Petition for a Writ of Certiorari — Cleveland Trust Co. v. Stoller

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INDEX. k

PETITION FOR WRIT OF CERTIORARI.........---5- 1 :

Statement of Matter Involved...........+0-0e eee eee 1

Questions Presented .........0++es eee eee eee e renee 2 i

x

Reasons Relied Upon........-..s eee e eee teen eens a 5

BRIEF OF PETITIONERS. ............000eeceeeeeeeees 7

Grounds Upon Which Jurisdiction is Invoked....... 7 ft

&

Opinion of United States District Court.......---+--- 8 ?

Opinion of United States Circuit Court of Appeals.... 10 ;

Statement of the Case........ cee ee cere rere eee enee 16 ‘

Specification of Errors.........-++.++ee seer reese 22 :

*

Avpument . oie cece eee weber ceccessercecases 23 ;

A. Should the Term ‘‘Income’’ be Construed as H

Meaning ‘‘Net’’ Income or ‘‘Gross”’ Income?.. 24 :

B. In Determining Income, What Period of Time :

Prior to the Filing of the Debtor’s Petition '

Should be Considered?.......-.+0e ee eee rece 26 %

(. Should the Relative Volume of a Business Enter- i

prise and the Farming Operations of a Debtor ‘

and His Activities in Connection Therewith be &

Considered in Determining Whether the Debtor :

is ‘Primarily’? Engaged in Farming Opera- &

SS CUR SE POT TEPC TEE ot te 28 e

D. Should the Relative Volume of the Business .

Enterprise and Farming Operations of a Debtor :

and His Activities in Connection Therewith be 3

Considered in Determining Whether the Debtor y

is “Bona Fide’? Engaged in Farming?......-. 31 e

FE. May the Conduct of a Farmer-Debtor in Respect

to Representing Himself to be Primarily En-

gaged in Business Enterprise and Fraudulently

Soliciting and Obtaining Credit Upon Such Con-

duct and Misrepresentations be Such as_ to

‘stop Him from Claiming the Benefits of the

pO RE ee eres re ye ee ee Se 32

REFERENCES TO OPINIONS.

Opinion of District Court, Northern District of Ohio

BN a crete nse ek be sats ee Xe esaeen eee 2,8

Opinion of United States Cireuit Court of Appeals,

Sixth Cireuit: Stoller vs. Cleveland Trust Co., 133

Wied, CBE a ono ws cs case scan cesses soe see 2, 8, 10

TABLE OF AUTHORITIES.

Cases.

Baxter vs. Savings Bank, 92 Fed. (2d) 404...... 4,9, 11,12

Beamesderfer vs. First National Bank, 91 Fed. (2d)

ee cael Aww aes ee ina e bee ee 4,9, 11, 12, 25

Chapman vs. Federal Land Bank of Louisville, Ky.,

6 Cir., 117 F. 2d 321, 325......------eeeee eee: 15

Day, In re, 10 Fed. Supp. 229.......0:-eeeeees 4, 9, 12, 28

First National Bank vs. Beach, 301 U. S. 435, 57 S. Ct.

801, 81 L. Ed. 1206.......----- 5, 9, 15, 25, 26, 28, 30, 34

John Hancock Mutual Life Insurance Co. vs. Bartels,

308 U. S. 180, 60 S. Ct. 221, 84 L. }: Saree 12,15

Hilliker, In re, 9 Fed. Supp. 948....----+2+s seer 4, 24

Kalb vs. Feuerstein, 308 U. S. 433, 60 S. Ct. 343, 84

L. Ed. 370 Pe Tein tee ree een ee ee eee ws S ” ee 15

Knight, In re, 9 Fed. Supp. 502........22 eee e eee eees 4, 24

Lindsay, In re, 41 Fed. Supp. a a ee ene 4

Wright vs. Union Central Life Insurance Co., 311 U.S.

973, 61 S. Ct. 196, 85 L. Ed. Se ere 15

Statutes.

Bankruptey Act:

Section 4(a) (11 U.S.C. A. OO) eee 10, 11

Section 25 (11 U. S. C. A. 48)... -- eee eee eee 2,8

Section 73 (11 U.S. C. A. 201)... --- +e reer rere: 2,8

Section 75 (11 U.S. C. A. 203)... -- eee eres 1, 9,10

Section 75(r) (11 U. S. C. A. 203(r)).. -1, 2, 5, 7, 12,16

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In the Supreme Court of the United States

OCTOBER TERM, 1942.

SE er en

THE CLEVELAND TRUST COMPANY AND THE

CENTRAL NATIONAL BANK OF CLEVELAND, OHIO,

Petitioners,

VERSUS

MICHAEL GEORGE STOLLER,

Respondent.

PETITION FOR WRIT OF CERTIORARI

To the United States Circuit Court of Appeals

for the Sixth Circuit.

To the Honorable Chief Justice and Associate Justices of

the Supreme Court of the United States:

STATEMENT OF MATTER INVOLVED.

This case arises under Section 75 of the Bankruptey

Act (11 U.S. C. A. See. 203) relating to Agricultural Com-

positions and Extensions and involves the construction of

75(r) defining the term ‘‘farmer’’ within the purview of

the Act.

The suit originated in the District Court for the North-

ern District of Ohio within one week after Respondent

filed his petition as a farmer-debtor for a composition and

extension of his debts. The Petitioners moved to dismiss

his petition on the ground that Respondent was not a

farmer as defined by the Act.

The District Judge referred the matter to the Super-

vising Conciliation Commissioner for the District as a

Special Master to take testimony and report his findings.

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The Master found and reported in favor of the Respondent

(R. 24) but the District J udge sustained the objections of

the Petitioners to such report and granted Respondent

leave to file an amended petition under 4(a) of the Bank-

ruptey Act under penalty of dismissal (R. 190).

The Respondent did not elect to file an amended peti-

tion but availed himself of an appeal to the United States

Cireuit Court of Appeals for the Sixth Circuit.

The Cireuit Court reversed the order of the District

Court, remanding the cause for further proceedings in con-

formity to its opinion (Stoller vs. Cleveland Trust Co.,

133 Fed. (2d) 180) which decision the Petitioners now re-

spectfully petition for review and determination.

This petition for a Writ of Certiorari is filed within

ninety days from the entry of the Judgment of the Circuit

Court and by reason of the additional jurisdiction provided

in Section 73 (11 U. S. C. A. 201) and Section 25 (11 U.S.

C. A. 48) of the Bankruptey Act, and under the general

powers granted by statute (28 U. S. C. A. 377) this Court

may entertain this motion.

QUESTIONS PRESENTED.

This case presents several interesting questions of im-

portance relating to the interpretation of Section 75(r) of

the Bankruptey Act, and which have not been considered by

this Court.

While the issue is whether Respondent is a ‘‘farmer’’

within the meaning of the Act, to conclude as to such issue,

the interpretation of the phrase, ‘‘primarily, bona fide,

personally engaged’’ within the first branch of the definition

and the phrase, ‘‘principal part of whose income’”’ in the

second branch of the definition is involved.

It is contended that the Cireuit Court erred in the

following respects:

(a) In finding that the net income of the Re-

spondent, and not his gross income, was the proper

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basis for determining ‘‘income’’ within the meaning

of the definition.

(b) In selecting as the period of time for such

computation, a one year period ending nine months

prior to the filing of Respondent’s petition.

