U.S. Supreme Court MORIMURA, ARAI & CO. v. TABACK, 279 U.S. 24 (1929)

[Page 279 U.S. 24, 28]

ness of the old books and of the transfer to the new books is not questioned. In the opening entries of the new books the capital of one of the partners was shown as $4,385.93, and that of the other as $7,285.50, making a total capital of $11,671.43.

From that time until the bankruptcy the new books were used by the firm; and they were introduced in evidence. The old books, which were stored in the office until the firm moved to New Jersey in the following May, were then cast aside and could not be produced in evidence.

There was introduced in evidence a tabulated statement compiled from the opening entries in the new books, which is set forth in the margin. [Footnote 4] This tabulated statement-the accuracy of which was not questioned-shows that on January 1, 1920, the total assets of the firm, as shown by the new books, were $277,846.48, and the total liabilities $266,175.05, leaving a net worth of $11,671.43-the exact amount of the aggregate capital of the two partners as shown on the books.

[Page 279 U.S. 24, 30]

firm as disclosed by the new books opened on January 1. This appears by a comparison with the tabulated statement compiled from these books. [Footnote 6] The statement of January 7 shows on its face total assets of $372,066.03 as against only $277,846.48 shown by the books; a liability, of only $96,395. 20, by open account, as against total liabilities of $266,175.05 shown by the books; and a net worth of $275,670.83 as against only $11,671.43 shown by the books; that is, the statement of January 7 shows $94,219.55 more of assets and $169,779.85 less of liabilities than those shown by the books; and a net worth of $263,999.40 more than the net worth shown by the books. And, as appears by a detailed comparison between the statement of January 7 and the tabulated statement, every item in the statement of January 7 is materially different from the corresponding item appearing on the books.

[Page 279 U.S. 24, 32]

of $109,246.18 on January 1, he said: 'I took it the way I explained before, but I didn't touch the books.'

Louis Taback, who had charge of the firm's sales and could not read or write, testified that he did not find out that a statement had been given to the Morimura Company until about a day or two afterward when his brother told him he had been up to the Morimura Company and given a statement of how they stood, and that, as he understood, 'my brother looked up the stock and said it was worth between $275,000 and $300,000 . ... He figured up what we took in and what we sold and the mill, and he showed me how much we are worth.'

On January 10 the firm contracted with the Morimura Company for the purchase of twenty bales of silk at a stipulated price on terms of four months after delivery in February. [Footnote 7] In April the the Morimura Company delivered to the firm the twenty bales called for by the contract, taking in payment two trade acceptances, aggregating $39,536.19, at four months each. The credit manager of the Morimura Company testified that the contract and deliveries were made in reliance upon the statement of January 7.

[Page 279 U.S. 24, 34]

the bankrupts' application for discharge should have been denied.

It is not necessary to determine whether the other specification of opposition to the application for discharge, which was predicated upon the books of account or records kept by the firm after January 1, 1920, should also have been sustained, since even if this were the case the result would not be changed.

The decree will be reversed and the cause remanded to the District Court, with instructions to enter a decree sustaining the specification of opposition relating to the written statement and denying the bankrupts' application for discharge.

Reversed and remanded. Footnotes

Footnote 1 Section 14b was later amended in material respects by section 6 of the Act of May 27, 1926, 44 Stat. 662, c. 406; 11 USCA 32(b).

Footnote 2 As to such references see generally sections 14 (b) and 38(4) of the Bankruptcy Act, 11 USCA 32(b), 66(4); General Order in Bankruptcy No. 12, 3; International Harvester Co. v. Carison (C. C. A.) 217 F. 736; and In re Hughes (C. C. A.) 262 f,. 500.

Footnote 3 In this report the master stated: 'I beg leave to report that the objections to the discharge of the bankrupts in this case are predicated largely upon a statement issued by the bankrupts as of December 31st, 1919. The adjudication in this matter was September 29th, 1920, and during the time between the giving of the statement ... and the adjudication, ... the silk business passed through one of the worst periods in its existence, raw silk declining from around $15.00 to $4.50 per pound, and I believe the statement issued by the bankrupts in 1919 was substantially correct. The old books of the bankrupts were apparently destroyed, but the new books, for considerable time prior to the bankruptcy, had been so far as the records show, correctly kept. The bankrupts did obtain property on credit, but not to the extent of the credit that had been extended to them; they bought a large quantity of raw silk on contract, running into the several hundred thousand dollars, which was apparently a gamble between the bankrupts and the creditors as to which one was going to win, and with the exception of a few discrepancies in the books which were afterwards explained, it is my opinion that the said bankrupts have in all things conformed to the requirements of (the Bankruptcy Act of 1898); and that the testimony herein and returned herewith shows that the said bankrupts have committed none of the offenses and done none of the acts prohibited by said Act, and that, in my opinion, the said bankrupts, Nathan Taback and Louis Taback, ind. and as prts, trdg. as Taback Brothers, are entitled to their discharge.'

Footnote 4 This reads as follows:

Taback Bros. Assets and Liabilities as per Books January 1st, 1920 Assets. Cash in Banks, Paterson, N.J. $25,318 95 Accts. Receivable (Good) 19,887 98 Notes Receivable (Good) 43,352 89 Inventory of Mdse. on hand at Cost, Raw Silk 43,500 00 Liberty Bonds 12,170 79 First Mortgage held on Real Estate Property acquired at 80 George St., Paterson, N.J. 126,225 00 Loans Receivable 3,215 99 Furniture & Fixtures 288 45 Delivery Equipment 3,886 43 ___ Total Assets $277,846 48 Liabilities. Mortgage Payable $ 42,500 00 Notes " 109,246 18 Accts. " 28,876 09 Loans " 9,926 63 Exchanges 36,840 30 H.F. Taback-Loan 38,785 85 Total Liabilities 266,175 05 ___ Net Worth $ 11,671 43 ___ N. Taback-Capital $ 4,385 93 L. Taback- " 7,285 50 ___ $11,671 43

Footnote 5 This reads as follows:

Phone Farragut 9986. Taback Bros., Broad Silks, 1133 Broadway, New York Financial Statement of Taback Brothers, Dec. 31st, 1919. Assets. Cash in Banks, Paterson, N.J. $ 28,089 79 A/c Receivable, Good 13,830 54

Notes Receivable, Good 78,355 70 Inventory of Mdse. on hand at cost, Raw Silk 67,590 00 Liberty Bonds 16,200 00 First Mortgage held on Real Estate 8,000 00 Property acquired at 80 George St., Paterson, N.J. 160,000 00 ___ Total Assets........ $372,066 03 Liabilities. A/C Payable not due 96,395 20 ___ Net worth............ $275,670 83 Taback Bros. (Sign by) Nathan Taback.

Footnote 6 Note 4, supra.

Footnote 7 The memorandum of purchase which was introduced in evidence is not copied in the transcript, but is set out in the brief for the Morimura Company, and is not questioned in the brief for the bankrupts.