The opinion of the court was delivered by: John E. Miller, Chief Judge.
The bankrupt had been engaged as former owner and operator of
the Modernistic Floor Covering Company, and is presently
self-employed as owner and operator of Leach Paragon
Photography Studio. In the former business the bankrupt was
self-employed as a floor covering contractor until he
terminated the business due to the pressure of his creditors
and his bank on August 27, 1958. The business had begun as a
partnership in June 1947, and had operated as such until July
30, 1957, when the partnership was dissolved, leaving bankrupt
as the sole owner and operator.
Bankrupt has owned and operated the Paragon Photography Studio
since March 1958, which enterprise is chiefly engaged in the
photographing of furniture for factories and stores for
advertising and the making up of salesmen's samples. Bankrupt
had done this sort of work on a smaller scale for many years
prior to March 1958, but due to encouragement from Mr. John
McConnell he opened the studio as a business separate from the
floor covering company. From March 1958 to August 27, 1958,
when the floor covering company was terminated, the bankrupt
operated the two businesses and during that time diverted a
total of $3,000 in profits from the studio to the flooring
By a bill of sale dated March 27, 1958, bankrupt conveyed
$3,987.26 worth of photographic equipment to Mr. McConnell, who
at that time was constructing a building suitable to house the
equipment to be used by bankrupt in the operation of the
studio. At that time the arrangement between the bankrupt and
Mr. McConnell was that the title to the photographic equipment
and building would be in McConnell, and he would lease them to
the bankrupt, who was to be the sole operator of the studio.
This arrangement continued until January 1960, when bankrupt
signed a note to repurchase the photographic equipment. At
present bankrupt is solely engaged as owner and operator of the
As for the history of this case, a voluntary petition was filed
by the bankrupt on October 4, 1958, and the order of
adjudication was made and entered on October 6, 1958. The first
creditors' meeting was held on October 24, 1958, and on the
same date the petitioner was duly appointed Trustee and
On April 29, 1959, an objecting creditor, C. C. Gunn
Distributing Company, by its attorneys, filed a petition to
recover an alleged preference and to prevent discharge of
bankrupt. Counsel for the objecting creditor did not serve a
copy of this petition upon the bankrupt or upon his attorney.
On May 1, 1959, an order was made by the Referee fixing the
time for filing of objections to the discharge of the bankrupt.
This order set the final date for filing such objections as
June 1, 1959. No further objections were filed during this
period, and on July 6, 1959, an order was made and entered
discharging the bankrupt as provided by law.
In December 1959 an oral objection to the discharge was made by
counsel for the objecting creditor, and on December 16, 1959,
the Referee peremptorily entered an order revoking the order of
discharge until such time as the court could have a hearing on
the objections to the discharge.
On December 24, 1959, the bankrupt moved to dismiss the
objecting creditor's petition and to reinstate the discharge of
On January 13, 1960, the Referee ordered that a hearing be held
on February 15, 1960, on the objection to the discharge. This
hearing was subsequently postponed until March 18, 1960.
On February 25, 1960, the bankrupt filed a response to the
amended specification of objections again requesting the
dismissal of the objections and denying all material
allegations of the amended specification.
The Referee conducted a hearing on March 18, 1960, on the
creditor's objections. The Referee did not make formal findings
of fact or conclusions of law, but on April 18, 1960, again
entered an order discharging the bankrupt.
On April 27, 1960, the objecting creditor filed a petition to
review this order, and on May 14, 1960, the Referee certified
the matter to this court. On June 6, 1960, this court affirmed
the order of the Referee, dismissing the objecting creditor's
specifications of objections and granting the bankrupt a
discharge on the basis that the original petition of the
objecting creditor did not constitute a sufficient compliance
with General Order 32, requiring an objecting creditor to file
specifications of objections, and that the petition was not a
proper basis for amended specifications of objections filed
subsequent to the dead-line time for filing objections. In view
of this holding the court did not deem it necessary to pass
upon the question of whether the bankrupt obtained money or
property on credit or obtained an extension or renewal of
credit by the making of the allegedly false financial reports.
See, In re Leach, D.C.W.D.Ark. 1960, 197 F. Supp. 32.
On November 29, 1960, the Trustee filed his petition to revoke
discharge of April 18, 1960, and to recover assets of the
bankrupt estate. Generally, said petition asked for a
revocation of the discharge granted and denial of said
discharge for the reason that the bankrupt allegedly failed to
disclose either in his schedule of assets or otherwise the fact
that he was the owner of photographic equipment and supplies
having a value of $3,987.26; that such failure was deliberate,
intentional and fraudulent, and was unknown to the Trustee
until about March 18, 1960. In addition, the petition prayed
for an order directing the bankrupt to turn over to the Trustee
the assets alleged to have belonged to the bankrupt and to have
been concealed and withheld from Trustee.
On December 12, 1960, the attorney for the bankrupt filed a
response to the above petition. On December 13, 1960, the
matter was referred by this court to the Referee to take such
further proceedings as are required and permitted under the act
of Congress relating to bankruptcy. On December 16, 1960, there
was filed "First Amendment to Response to Petition to Revoke
Discharge and to Recover the Assets of the Bankrupt Estate."
On January 13, 1961, a hearing was held by the Referee, at
which time both sides presented evidence in support of their
respective contentions. A transcript of the testimony was made
by the reporter, and is in the record. Also, the testimony was
summarized by the Referee in his certificate to the court.
On May 4, 1961, the Referee entered an order denying Trustee's
petition to revoke the discharge and to recover assets of the
In his order of the above date the Referee stated the essential
facts, as follows:
"At the time of filing his petition in bankruptcy on October
4, 1958, the Bankrupt noted by way of an appendage to his
Petition, relating to Transfer of Property, that some six
months before the filing of the Petition he had transferred
on a bill of sale to J. B. McConnell, Jr., dba McConnell
Construction Company the title to certain miscellaneous
photographic equipment and supplies owned by the Bankrupt,
and went into some detail as to the consideration
for such transfer-sale. On the date the bankruptcy petition
was filed the legal owner of such equipment appeared, as a
matter of record, to be J. B. McConnell, Jr. It appears that
since the petition was filed, the Bankrupt has entered into
an agreement of repurchase of this equipment from J. B.
McConnell, Jr., and, as of this time, the Bankrupt again
holds the legal title to such equipment."
In the same order the main issue was stated, thusly:
"The Trustee contends that the transfer of title to the
equipment to J. B. McConnell, Jr., was fraudulent and asks
this Court to order the Bankrupt to turn this equipment over
to the Trustee, now that the Bankrupt has repurchased this
equipment from J. B. McConnell, Jr. and now holds legal
title. The Attorney for the Bankrupt and the Bankrupt contend
that the original transfer was a legal sale, ...