(c) In failing to consider and apply the statutory

requirement of determining whether Respondent is

‘‘primarily’’? engaged in farming operations.

(d) In failing to consider and apply the statutory

requirement of determining whether the Respondent

is ‘‘bona fide’? engaged in farming operations.

(e) In failing to consider the conduct of the Re-

spondent in respect to representing himself to be pri-

marily engaged in a business enterprise, fraudulently

soliciting and obtaining credit upon such representa-

tions and to find and determine that this conduct was

such as to estop him from enjoying the benefits of the

Act.

These errors of the Cireuit Court present the follow-

ing questions:

(a) Should the term ‘‘income’’ be construed as

meaning ‘‘net’’ income or ‘‘gross’’ income?

(b) In determining ‘‘income’’ what period of time

prior to the filing of the debtor’s petition should be

considered?

(ec) Should the relative volume of a business en-

terprise and the farming operations of a debtor and his

activities in connection therewith be considered in

determining whether the debtor is ‘‘primarily’’ en-

gaged in farming operations?

(d) Should the relative volume of the business

enterprise and farming operations of a debtor and his

activities in connection therewith, be considered in

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determining whether the debtor is ‘‘bona fide’’ engaged

in farming operations?

(ec) May the conduct of a farmer-debtor in respect

to representing himself to be primarily engaged ina

business enterprise and fraudulently soliciting and

obtaining credit upon such conduct and misrepresenta-

tions, be such as to estop him from enjoying the bene-

fits of the Act?

REASONS RELIED UPON.

We believe the decision of the Cireuit Court in this

case has added to the general confusion in defining the term

‘‘farmer’’ within the meaning of the Act.

1. In coneluding the Respondent was a ‘‘farmer’’ by

reason of his income, the Cireuit Court considered ‘‘net”’

income as the proper yardstick upon which to base its de-

termination. In the cases of Baxter vs. Savings Bank, 92

Fed. (2d) 404; In re Day, 10 Fed. Supp. 229; Jn re Lindsay,

41 Fed. Supp. 948; Jn re Knight, 9 Fed. Supp. 502; In re

Hilliker, 9 Fed. Supp. 948; Beamesderfer vs. First National

Bank, 91 Fed. (2d) 491, it would appear that ‘‘eross’’ In-

come is the factor to be considered, and in this respect the

decision appears to be in conflict with the’decisions of

other Cireuit Courts of Appeal.

9. In determining the period of time prior to the fil-

ing of the debtor’s petition for considering income, the

Cireuit Court seems to conclude that a year ending nine

months preceding the filing of the Respondent’s petition,

is the proper period and time upon which to predicate a

conclusion, and in this respect, has decided an important

phase of the Act which has not been, but should be, settled

by this Court.

3. In determining the Respondent was a ‘‘farmer,”’

the Circuit Court found that the volume of his business

enterprise and farming operations amounted to approxi-

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mately $260,000.00 for the period in question, of which

farming activities according to Respondent (R. 143)

amounted to $35,163.35, or about one-seventh of his total

income, but the Court seemed to conclude that as the

debtor had been born upon a farm, that he now resided on

a farm and devoted some time thereto, the decision of this

Court in First National Bank vs. Beach, 301 U. S. 435,

would hold that ‘‘he remained a farmer,’’ in which respect

the decision of the Cireuit Court is probably in conflict with

the decision of this Court.

4. In determining whether the Respondent is a

‘‘farmer’’ the Cireuit Court did not consider, find or deter-

mine in which of the two enterprises he was ‘‘primarily”’

engaged, and whether his farming operations or his busi-

ness enterprise was his first and basie concern. In this

respect the Cireuit Court is in error and the importance

of such an analysis and determination in each case should

be emphasized and established by this Court.

5. In determining the Respondent is a ‘‘farmer’’ the

Cireuit Court did not consider, find or determine the debtor

was ‘‘bona fide’? engaged in farming. In this respect the

Court is in error and the importance of such an analysis

and determination in each case should be emphasized and

established by this Court.

6. In determining the Respondent is a ‘‘farmer’’ the

Cireuit Court did not consider, find and determine whether

the conduct of the debtor, in respect to misrepresentations,

fraud and similar conduct in connection with his business

venture and the securing of credit from the petitioners and

others, was such as would estop him from enjoying the

benefits of the Act, in which respect the Court was in error

as to an important question of Federal law which has not

heen, but should be settled, by this Court.

7. A decision of this Court in further defining, in-

terpreting and construing Section 75(r) in reference to the

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above matters, would clarify the situation and otherwise

expedite and simplify the administration of the Bankruptcy

Act, would be of great and public interest, particularly to

those engaged in agriculture, business and finance, and

would tend to renew confidence and to re-establish those

business relations in which fear now obtains and undue

caution prevails.

Wherefore, your petitioners respectfully pray that a

writ of certiorari be issued out of and under the seal of

this Honorable Court directed to the United States Cireuit

Court of Appeals for the Sixth Cireuit, commanding that

Court to certify and to send to this Court for its review and

determination on a day certain to be therein named, a

transcript of the record and proceedings herein and that

the decree of the United States Cireuit Court of Appeals

for the Sixth Cireuit be reversed by this Honorable Court

and your petitioners have such other and further relief in

the premises as to this Honorable Court may seem meet and

just.

Kerns WRIGHT,

Lortn L. Hoeve,

A. L. GEBHARD, ”

Attorneys for Petitioners.

Haw tey E. Stark,

Cleveland, Ohio,

L. F. Layiin,

Cleveland, Ohio,

Of Counsel.

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In the Supreme Court of the United States

OCTOBER TERM, 1942.

Ae ee ae

THE CLEVELAND TRUST COMPANY AND THE

CENTRAL NATIONAL BANK OF CLEVELAND, OHIO,

Petitioners,

VERSUS

MICHAEL GEORGE STOLLER,

Respondent.

BRIEF OF PETITIONERS.

GROUNDS UPON WHICH JURISDICTION

IS INVOKED.

This case arises under Section 75(1r) of the Bank-

ruptey Act (11 U. S. C. A. See. 203), which provides as

follows:

‘*For the purposes of this section and section 4(b)

the term ‘farmer’ includes not only an individual who

is primarily bona fide personally engaged in producing

products of the soil, but also any individual who is

primarily bona fide personally engaged in dairy farm-

ing, the production of poultry or livestock, or the

production of poultry products or livestock products in

their unmanufactured state, or the principal part of

whose income is derived from any one or more of the

foregoing operations, and includes the personal repre-

sentative of a deceased farmer; and a farmer shall be

deemed a resident of any county in which such opera-

tions oecur.’’

The suit originated in the District Court for the

Northern District of Ohio within one week after Respond-

ent filed his petition as a farmer-debtor for a composition

and extension of his debts. The Petitioners moved to dis-

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miss his petition on the ground that Respondent was not a

farmer as defined by the Act.

The District Judge referred the matter to the Super-

vising Conciliation Commissioner for the District as a

Special Master to take testimony and report his findings.

The Master found and reported in favor of the Respondent

(R. 24) but the District Judge sustained the objections of

the Petitioners to such report and granted Respondent

leave to file an amended petition under Section 4(a) of the

Bankruptey Act under penalty of dismissal (R. 190).

The Respondent did not elect to file an amended peti-

tion but availed himself of an appeal to the United States

Cireuit Court of Appeals for the Sixth Cireuit.

