10, 1966 closing, not only did Padula not give this certificate to Mr. Bell, he did not even tell him about it. By this act of fraudulent concealment did Padula thus signal the approach he was to take throughout in his dealings with the Birnbaums, and create the situation which saw him holding certificates 5 and 7, without knowledge of the Birnbaums, from and after February 1967.
From all that appears of record, the existence of certificate 8 did not become known to the Birnbaums until this matter came to this court on the first petition for review. The Bankruptcy Judge too, when the matter was first before him, was permitted by Padula to remain ignorant of the separate existence of this certificate. The Bankruptcy Judge has now found that Padula never told anyone of the existence of certificate 8 (Fdg. of Fact 29).
The FHA Agreement of December 30, 1966
Having thus deceived the Birnbaums in what is contemporary verbiage might be characterized as the first stage of the "set up", Padula, as the Bankruptcy Judge found (Fdg. of Fact 4), on December 30, 1966 activated the above quoted condition in the loan agreement, calling for the Birnbaums' release from pledge of Mid-Center's GP 3 stock (certificates 5 and 7), by entering into an agreement, on behalf of Padula Construction, with the FHA to purchase an apartment project known as Gregory Park, Section 1. By letter of February 3, 1967, Mr. Bell, duly performing under the December 10, 1966 agreement, released from pledge and delivered certificates 5 and 7 to Padula's counsel, to be held in escrow pending consummation of the Gregory Park purchase.
Then, on February 10, 1967, at the closing with the FHA, Padula pledged with that agency 1000 shares of GP 3 stock, not, however, in the form of certificates 5 and 7 owned by Mid-Center and then held in escrow by his counsel, but rather in the form of certificate 8, which designated Padula personally as the owner. (Fdg. of Fact 6). The Bankruptcy Judge found that it was "Padula's testimony" that certificate 8 (rather than 5 and 7) was tendered because the FHA required as security shares of stock representing 100% of the GP 3 stock, in his name personally (rather than in Mid-Center's name), since he, Padula, was the guarantor on the FHA-Padula Construction agreement of February 10, 1967 associated with the purchase of Gregory Park Section 1 (Fdg. of Fact 20).
The Bankruptcy Judge neither credits nor rejects Padula's "testimony" offered to support his corporate chicanery, and the parties did not put into the trial record the FHA-loan documentation. However, in this court the parties, by stipulation supplementing the record, have now supplied said documentation. See Stipulation of September 11, 1974, Exhs. A, B, and J. It appears that as early as September 13, 1966 Padula may have been apprised of the fact that the FHA would require pledge of all of the stock in GP 3. Unbelievably, in the FHA documentation, Padula masquerades as the sole owner of all of the GP 3 stock (See Exh. A, Contract of Sale and Purchase, dated December 30, 1966, introductory clause; para. 5(b); amendment to para. 5. See Exh. B, dated February 10, 1967, in which Padula pledges with FHA "all of his stock in . . . GP 3"). Mid-Center's interest is not mentioned. Thus it is clear Padula lied to FHA both on December 30, 1966 and February 10, 1967, and on the latter date delivered to FHA certificate 8, which was not worth its weight.
Next, Padula, having three days before delivered certificate 8 to the FHA, personally received, by letter of February 13, 1967 from his counsel, the validly issued certificates 5 and 7 which had been delivered to the latter in escrow by the Birnbaums on February 3, 1967.
Notwithstanding Padula's protestations of innocence and good faith, these certificates were never cancelled. That Padula had known of and used the cancellation procedure, when certificates were actually replaced, is evidenced by the fact that other GP 3 certificates (certificates 1, 2, and 3) were thus voided by him when replaced by new certificates. (Fdg. of Fact 19). Padula's secret retention of these uncancelled certificates continued until May 1970 when, as will be hereinafter discussed, he pledged them with Public Service Electric and Gas Co. (Public Service).
Given the foregoing facts relating to Padula's surreptitious switching of GP 3's stock certificates, the petitioners regard the aforementioned Padula affidavit of December 10, 1966 as striking proof of their claim that Padula, at the earliest stage, had determined consciously to, and did deceive and defraud them.
The Bankruptcy Judge, it is noted, made no findings bearing directly upon the verity of Padula's December 10, 1966 affidavit, or the debtors' commitments in the accompanying loan agreement; nor did he make a Finding of Fact as to Padula's state of mind when, on behalf of Padula Construction, he entered into the December 10, 1966 loan agreement with the Birnbaums while explicitly misleading them about the GP 3 stock certificates then issued and outstanding.
The Bankruptcy Judge did, however, state (Opinion, at 12):
. . . this Court does not condone Padula's manipulation of the stock certificates and his non-disclosure of the existence and whereabouts of certificate number 8. Putting it mildly, I was not impressed with the manner in which he testified nor a good part of his testimony . . . .