Opinion
No. GBK78-00147
May 30, 1979
Discharges, When Granted — False Statement — Executive As Surety
A corporate executive who furnished a financial statement as a surety on the obligation of another corporation was within the scope of Section 14c(3) where, in actuality, it was the executive's corporation that received the proceeds of the loan.
The bankruptcy was an executive of a shipbuilding company. The bankrupt's company contracted to build a ship for an international corporation. The company was in need of working capital to complete the construction of the vessel. During negotiations for a bank loan, it was determined that the loan would, at least in form, be to the international corporation rather than to the bankrupt's company. Some time during the negotiations, or thereafter, a written statement of the bankrupt's individual financial condition was furnished to the bank. In this action, the bank sought to prevent the bankrupt from obtaining a discharge in bankruptcy on the ground stated in Section 14c(3) of the Bankruptcy Act. The bankrupt denied that the bank's exhibit 1 was the financial statement which he furnished to the bank, and, he also argued that the financial statement was not a statement which was within the scope of Section 14c(3).
Section 14c(3) requires that the bankrupt "while engaged in business . . . as an executive of a corporation obtained for such business money or property on credit or as an extension or renewal of credit" by means of a materially false written financial statement. The bankrupt contended that Section 14c(3) did not apply since he was not an executive of the corporation that received the loan. However, the court noted that a detailed analysis of the loan transaction showed that, although the loan was made to the international corporation, it was really the bankrupt's company that received the proceeds of the loan. The proceeds of the loan were not needed by the international corporation, which already had a commitment for permanent financing of the vessel. Rather, the proceeds were needed by the bankrupt's company in order to complete the vessel. While the loan was, in form, to the international company, what the international company wanted and needed was interim financing for the bankrupt's company. Thus, the court concluded that this was a loan transaction in which the bankrupt obtained money or property for his company.
Having resolved this question of law, the court then turned to the factual question of whether the document offered as the bankrupt's financial statement was genuine. The court found that the bank's exhibit 1 was not the financial statement which the bankrupt had furnished to the bank. Since no other financial statement of the bankrupt individually was offered in evidence, reasoned the court, there was no evidence that the bankrupt obtained money or property on credit for his company by means of a false statement in writing concerning his financial condition.
While the court was in the process of preparing its opinion, but before the opinion had been handed down, the bank moved to supplement its complaint to allege a fresh ground for objection to discharge. The bank claimed that the bankrupt had made a false oath in testifying that he had not made or delivered to the bank the financial statement introduced as exhibit 1. The court refused to allow the supplemental complaint. It had already been found, noted the court, that the oaths complained of were not false. It would not be in the interest of justice, the court observed, to permit the bank to use a supplemental complaint as a device for obtaining another trial on an issue already tried and decided by the court. Furthermore, the court believed that false oaths during the trial of the discharge hearing itself are not grounds for denial of discharge. Accordingly, the court held that the bankrupt should be granted a discharge. See Secs. 14c [§ 727] at ¶ 10,115 and 14c(3) at ¶ 2131.