The Circuit Court reversed the order of the District

Court remanding the cause for further proceedings in con-

formity to its opinion, Stoller vs. Cleveland Trust Co., 188

Fed. (2d) 180, which decision the Petitioners now respect-

fully petition for review and determination.

This petition for a Writ of Certiorari is filed within

ninety days from the entry of the judgment of the Cireuit

Court and by reason of the additional jurisdiction provided

‘n Section 73 (11 U. S. C. A. 201) and Section 25 (11 U.S.

C. A. 48) of the Bankruptey Act, and under the general

powers granted by statute (28 U. S. C. A. 377) this Court

may entertain this motion.

OPINION OF UNITED STATES

DISTRICT COURT.

Koes, District Judge.

I am of the opinion that the conclusion of the special

master that the farmer debtor was primarily bona fide

personally a farmer and that his principal income was

derived from that source ought to be over-ruled and that

the objections of the movants to the report of the special

master ought to be sustained.

are Se ROLE AA LATO D EG ADE ER LEE ALE LER ON ADIL LLAANS MRE EA OE Peni Weh EN Dickie MIME ND EE NM SE Sb TER maine J

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Each case involving the question of whether a debtor

in bankruptey was engaged in farming, so as to entitle him 8

to the benefits that accrue to a farmer under the provi-

sions of See. 75 of the Bankruptey Act, should stand on its

own bottom and be determined from the facts and from

the record. First Nat. Bank v. Beach, 301 U. 8. 435, 57 S.

Ct. 801, 81 L. Ed. 1206 (1937).

I have concluded that Michael Stoller was basically,

fundamentally and primarily engaged in the wholesale and

retail seed business; that his interests lay there; that his

energies and attention were primarily devoted there; and

that instead of being personally engaged in the business

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of farming he was personally engaged in the seed busi-

ness. Lam further of the opinion from the record that the

principal income that accrued to Michael Stoller during

a period of years prior to the filing of his petition in bank-

ruptey was derived from the seed business, and I am fur-

ther convinced that the substantial portion of his indebted-

ness that brought him to the bar of the bankruptcy court

was incurred in the operation of that seed business.

Beamesderfer v. First Nat. Bank & Trust Co, (C. C. A. 3a,

1937), 91 F. (2d) 491.

It is apparent from the record that the farmer debtor

exercised supervision over the farm operations in that he

was in the habit of giving directions to his foreman and

workmen on the farm, especially in the mornings before

proceeding to the conduct of his seed business. But super-

vision or property management is not sufficient to entitle

one to the benefits of this section. Baxter v. Savings Bank

of Utica (C. C. A. 5th, 1937), 92 F. (2d) 404.

It is also apparent that in the off season when his time

and attention was not wholly concerned with the seed busi-

ness he devoted more time to his farm, but there is very

little in the record to indicate that he was personally en-

gaged in farming or that he was basically and fundamen-

tally a farmer and that this industry was his primary voca-

tion. In re Day (D. C. Ill. 1935), 10 F. Supp. 229.

EERIE ERS BAAS EEE NEL EO EN IEE

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Objections to the report of the special master are sus-

tained, Counsel may prepare an order in accordance with

the foregoing memorandum, including therein a provision

granting to the debtor the right to file an amended peti-

tion to bring this proceeding within the provisions of

Sec. 4a of the Bankruptey Act, such amended petition to be

filed within twenty days of the date of entry of the said

order. In default of the filing of such amended petition, an

order may enter sustaining the motion of the secured

creditors to dismiss the debtor’s petition.

Frank L. Kvoes,

U. S. District Judge.

October 11, 1941.

OPINION OF UNITED STATES

CIRCUIT COURT OF APPEALS.

Martin, Circuit Judg’.

One week after appellant had filed a petition as a

farmer-debtor, for the composition or extension of his

debts under Section 75 of the Bankruptey Act, 11 U. S.

C. A., § 203, the appellees, as creditors, moved to dismiss

the petition upon the ground that appellant is not a farmer

as defined in the Act. The district judge referred the mo-

tion to the supervising conciliation commissioner for the

district, as special master to take testimony and to report

his findings of fact and conclusions of law.

The master reported that the farming operations of

appellant had resulted in a net profit, and the conduct of his

seed business in a net loss; and that his financial difficulties

had been caused by the operation of his seed business. The

master reported, as findings of fact, that the principal part

of the income of appellant for the year preceding the filing

of his petition had been derived from produets of the soil

and from livestock and livestock products in unmanufac-

tured state; and that the appellant was primarily bona fide

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personally engaged in the production of products of the

soil, livestock and livestock products in unmanufactured

state.

The district judge sustained objections of the appellee-

creditors to the report of the special master, and granted

leave to the appellant-debtor to file, within twenty days, an

amended petition under Section 4(a) of the Bankruptey

Act, 11 U.S. C. A., § 22(a), under penalty of dismissal of

the debtor’s petition upon his failure to do so. Appellant

did not elect to file an amended petition; his original peti-

tion was accordingly dismissed at his cost; and he has

prosecuted an appeal to this court.

In a memorandum opinion, the district judge concluded

that appellant ‘‘was basically, fundamentally and primarily

engaged in the wholesale and retail seed business; that his

interests lay there; that his energies and attention were

primarily devoted there; and that instead of being per-

sonally engaged in the business of farming he was per-

sonally engaged in the seed business’’; that his principal

income for a period of years prior to the filing of his peti-

tion had been derived from the seed business; and that

‘“the substantial portion of his indebtedness that brought

him to the bar of the bankruptcy court was incurred in the

operation of that seed business.’’? Citing Beamesderfer v.

First National Bank and Trust Co., 3 Cir., 91 F. 2d 491.

Supervision of farming operations, through instrue-

tions by appellant to his foreman and workmen on the farm

before he proceeded to the conduct of his seed business in

the morning, was deemed by the district judge insufficient

to constitute appellant a farmer-debtor entitled to the full

benefits of the Act. Citing Baxter v. Savings Bank of

Utica, 5 Cir., 92 F. 2d 404. The observation was made that,

in the off-season when his time and attention were not

wholly concerned with the seed business, appellant devoted

more time to his farm; but that ‘‘there is very little in

the record to indicate that he was personally engaged in

Bins MAEDA

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farming or that he was basically and fundamentally a

farmer,’’ or that farming was his primary vocation (Cit-

ing In re Day, D. C., 10 F. Supp. 229).

[1] From study of the record, we cannot concur in the

conclusion of the district judge that appellant was not a

farmer, as defined in Section 75, sub. r, of the Bankruptcy

Act, 11 U. S.C. A. 203, sub. r, but are in accord with the

findings and conclusions of the master.

The authorities cited by the district court present

facts far afield from those recorded in the instant case.

Beamesderfer v. First National Bank & Trust Co., supra,

disclosed a situation where the petitioner did not live on his

farm, but had rented it out. The farm had not been cul-

tivated for five years, but had been used only for pasture.

The petitioner owned a tobacco warehouse in the town of

his residence, and his occupation for fifteen years had been

buying and selling leaf tobaceo. Practically all of his in-

come had been derived from the tobacco business. He was

properly adjudged not to be a farmer entitled to the bene-

fit of the Agricultural Composition and Extension Act.

