Nicholas, In re, 74--1490
| Decision Date | 29 January 1975 |
| Docket Number | No. 74--1490,74--1490 |
| Citation | 510 F.2d 160 |
| Parties | In re Jessie Lewis NICHOLAS and Grace Nicholas (NMI), Bankrupts. Edith RALEY, Plaintiff-Appellant, v. Jessie Lewis NICHOLAS and Grace Nicholas, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Anthony F. Avallone, Las Cruces, N. M., for plaintiff-appellant.
F. L. Nohl, Albuquerque, N.M., for defendants-appellees.
Before LEWIS, Chief Judge, and SETH and McWILLIAMS, Circuit Judges.
This is a bankruptcy matter in which the trial court granted summary judgment in favor of the bankrupts. The creditor had filed a complaint in the bankruptcy proceedings seeking a determination that her claim was nondischargeable under the provisions of 11 U.S.C. § 35(a)(2), (4), and (8). The claim had previously been reduced to judgment in the state courts of New Mexico.
In opposition to the complaint the bankrupts filed a motion for summary judgment, alleging that there was no genuine issue of matterial fact. Attached to the motion was a certified copy of the proceedings in the state court of New Mexico, including a copy of the complaint and the default judgment entered when the defendants in that action, the bankrupts here, failed to appear. In opposition to the motion for summary judgment the claimant filed an affidavit made by her son, about which more will be said later.
Based on the record as thus made the trial court granted the motion for summary judgment and held that the claim in question was dischargeable under applicable bankruptcy law. The claimant now appeals. Under the circumstances we conclude that the trial court acted properly. Additional detail is necessary in order to give meaning to our conclusion.
Edith Raley, the claimant, sold certain cattle and dairy equipment to Jessie L. Nicholas and Grace Nicholas, hereinafter referred to as Nicholas, under a conditional sales contract. Nicholas later failed to perform as called for by the contract and Raley then instituted an action for breach of contract in the district court for Dona Ana County, in New Mexico. Attached to the complaint filed in the state court was a copy of the conditional sales contract. The complaint stated that Nicholas had breached the contract in two particulars. No mention was made in the complaint of any fraud or deceit or malicious conversion on the part of Nicholas.
As indicated, Nicholas did not respond to service of process, and a default judgment was entered against him. No mention was made in the judgment of any fraud or malicious conversion on the part of Nicholas, the court simply noting that 'the plaintiff should be accorded the relief requested in the complaint.'
Thereafter Nicholas filed a voluntary petition in bankruptcy, and listed the Raley judgment as one of his outstanding debts. It was in this setting that Raley filed her complaint in the bankruptcy proceedings seeking to have her claim based on the New Mexico judgment declared to be a nondischargeable claim. As grounds therefor, Raley alleged that the liability was the result of false pretenses, fraud, and embezzlement on the part of Nicholas, and, alternatively, that the debt represented a liability for willful and malicious injury to property. See 11 U.S.C. § 35(a)(2), (4), and (8). Nicholas responded to this complaint with the motion for summary judgment referred to above. Raley then filed an affidavit of her son wherein the latter declared, among other things, that Nicholas had advised him, the affiant, that 'he (Nicholas) did not want to cheat anybody, but he admitted breaking every rule in the contract he signed with my mother.' This in our view is the only part of the affidavit that has any possible bearing on our problem.
The referee in bankruptcy granted the motion for summary judgment and dismissed the complaint and the action set forth therein. On appeal the trial court affirmed the action taken by the referee and held that the claim was dischargeable in bankruptcy. Raley now appeals. We affirm.
In granting summary judgment the trial court held that on the record as theretofore made in the New Mexico state court, which included the complaint, the conditional sales contract attached to the complaint and the default judgment entered on the complaint, there was a clear showing that the liability of Nicholas was founded on breach of contract and not fraud, deceit or malicious conversion, and that accordingly there was no need to resort to extrinsic evidence in any effort to ascertain the true nature of the underlying liability. The trial court indicated that if there were ambiguity or doubt in connection with the state court proceeding, then resort could be made to so-called extrinsic matters. In thus holding, the trial court declined to take into consideration the affidavit of Raley's son. We find no error in thus declining to consider this affidavit, which actually did not in anywise contradict the complaint or the judgment as entered in the New Mexico court. In fact, the affidavit supports the proposition that Nicholas' liability was based on breach of contract, not fraud. As above noted, Raley's son declared that Nicholas had told him that he (Nicholas) didn't intent to 'cheat' anyone, though he had broken 'every rule in the contract.'
A discharge in bankruptcy releases a bankrupt from all of his provable debts with certain exceptions. For example, a discharge in bankruptcy does not release a bankrupt from liabilities incurred by obtaining money or property by means of false pretenses or false representations. 11 U.S.C. § 35(a)(2). Whether a given liability is one for simple debt or fraud thus determines whether it is dischargeable in bankruptcy and it is a matter which has previously caused conflict between the federal and state courts. However, in 1970 Congress empowered the bankruptcy court to determine the dischargeability of debts, and, after such amendment, an application must now be timely filed by the creditor in the bankruptcy court if he would have his claim be determined to be nondischargeable. 11 U.S.C. §§ 11, 32 and 35, as amended. See Collier on Bankruptcy, Vol. 1A, 17.01, pp. 1580--1580.1, and 17.16(6), p. 1649.
Contrary to the assertion of counsel for Raley, we do not regard the amendments of 1970 to have in anywise changed the substantive law on the precise problem here at hand, which is: May a creditor whose claim for breach of contract has previously been reduced to judgment in a state court go 'behind' the record as made in the state proceeding and attempt to show by extrinsic evidence that the liability was in reality one based on fraud? The trial court held that where, as here, the entire record, not just the judgment, of the state proceeding established clearly that the liability was one for damages caused by breach of contract, and not fraud, there would be no resort to extrinsic evidence. We agree, although we are aware that the authorities on this point are not in...
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... ... See In re Nicholas, 510 F.2d 160, cert. denied, 421 U.S. 1012, 95 S.Ct. 2417, 44 L.Ed.2d 680 (1975); See also Pub.L. No. 467, §§ 5-7, 84 Stat. 992; H.R.Rep. No ... ...
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