Citations
- 3 F. Supp. 82
Full opinion text
LINDLEY, District Judge.
Claimant seeks a review of an order of the referee directing postponement of allowance of his claim until claims of other creditors have been paid.
The bankrupt started a retail hardware business in Monticello, 111., in 1923. He borrowed moneys from claimant from time to time, until at the time of bankruptcy, including interest and “commission,” the total amounted to over $2-0,000. The bankrupt agreed to pay 7 per cent, interest and 2 per cent, of his gross purchases per year from wholesalers as “commission.” Later this was reduced to 1 per cent. Part of same was paid, but a large amount was included in the principal.
At the time of the loan and at all times thereafter claimant instructed the bankrupt to disclose to no one, at any time or place or under any circumstances, this indebtedness. This instruction was followed, and bankrupt at all times concealed the debt.
The referee found that the facts aforesaid worked a fraud upon wholesalers, selling upon credit to- bankrupt, in reliance upon statements or credit information, omitting any mention as to such debt. He held the fonts sufficient to show a scheme to hinder, defraud, and delay the creditors, and ordered that payment of the claim be postponed until after other creditors were paid in full. It is insisted by the trustee and creditors that said order should be sustained upon the ground stated and the further ground that an undetermined part of claimant’s claim is illegal as usurious, and the entire claim therefore invalidated. Claimant insists that such order is erroneous upon any view of the evidence.
Fraud is deception brought about by misrepresentation of fact or silence when good faith requires expression, resulting in material damage to one who with right so to do relies upon the same. The one accused of fraud must have been’in such a situation that in good faith he should not have concealed the undisclosed facts.
The modern mercantile system usually contemplates purchases of stocks of merchandise upon credit. Whether wholesalers will sell goods to a retailer upon account will depend eventually upon whether the wholesaler believes the retailer worthy of credit. Such belief grows out of a number of salient facts, viz. the personal character and health of the retailer, his apparent prosperity or lack of same, the amount and value of his assets, the amount of his liabilities, and other facts bearing upon the crucial question as to probability of payment if sale is made. Dunn and Bradstreet maintain extensive organizations for investigation of all facts bearing upon credit, including accurate statements as to assets and liabilities. Most wholesale houses, selling any considerable amounts of merchandise, require accurate,- detailed statements of the financial condition of the pro