Baxter v. Savings Bank of Utica, N. Y., supra, is of

doubtful authority, in the light of the opinion of the Su-

preme Court in John Hancock Mutual Life Insurance Co.

v. Bartels, 308 U. S. 180, 60 S. Ct. 221, 84 L. Ed. 176; but,

however this may be, its factual situation bears no relevant

resemblance to the instant justiciable controversy. The

petitioner, Baxter, who was denied the benefits of a farmer-

debtor status, was a Utica, New York, lawyer, who, eight

months before filing his petition, had given up his law

practice and, because of ill health, moved to Georgia, to a

farm which he had previously acquired there. During

residence on his farm, he merely superintended farming

operations. The Court of Appeals probably took judicial

notice that the new arrival, as a farmer, was a good lawyer.

In re Day, supra, was a case where the petitioner held

not to be a farmer was a practicing civil engineer, and also

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superintendent and county surveyor, who owned but did

not live upon a farm which he rented to a tenant who oceu-

pied and cultivated it. The civil engineer devoted his time

almost exclusively to the practice of his profession, and

derived his income about equally from his profession and

his farm.

In the instant case, the appellant farmer-debtor, now

42 years old, has lived in Paulding County, Ohio, for about

29 years; during which time, he has always resided on a

farm—first on his father’s and, from the age of 22, on his

own farm. The first farm owned by him consisted of 160

acres. He steadily increased his farming activities until, in

1936 and 1937, he was operating 1785 acres of farm land.

The appellant regularly did a considerable portion of

his farm work and personally directed the operations of

farms owned or rented by him. He threshed his own

crops and those of some of his neighbors and, as an out-

growth of these combined operations, he started a small

seed business, the gross volume of which was some two

or three thousand dollars for the first year. In the course

of sixteen years, his seed business reached a peak of over

$350,000 in gross volume. The seed business exacted in-

creasing demands upon his time, until he devoted somewhat

more than half of his working hours to its care. During

the rush season, the major portion of his time was devoted

to this seed business, and during the slack season his

farming operations were paramount in time consumption.

At no time did he abandon active duties on his farm. He

saw to the upkeep of improvements and the maintenance

of the fertility of the soil which he farmed and, as the

master put it, ‘‘followed all the practices of good hus-

bandry.”’

There is controversy concerning his customary daily

movements from his farm to the situs of his seed business

in Paulding, Ohio; but it appears that his day began at

the usual early hour for farmers, and that he constantly

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performed some regular farm routine, gave instructions

for farm operations, and prepared and kept records of the

same; more adequately, indeed, than he kept the books of

his seed business. However varied his activities, it is ap-

parent from the record that the industrious appellant ap-

plied a most substantial portion of his time to the work

of a ‘‘dirt farmer.’’ He plowed, planted and husked corn;

sowed wheat and oats; drilled and harvested beets; mowed

alfalfa hay and clover; and ran a tractor and a combine,

threshing machine, binder and reaper. He did most of

the farm repair work and gave attention to drainage and

tiling problems. The usual custom of appellant, after com-

pleting his most pressing farm work and instructing the

farm hands, was to proceed to his seed house between eleven

and twelve o’clock, and to return around four or five o’clock

in the afternoon for the resumption of his part of plant-

ing, plowing, or whatever might be the order of the day

upon the farm.

The seed business is seasonal, and requires heavy buy-

ing during harvest time and considerable selling during

the early spring. Appellant made buying and selling trips

to other states; maintained a business office and warehouse

facilities for storage, and equipment for cleaning and grad-

ing seeds. He employed one man in his seed business

virtually all the time ; and, at the peak period, acquired the

services of three or four men, in the main using the same

men whom he employed on his farms. Appellant’s total

gross seed sales, including the produce of his farms, totaled

the approximate amount of $260,000 from May 15, 1939, to

May 15, 1940. A Certified Public Accountant testified that

the records of the seed business were insufficient to make

possible an audit ; but it is manifest that the financial straits

of appellant were directly resultant from the operation of

his seed business.

On the record before this Court, it is not possible to

determine accurately the source of appellant’s income.

15

Apparently, he kept his farm and his seed business records

as a unit. He testified that the income statements which

he prepared for the creditor banks were based on his com-

bined operations. His testimony indicates that the major

portion of his net-income was derived from farming opera-

tions, but this testimony is neither established nor dis-

proved by his own records. His reports to the Department

of Agriculture indicate that his farming operations were

profitable; and the fact that the preponderance of his debts

were weighted upon him from the seed business is cor-

roborative of his assertion that the principal part of his

income was derived from farming.

The Act of Congress invoked by appellant must be

liberally construed to give the debtor the full measure of

relief afforded by Congress, ‘‘lest its benefits be frittered

away by narrow formalistic interpretations which disre-

gard the spirit and the letter of the Act.”’ Wright v. Union

Central Life Insurance Co., 311 U. S. 2738, 279, 61 8. Ct.

196, 200, 85 L. Ed. 184. See, also, John Hancock Mutual

Life Insurance Co. v. Bartels, 308 U. S. 180, 60 8. Ct. 221,

84 L. Ed. 176; Kalb v. Feuerstein, 308 U. S. 488, 60S. Ct.

343, 84 L. Ed. 370; Chapman v. Federal Land Bank of

Louisville, Ky., 6 Cir., 117 F. 2d 821, 820.

The Supreme Court, in First National Bank v. Beach,

301 U. S. 435, 438, 439, 57 S. Ct. 801, 803, 81 L. Ed. 1206,

has declared that, in determining in every case of this

character whether the petitioner is a farmer because ‘‘per-

sonally bona fide engaged primarily in farming ope ‘ations”’

or beeause ‘‘the principal part of his income was derived

from farming operations,’’ the totality of the facts must

be considered and appraised. The Supreme Court would

not attempt to fix the meaning of either of the two branches

of the definition considered in the abstract, saying that the

two are not equivalents but are used by way of contrast.

The words ‘‘primarily engaged’? in the first branch of the

definition, and the words ‘‘income derived from farming

ee i as Na a a

16

operations”’ in the second, were said not to constitute terms

of art. Mr. Justice Cardozo wrote: ‘‘A farmer remains a

farmer, just as a lawyer remains a lawyer, though the re-

turns of his investments, while not enough to keep him go-

ing, are larger, none the less, than the profits of his labor.

* * * We emphasize the fact afresh that the words of the

statute to which meaning is to be given are not phrases of

art with a changeless connotation. They have a color and

a content that may vary with the setting. [Citing cases. ]

In the setting of this enterprise, the totality of its cireum-

stances, the roots of the respondent’s income go down into

the soil.”’

So, in the setting of the case here for decision and the

totality of its circumstances, the roots of appellant’s in-

come would seem to go down into the soil. He is, there-

fore, entitled in full measure to the relief provided by the

Act of Congress of May 15, 1935, ¢. 114, See. 3, 49 Stat.

246, 11 U. S. C. A., § 203, sub. r.

The order of the district court is reversed and the

cause is remanded for proceedings in conformity with

this opinion, so as to grant appropriate relief pursuant to

the petition of appellant as a farmer-debtor.

STATEMENT OF THE CASE.

The Cireuit Court has well summarized the evidence

of those phases of the case which it considered and de-

termined and we will submit only the evidence relative

to those phases which the Cireuit Court overlooked and

failed to appraise, and which we think are of paramount

importance.

The record discloses that Respondent is 42 years of

age, that he was born and raised on a farm, and has

resided on a farm in Paulding County all his life (R.

