
H. V. Blaxter, of Pittsburgh, Pa., for plaintiff.
B. B. McGinnis, Sp. Asst. U. S. Atty., of Pittsburgh, Pa., for defendant.
ORR, District Judge. In pursuance of a stipulation by the parties waiving a trial by jury, this case came on to be tried by the court without a jury.
Plaintiff claims a right to recover from the defendant the sum of $271,062.62, which the plaintiff charges was illegally assessed against it and illegally exacted from it as a munition manufacturer's tax for the period ending December 31, 1916. The plaintiff paid the amount of the tax under protest, and thereupon sought relief in the required manner from the Commissioner of Internal Revenue. Relief was refused by the Commissioner of Internal Revenue, and relief must be denied by this court.
Long before the passage of the act which first provided for the collection of a tax from the manufacturers of munitions, the plaintiff procured three several contracts from the British government for the delivery to the authorized representatives of said government at New York of 41/2-inch howitzer shells. The first contract was dated January 26, 1915, the second September 29, 1915, the third October 7, 1915, and together the said contracts provided for the delivery of 548,316 shells.
For the purposes of this case the said contracts may be considered to be similar in all respects. The contracts did not require that the steel company should manufacture the shells contracted for. They contemplated that some portion of the manufacturing might be done by the steel company and that other portions might be done by subcontractors. However, the steel company was bound to deliver the shells to said government when they were completed, and said government was bound to pay the steel company the price fixed in the contract.
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