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September 7, 1961


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 company.

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 studio.

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 subsequently qualified.

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 the bankrupt.

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 bankrupt estate.

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, ...

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