86). In the past he was active in agricultural pursuits,

overseeing as many as 1,785 acres in 1936 (R. 132), but

having built up and established his wholesale and retail

rE

seed business, he rapidly gave up his farming supervi-

sion, reducing his activities at the time of filing his peti-

tion, to the ‘‘home farm,’’ of 435 acres, with large and

pretentious buildings, located a few miles south of Pauld-

ing on U. S. Route 127, on which he resides, also one forty

and one eighty acre tract. He employs four, five or six

men on this farm, who were under control of his brother,

John Stoller, as foreman, who also resides on this farm

(R. 94).

The activities of Respondent, in this respect, is lim-

ited and restricted, as he himself so well expresses it, to

‘landlord work’’ (R. 133), that is, to the drainage prob-

lems, repairs on buildings, instructions to farm hands

before leaving for his office in the mornings, and some-

times personal assistance in an emergency or during the

harvest season, which is the slack time in the seed busi-

ness (R. 94).

As to his wholesale seed business, he speaks with

pardonable pride of his accomplishments. He explained

he had commenced about sixteen years ago with a vol-

ume of $2,000.00 or $8,000.00 a year, and built it up from

this modest beginning to as high as $356,726.34 in 1937

(R. 86), and to at least $227,888.72 (Bank’s Exhibit 11)

for the year preceding the filing of his petition.

In deseribing his business he stated that it consisted

of the buying of all forms of field seeds, processing, pack-

aging and selling of the same, both wholesale and retail.

His wholesale business was either in carload or truckload

lots. Purchases were made in the West, particularly in the

Dakotas, Iowa, Minnesota, and Montana (R. 118), with im-

ports from Roumania (R. 87), processed in Paulding, Ohio,

and sold mostly in the East (R. 87). His retail business

was confined principally to an area of three hundred miles

adjacent to the village of Paulding, Ohio (R. 87).

In connection with his business he maintained an ex-

tensive mailing list, in fact, it was so extensive that he

te oe

SIGE REE OER

SUS nt BEEN

18

used a special franking privilege (R. 87). He advertised

widely in farm papers, circulars and price cards (Bank’s

Exhibits 2, 3 and 4). He usually carried an inventory of

from 10,000 to 50,000 bushels of seed, and in addition to

seeds, he dealt in Inoculation Bacteria, Disinfectants, Fer-

tilizers and Bags (R. 88). In addition to his business of

wholesaling and retailing seeds, he also cleaned and proc-

essed seed for all of his customers (R. 211-212).

All of his business was conducted at the Stoller Seed

House which comprised an office consisting of two large

rooms, one being a display and sales room, the other

for his office help, bookkeeper and cashier. To the rear

of his office and in the same building he maintained a ware-

house (R. 211-212), a part of which is controlled by The

Douglas-Guardian Warehouse Company of Chicago, with

whom he has warehouse arrangements, whereby a part

of his seed is warehoused with that Company and on which

warehouse receipts are issued.

In the remaining part of his warehouse he keeps what

is known as ‘‘free seed,’’ that being his seed which is not

pledged. He also operates a mill for cleaning of seed. At

R. 223 the Respondent testified :

‘We have a regular set-up for doing business, filing

system for seed, as well as letter copies, an adding ma-

chine, filing cabinet, sales registry, shelving and dis-

play counters, cleaning equipment, moisture testing

equipment, threshing machine, clover huller, cleaning

machinery, gravity cleaner, platform seales and counter

seales.”’

In the operation of his business he employs a book-

keeper, also employs several other girls and men,—the

girls working in the office in the preparation of mailing lists

and advertising the seed business,—the men being em-

ployed in the warehouse and mill in the handling, cleaning

and processing of seed (R. 88, 116-118). At the time of

filing his petition his business was ‘‘going full blast’? (R.

117).

Se

ERRNO SS MMAR TENT ET By RENOWN EN

19

Obviously his business was a ‘‘one man business.’’ He

personally did the buying, seeing to the processing and

packaging and handling of all sales except perhaps small

retail items (R. 87, 88). This necessarily required much

travel in the Dakotas and other western states and in the

East. He testified that in the year preceding the filing of

his petition, he made trips to Buffalo, Chicago, Montana,

North and South Dakota, Fort Wayne, Cincinnati and

other towns in the vicinity of Paulding, Ohio (R. 118).

A witness, testifying as to the amount of time which

the Respondent devoted to his business, stated (R. 123):

‘*T asked if he was going home to supper and he said

‘No, he ate supper up town because invariably he came

back and worked,’ and when I mentioned the fact to

him that his records were not complete, that he

should have more help to maintain the records, and he

said ‘I know’ and he said ‘It is necessary for me to

work late at night in order to keep this business

going’.’’

In the spring of 1940 the Respondent negotiated a loan

of $15,000.00 with one of the Petitioners, the Cleveland

Trust Company. In procuring this loan he submitted three

financial statements (Bank’s Exhibits 7, 8, and 9), cover-

ing the years 1937, 1938 and 1939. Each of these financial

statements purported to be of the Stoller Seed House and

reflected the financial condition of his seed business. He

also represented to the bank that while he lived on a farm,

he was engaged in the seed business. The financial state-

ment covering the year 1937 (Bank’s Exhibit 7) reported

gross sales in his seed business amounting to $356,726.34.

His gross sales, as shown by his statement covering the

year 1939, amounted to over $302,000.00 (R. 213).

About three weeks later, in May of 1940, the Respond-

ent negotiated a loan from the other Petitioner, the Cen-

tral National Bank of Cleveland, in the amount of $12,500.00,

and submitted a financial statement of the Stoller Seed

i teieemeemeenes FL PIR EB RENN EN PO ONL CMIE PONE PIR OEY ORLY i A REN PSNEE ARS MIR SPREE EE HEISE SS TET IY RN

TERPS oF LORI IRE nal LAR RT Sei Oe PADS

A RE Eh RDO RE MRT A TAS 9 iG SD VO AE IE AAR SBP REL ik PNB LEA IAL

20

House business, labeled ‘‘wholesale and retail seed busi-

ness’? (Bank’s Exhibit 11, R. 181), which covered the

period of time from May 15, 1939, to May 15, 1940, and

shows gross sales amounting to over $236,000.00, and a net

profit of over $12,000.00.

In procuring this loan he made like representations

that he was engaged in the seed business and the money

was needed for it. The financial statement purports to

be entirely confined to the financial condition of his seed

business, as the statement shows among other assets listed

therein, real estate valued at $72,500.00 not used in busi-

ness. This real estate was his farm property. Respondent

admits he did not include debts or farm chattels, for the

reason ‘‘they didn’t ask for it’? (R. 92, 215).

Financial statements (Bank’s Exhibits 8, 9 and 22,

R. 90, 101, 119, 120) were subsequently submitted in due

course of business; the latter was for submission to the

Merchantile National Bank of Chicago and included the

same period of time as that to the Central National Bank

but there is quite a variance in these statements, both as

to assets and earnings.

Considerable time and effort was spent by Petition-

ers to elicit further proof of the full extent of the financial

affairs of the debtor, but as stated by the Cireuit Court he

did not have a system of bookkeeping or records from

which the true net or gross incomes could be determined.

The only records of the debtor consisted of a sales register

and sales slips which took care of his retail business only

(Bank’s Exhibit 18), and not entirely so. He kept no

record of his wholesale business other than in his letter

files (Bank’s Exhibit 19). During the year preceding this

proceeding most of his business was done on the cash basis,

and not by check.

A diligent effort was made to make an audit of his

financial affairs. A Certified Public Accountant spent

several days in an attempt to ascertain the status of his

Pe BE

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4

21 :

income (R. 126) but as stated by the Cireuit Court, his rec- é

ords were such as to make an audit impossible or to deter- H

mine the source of the Respondent’s income.

It also may be pertinent to note that the Respondent '

did not have a farm record for any previous year (R. 112- €

113), that the farm record for the current year was not B

prepared by the Respondent until during the course of the ‘

hearing (R.:227-228), and that it was only after repeated r

requests and demands, and a mandatory order from the

Master that any records were produced. The farm record E

is purely a statement prepared by the debtor in his effort i

to show a net income from his farm operation, and to that

end is purely a self serving declaration.

The Respondent himself was reluctant to be certain

in his statements, qualifying his testimony to ‘‘about,’’

‘‘approximately,’’ ‘‘as near as I ean tell,’’ and similar

equivocation. The Respondent admitted that he did not

know how much money he made in the year 1939 (R. 213).

The determination of the amount of his income is

further confused by his income tax returns, or lack of re-

turns. He testified that he made no return for the year

1938 (R. 90, 94), and that he did not pay any income tax

for the year 1939 (R. 95).

About thirty days after the $12,500.00 loan was pro-

cured from the Petitioner, the Central National Bank, it

learned through its clearing house arrangements of the

$15,000.00 loan made by the Petitioner, the Cleveland Trust

Company. The Petitioners immediately brought this fact

to the attention of the Respondent, and, in endeavoring to

enforce the payment of their respective loans, filed suits

and recovered judgments thereon in the Court of Com-

mon Pleas of Paulding County, Ohio, in September and

October of 1940. While the sales on execution were being

advertised, the Respondent on November 7, 1940 filed his

farmer-debtor petition to forestall further action on the

judgments.

VARA L ERA AS GL Den: LOR OES Ne a UMS COS PRED OT

Py Dil ALE OE OT SBI Re TR enh

22

SPECIFICATION OF ERRORS.

The specific errors complained of and brought forward

by the petition for a writ of certiorari, in the order therein

presented, are:

(a) In finding that the net income of the Respond-

ent, and not his gross income, was the proper basis for

determining ‘‘income’’ within the meaning of the def-

inition.

(b) In selecting as the period of time for such

computation, a one year period ending nine months

prior to the filing of Respondent’s petition.

(c) In failing to consider and apply the statu-

tory requirement of determining whether Respondent

is ‘‘primarily’’ engaged in farming operations.

(d) In failing to consider and apply the statutory

requirement of determining whether the Respondent

is “bona fide’’ engaged in farming operations.

(c) Tn failing to consider the conduct of the

Respondent in respect to representing himself to be

primarily engaged in a business enterprise, fraudu-

lently soliciting and obtaining eredit upon such rep-

resentations and to find and determine that this con-

duct was such as to estop him from enjoying the bene-

fits of the Act.

These errors of the Circuit Court present the following

questions :

(a) Should the term ‘‘inecome’’ be construed as

meaning ‘‘net’’ income or ‘‘gross”’ income?

(b) In determining ‘‘income”’ what period of

time prior to the filing of the debtor’s petition should

be considered?

(c) Should the relative volume of a business en-

terprise and the farming operations of a debtor and his

activities in connection therewith be considered in de-

~ -“ AL RO “ pe, Sree SR. 9 tests Pee) eS aye aM TWAL AY

RS 2

23 f

termining whether the debtor is ‘‘primarily’’ engaged e

in farming operations?

(d) Should the relative volume of the business f

enterprise and farming operations of a debtor and his

activities in connection therewith be considered in de-

termining whether the debtor is ‘‘bona fide’’ engaged ;

in farming operations? ‘

(e) May the conduct of a farmer-debtor in re-

spect to representing himself to be primarily engaged

in a business enterprise and fraudulently soliciting and e

obtaining credit upon such conduct and misrepresenta-

tions, be such as to estop him from enjoying the benefits

of the Act?

ARGUMENT.

The argument of the Petitioners may be summarized

by the statement:

That the Cireuit Court erred in construing ‘‘income’’

as meaning ‘‘net’’ income; in determining the period of

time for computing such income, at other than at the time

of filing the petition and of too short a period; in failing to

determine whether the Respondent was ‘‘primarily’’ en-

gaged or ‘‘bona fide’’ engaged in farming operations, and

in failing to consider the fraudulent conduct of the Re-

spondent to be such as would estop him from claiming the

benefits of the Act.

It is further contended that these errors should be

reviewed for the reason that the decision is in conflict with

that of another Circuit Court of Appeals; that it is in con-

flict with the decision of this Court, and that it presents

several questions of Federal law which have not been, but

should be, settled by this Court in the interests of justice

to the Petitioners and to clarify and otherwise expedite and

facilitate the administration of the Bankruptey Act.

. ge an aM BE ISA

ae ak BEN EOE LIE SI LIED IIE LES IER

oo ag SL She a da 2

These errors and the questions are presented in the

order named:

ERR Reh YF OM

24

A. Should the Term ‘‘Income’’ be Construed as Meaning

**Net’’ Income or ‘‘Gross’’ Income?

The Circuit Court is decidedly in error in concluding

that ‘‘net’’? income is the proper basis in determining

whether the principal part of the Respondent’s income is

derived from farming operations. First, because ‘‘ gross’’

income would better appraise the situation, and is the rule

which has been generally adopted by the courts, second, be-

cause the records of the Respondent, as determined by the

Cireuit Court, were such that it was impossible to deter-

mine the amount or from which enterprise the income was

received, and, third, because the amount of the gross in-

come from farming operations, according to Respondent’s

own statement, is only one-seventh that which he received

from his business enterprise (R. 148).

We think the ‘gross income’’ rule as_ generally

adopted by the courts should have been followed. In Jn re

Knight, 9 Fed. Supp. 502, the Court states that:

‘And ‘income’ I construe to mean ‘gross income.’

Otherwise, when, by drought or depressed market con-

ditions, the agricultural producer operates at a loss, he

would cease to be a farmer entitled to the benefits of

the Act, if he had any net income from nonfarming

operations. Certainly Congress did not intend that

such a producer should cease to be a ‘farmer’ and lose

the benefits of the Act at the very time when he is most

in need.”’

In Jn re Hilliker, 9 Fed. Supp. 948, it was also held that

the word ‘‘income’’ means the gross income as distin-

guished from net, stating at page 949:

‘*Suppose a man with a city merchandising business

has five acres of land on which he does not live and

which produces some sort of fruit or other soil

products, and happens to find that his merchandise

business in stress of poor times does not yield a profit

and, nevertheless, received a profitable return from the

fruit on the land. Can it be thought that he should be

25

‘ated as a farmer and entitled to the benefits of the

provisions of Section 75? The answer, of course, must

be ‘No.’ ”’

And this Court in the ease of First National Bank vs.

Beach (supra), had under consideration the total] gross in-

come which was derived from the fa rming operations of the

debtor, and there was no attempt in that case to require or

to find that the debtor had a ‘*net’’ income from his farm-

ing operations,

It is also apparent that in the case of Beamesderfer vs,

First National Bank and Trust Company, 91 F. (2d) 491,

only gross income was considered. The facts in this case

are parallel in the respect that the indebtedness arises out

of a mercantile business.

The decision of the Cireuit Court would also appear to

be quite inconsistent. In its analysis of this phase of the

case it found that the Respondent’s business records were

insufficient to bear an audit by a certified public accountant,

and that it was impossible to accurately determine the

sauree of Respondent’s income, yet it followed with a find-

ing that the principal part of Respondent’s ineome was

from farming operations and it predicated its conclusion

on the latter. It would seem to be a conclusion without a

premise,

Again the Court found that the Respondent’s total

gross seed sales, including farm produce, amounted to

$260,000.00 in the year selected by the Court. The Re-

spondent himself (R. 143) places his farm income in the

same period at $35,163.35 or approximately one-seventh of

the total, yet the Court finds that this principal part of his

income ‘‘ goes down into the soil.’’

The Court found that Respondent’s records were of no

value for accounting purposes, yet concludes that his tes-

timony as to the major portion of his ‘‘net’’ income is de-

rived from farming operations is neither established nor

disproved by his records. Surely some burden is upon a

IER REE SE

26

debtor to maintain his claim as to income. The reasoning

of the Cireuit Court enables and encourages a debtor to de-

stroy or to not keep records in order that only his state-

ments may be relied upon.

The Court must have overlooked the Respondent’s

financial statements, showing approximately 10% profit on

gross sales of seeds, the 90% being costs of merchandise

sold. For the accounting period selected by the Circuit

Court, his purchases would amount to $234,000.00.

Obviously the Court must have been confused.

B. In Determining Income, What Period of Time Prior to

the Filing of the Debtor’s Petition Should be Con-

sidered? ;

This would seem to be a very important factor in de-

termining whether the principal part of the debtor’s in-

come is derived from farming operations or from other

sources. The Circuit Court arbitrarily selected a period of

one year, ending May 15, 1940 and nine months prior to the

filing of his petition on November 7, 1940. This would not

appear to be fair either as to length of time or in relation to

the date of filing. The nine months immediately preced-

ing the filing may or may not show a much different

financial picture.

The period that would more accurately appraise the in-

come status of the debtor would be that which obtained at

the time he filed his petition, and for such a period preced-

ing as would include his usual and ordinary vocation and

manner of living. We are partial to the five year period as

considered by this Court in First National Bank vs. Beach,

301 U.S. 385.

To adopt another rule or shorter period as did the

Cireuit Court, would permit or enable an individual who is

primarily engaged in a business enterprise, upon deciding

that his business would temporarily operate at a loss, to

purchase an equity or to remove to a farm in which he had

27

an equity, and after residing thereon for a few weeks or

months to then obtain a composition and extension of his

business obligations. The advantage that may be so taken

of such a rule is indicated in this ease. The farm which the

debtor owns and where he resides is a few miles from his

place of business. It is encumbered by a mortgage of ap-

proximately $40,000.00, leaving but a small, if any, equity

in the Respondent.

While the Cireuit Court observed a Certified Public

Accountant could not determine from Respondent’s ree-

ords as to his income and the Court concluded that it was

not possible to determine the source of Respondent’s in-

come, yet by Respondent’s own statements, his gross for

1937 was $356,726.34. For some unexplained reason his

operating report for 1938 was not available, but the assets

were in line; for 1939, $203,000.00 and for the year ending

May 15, 1940, $236,000.00.

Obviously his ‘‘income’?’ for any nine month or annual

period would vary and perhaps change the status of the

debtor as within or without the ‘“‘income”’ definition. The

Cireuit Court erred in this respect, and would seem to be at

variance with this Court.

It is unfortunate that the Congress did not go into

more detail in its definition. The term gross or net income

could have been stipulated, the period of time could have

been provided and resultant confusion avoided. We

appreciate the difficulty of phrasing a general interpreta-

tion and it must necessarily be applicable to the individual

case, but it should be of such length of time as will fairly

establish usual and customary vocation and manner of

living at the time of filing his petition. In any event, the

disapproval of the period adopted by the Circuit Court

would tend to emphasize the importance of careful con-

sideration of this phase of the definition.

yo) aR TY OnE, AS Enna RO DI

LEA EET MELEE TLE LOLI IE BIN GM LEP PR EP Ran os te

PEPER RAISING ALITA PLN Te TREE ERENT VELMA COONS .

Vee os.

28

C. Should the Relative Volume of a Business Enterprise

and the Farming Operations of a Debtor and His Activi-

ties in Connection Therewith be Considered in Deter-

mining Whether the Debtor is ‘‘Primarily’’ Engaged

in Farming Operations.

The evidence relating to the Respondent’s farming

operations and business activities, definitely establish the

fact that at the time of filing his petition and for a period

of sixteen years, he had been engaged in operating a whole-

sale seed business, and also in farming a considerable acre-

age. This requires the determination in which of the two

was he ‘primarily’? engaged within the meaning of the

Act.

It is contended that the Circuit Court, in arriving at

its decision, did not consider and entirely ignored the re-

quirement that he must be ‘‘primarily’’ engaged in farming

operations.

While the Court recognized that the Respondent was

‘“nersonally’’ engaged, both in farming and in conducting

his seed business, we fail to find where the Court specifically

held that he was ‘‘primarily’’ engaged in either of the two

enterprises and in this we think the Court erred. In ar-

riving at its decision the Court cited the case of First

National Bank vs. Beach, 301 U. 8. 435, 438, 439, in which

it was held:

‘“The words ‘primarily engaged’ as we find them in

the first branch of the definition does not constitute

a term of art. The words ‘income derived from farm-

ing operations’ does not constitute such a term. In

each case the totality of the facts is to be considered

and appraised.”’

But the Court failed to show the application of the law as

announced in that ease to the facts in the instant case.

In In re Day, 10 Fed. Supp. 229, the Court well defined

the word ‘‘primarily’’ as meaning basically, or in such

manner as to be of first importance. It, therefore, is to be

Pr ee oe en — . — t

ay Seen '

Mepis

i

29

determined what is the chief interest of the Respondent.

Was it his farm or his seed business? In arriving at a eon- |

clusion it is well to consider what the Respondent himself c

admitted as being his primary and chief concern.

It is to be observed that in the management of the

seed business he was so concerned that he would not dele-

gate authority to any one. He personally attended to the

buying, the processing, the packaging, the selling, the fi-

nancing and advertising. In fact, he followed the Franklin :

adage ‘‘that if you wish a thing well done, do it yourself.”’ é

To start from seratech and build a business to over $350,-

000.00 annually necessarily required his time, efforts and

personal attention. Such an accomplishment requires

initiative and executive ability that is seldom for hire.

This was not true of the farm. As to its management,

he delegated almost every operation, excepting that which

is usually reserved to ownership. It was the four, five or

six men that he maintained under the supervision of his

brother as foreman (R. 94) who personally tilled and culti-

vated the land.

Then too, the amount of time which he devoted to his

business is indicative of his concern. The Cireuit Court

found that the Respondent did devote more than half of

his time in the management of his business, but we submit

the record fairly shows that he gave a far greater portion

than half. His own secretary stated that he worked in his

office at least half of the time during the day and frequently

at nights (R. 170-171), and he told the Deputy Revenue Col-

lector that he frequently ate his evening meal in town so as

to continue his work during the night.

Another yardstick in determining what is his chief

concern, is what he, himself, said it was. In all of his

advertising, Dun and Bradstreet reports, and in his many

financial statements, he stated that he was a business man

engaged in the wholesale and retail seed business. It was

not until he was pressed by suits and filed his petition,

30

did he change and for the first time assert himself to be

a ‘‘farmer.’? By all these means by which the interest

or concern of an individual may be ascertained, the Re-

spondent’s primary, basic and chief concern was his seed

business.

The Cireuit Court in arriving at its decision was ap-

parently influenced or impressed by the fact that the Re-

spondent always lived on and operated a farm, and at-

tached little, if any, importance to the further fact that

he had also conducted a seed business for a period of six-

teen years to such extent that it reached a gross volume

of $350,000.00 annually. Because the Cireuit Court specif-

ically found ‘‘the seed business exacted increasing demands

upon his time until he devoted somewhat more than half

of his working hours to this work,’’ the Court’s decision

should have followed this finding of fact, as it is one of the

major factors by or through which the Respondent’s chief

or primary interest is determined. We cannot reconcile the

Court’s decision with such finding of fact.

We think the Court’s reliance upon the case of First

National Bank vs. Beach (supra) does not constitute suf-

ficient authority for the position taken by the Cireuit Court,

as the facts in the Beach case bears no relevant resemblance

to the facts which are here in controversy. In that case the

Court specifically found that the debtor-farmer was not

engaged in any occupation other than farming, and said:

“The critical fact is that the debtor worked an

acreage large enough to count, that he did not work at

anything else, and that he gave to this work, whether

profitable or unprofitable, the major portion of his

time.”’

In the instant case the Respondent was decidedly en-

gaged in a mercantile business of huge proportion to which,

the record shows, he devoted more than half of his time.

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31

D. Should the Relative Volume of the Business Enterprise

and Farming Operations of a Debtor and His Activities

in Connection Therewith be Considered in Determining

Whether the Debtor is ‘‘Bona Fide’’ Engaged in Farm-

ing?

Another word of limitation contained in the statute is

the word ‘‘bona fide’? which should be given equal consid-

ESRB Ie SLOSS ABIL NYRR A

xd

eration with the words ‘‘ primarily’? and ‘‘ personally.”

Obviously, the good faith of a debtor is of primary im-

portance. Otherwise the Act could be used as a means of ;

perpetrating fraud on creditors. In any year the earnings

of a business may fluctuate from the unexpected windfall to :

an unforeseen loss and a business man by the simple expedi- f

ent of residing on a farm or by giving some supervision

thereto, could forestall his business creditors by claiming

to be a ‘‘farmer.’’

The record should have been closely scrutinized by

the Cireuit Court, as to the comparative time, attention and

efforts devoted by the Respondent to his two enterprises,

and it should have been clearly determined that such activi-

ties as were devoted to his farming operations were ‘‘bona

fide’? and not for the purpose or with the intention of ere-

ating and establishing an opportunity of taking advantage

of the Act, should his business enterprise become jeopard-

ized.

Such consideration is particularly pertinent in this case

in view of the facts and circumstances. The Circuit Court

found that his business enterprise reached a peak of $350,-

000.00 annually. That during the particular period of time

which it considered, the gross income amounted to $260,-

000.00 which included some income from the farm on which

he resided. The Court also found that his bookkeeping was

such as to make impossible an audit or a determination of

his source of income and that his financial status was

directly resultant from his business activities.

°

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5

BE PET ARE TESTI RRND IIS CNR SEER

These findings in and ef themselves should not only

have excited inquiry, but they present a record that is

hardly compatible with a conclusion that his farming activi-

ties were ‘‘bona fide.’’? The importance of such an analysis

and determination in all cases, particularly those cases in

which the debtor has substantial interests other than farm

operations, is quite evident and the necessity of such analy-

sis and approval should be emphasized by this Court.

E. May the Conduct of a Farmer-Debtor in Respect to Rep-

resenting Himself to be Primarily Engaged in Business

Enterprise and Fraudulently Soliciting and Obtaining

Credit Upon Such Conduct and Misrepresentations be

Such as to Estop Him from Claiming the Benefits of

the Act?

Regardless of the consideration of ‘‘bona fide’’ as a

term of the definition, we believe the ‘‘bona fide’’ or good

faith of the debtor is subject to and should be considered

by the Bankruptey Courts under their general equitable

powers.

As the Master summarizes, and as outlined in the state-

ment, the Respondent has continuously posed and held

himself out as engaged in the wholesale and retail seed

business by letters, pamphlets, circulars, catalogues and

other media of advertising; he from time to time soliciting

credit for the financing of his business, representing himself

and specifically stating that he was engaged as a wholesale

and retail seed merchant, and went from bank to bank seek-

ing to obtain this assistance.

Both Petitioner banks were given to understand, in

their discussions with him of the nature and extent of his

business, its volume, markets, ete., that he was engaged in

the wholesale and retail seed business, although he resided

on a farm, and Respondent knew they had this understand-

ing (R. 213). Had there not been such an understanding,

the officers with whom he dealt would not have made the

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33

loans, their authority being restricted by policy and cus-

tom to commercial loans.

The Respondent reluctantly admitted falsifying the

financial statements by omitting large and substantial ob-

ligations (R. 215), and purposely listing his home farm and

not his farm chattels and machinery, so as to obtain a busi-

ness rating. Then, when his fraud was discovered and

payment was demanded of his business obligations he, then,

for the first time, claims to be a ‘‘farmer’’ and seeks use of

the Act as a means of avoiding payment of his just business

debts.

The Petitioners are not asking that Respondent be

refused bankruptey, but, on the contrary, are urging that

he be so declared. They are merely demanding that he not

be permitted to take advantage of the special provisions for

‘farmers’? but must be bound by the Bankruptey <Act,

which should and would protect him to that extent to which

he deserves.

Regardless of his status under the definitions and as-

suming for the purpose of argument and for that purpose

only, that Respondent does come within the purview of the

Act, he has, by his own inequitable conduct, forfeited every

right and privilege to which he might be entitled.

Social legislation, commendable as it is, is usually

vulnerable to the unscrupulous. This fact was recognized

and mentioned by the President in commenting on this

Act in one of his Fire Side Chats. Great eare and consid-

eration must be exercised in shielding and protecting such

legislation to discourage and avoid it being made an instru-

ment of fraud.

The Cireuit Court erred in failing to consider and de-

termine such a factor in this case and the importance of

such consideration should be emphasized and established by

this Court in the interests of the public weal.

In conclusion, your Petitioners respectfully pray the

Court to order the United States Cireuit Court of Appeals

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34

for the Sixth Circuit to certify and to send to this Court

for its review and determination a transcript of the record

and proceedings herein, for the following reasons :

(1) The questions raised by the decision of the

Cireuit Court of Appeals, as enumerated in the Peti-

tion for a Writ of Certiorari, present new and im-

portant questions of national interest which have not

heretofore been decided by the Supreme Court of the

United States.

(2) In its decision the Cireuit Court of Appeals

incorrectly distinguished and failed to follow the case

of First National Bank vs. Beach, 301 U. 8. 385, which

is a controlling decision of this Court and one of the

leading decisions in the United States defining the term

‘‘farmer.”’

Respectfully submitted,

Kerns WRIGHT,

Van Wert, Ohio,

Lorin L. Hocvue,

Bryan, Ohio,

A. L. GEBHARD,

Bryan, Ohio,

Attorneys for Petitioner.

Hawtey E. Srark,

Cleveland, Ohio,

L. F. Laytin,

Cleveland, Ohio,

Of Counsel.