Bastian v. LeRoy

• Decision Date: 28 June 1963
• Citation: 20 Wis.2d 470,122 N.W.2d 386
• Parties: Donald A. BASTIAN, Plaintiff-Respondent, v. Lloyd W. LeROY, Defendant-Respondent, Burton T. Shelton, Interpleaded Defendant-Appellant.
• Court: Wisconsin Supreme Court

Page 386

122 N.W.2d 386

20 Wis.2d 470

Donald A. BASTIAN, Plaintiff-Respondent, v. Lloyd W. LeROY, Defendant-Respondent, Burton T. Shelton Interpleaded Defendant-Appellant.

Supreme Court of Wisconsin.

June 28, 1963.

Rehearing Denied Oct. 1, 1963.

Grootemaat, Cook & Franke, Milwaukee, Robert E. Cook and John J. Ottusch, Milwaukee, of counsel, for appellant.

DeVries, Hollander & Vlasak, Milwaukee, for defendant-respondent.

WILKIE, Justice.

There are three issues to be decided on this appeal. They are:

1. Did the respondent LeRoy meet his burden of proof in proving that the subject judgment was not discharged in bankruptcy proceedings?

2. Did LeRoy waive any possible tort action, such as the present claim of embezzlement, by bringing an action for breach of contract?

3. Did Shelton violate sec. 289.02(4) and sec. 235.701 so that the LeRoy judgment was not dischargeable under sec. 17 of the Bankruptcy Act?

LeRoy had Burden of Proving that Judgment was not Discharged under Section 17(a) of Bankruptcy Act

Sec. 17(a) of the Bankruptcy Act provides:

'* * * (a) A discharge in bankruptcy shall release a bankrupt from all of his proveable debts * * * except such as * * * (4) were created by his fraud, embezzlement, misappropriation or defalcation while acting as an officer or in any fiduciary capacity; * * *.'

In 6 Am.Jur., Bankruptcy, p. 1027, sec. 810, it is stated:

'Soundly considered, the defense of discharge is an affirmative one which the bankrupt as a defendant must sustain; but upon the introduction in evidence of a certified copy of the order of discharge, the burden to produce evidence in avoidance of the discharge shifts to the creditor as plaintiff. * * * The burden of proof that a debt comes within an exception provided by sec. 17 of the Bankruptcy Act (11 U.S.C.A. sec. 35, F.C.A. title 11, sec. 35) rests upon the creditor as plaintiff in an action upon the debt, after the order of discharge is in evidence. * * *'

Since the order of discharge as to the LeRoy judgment against Shelton was placed in evidence, LeRoy then had the burden of producing evidence in avoidance of the discharge.

As to whether LeRoy has successfully maintained his burden of proof, we have before us the orders of Judge LANDRY, his decisions, and the judgment, findings of fact and conclusions of law, and the related decision of Judge SWIETLIK. ⁴ There is no bill of exceptions on the proceedings in Judge LANDRY'S court and there could be none because no testimony was taken. ⁵ In the absence of a bill of exceptions we must assume that the findings of fact made by Judge SWIETLIK are supported by the evidence. ⁶

The pertinent findings of fact and conclusions of law as made by Judge SWIETLIK are as follows:

'FINDINGS OF FACT

'5. That the interpleaded defendant, Burton T. Shelton, breached the contract with the defendant in the following respects:

'(b) The interpleaded defendant, Burton T. Shelton, failed to furnish mechanic's lien waivers and failed to pay materialmen and laborers although he received payments on account exceeding the cost of the work done on defendant's premises.

'(d) That the interpleaded defendant demanded more money before he would proceed with the job although he was already overdrawn, and that on the 10th day of June, 1955, the said interpleaded defendant, Burton T. Shelton, wrongfully discontinued work on the defendant's premises.

'(e) That the interpleaded defendant, Burton T. Shelton, paid workmen for work on other jobs out of the funds received on account of the defendant's job.

'(f) That the interpleaded defendant, Burton T. Shelton, received payment on account of the defendant in the sum of Fifteen Thousand Seven Hundred Twenty-two Dollars ($15,722.00) which was adequate to pay all the sums owed to workmen, laborers, subcontractors, and materialmen for defendant's job, but the said interpleaded defendant failed to pay all of the same. * * *' (Emphasis added.)

'CONCLUSIONS OF LAW

'2. That the defendant, Lloyd W. LeRoy is entitled to judgment on his cross-complaint against the interpleaded defendant, Burton T. Shelton for the sum of * * * ($4,683.44) plus the further sum of Five Hundred Sixteen and 40/100 Dollars ($516.40) with interest on the latter sum from June 10, 1955, with costs.'

In discussing Judge SWIETLIK'S decision, Judge LANDRY stated:

'The opinion of the court does not pronounce the defendant guilty of misappropriation or defalcation of $5,287.84 from the trust account with the Savings and Loan. [Shelton had withdrawn $14,582.00 from the LeRoy building account at the West Side Savings and Loan.] However, the opinion does substantiate the proposition that the interpleaded defendant did violate his trust by removing amounts in excess of that which he was entitled to receive. There is a mathematical inference that the amount which was improperly taken out of trust was in the amount of the judgment entered against the interpleaded defendant.' (Emphasis ours.)

Shelton may not question the findings of fact and conclusions of law as entered by Judge SWIETLIK except to point out any error of law therein. Shelton may show that Judge LANDRY has misinterpreted or misstated those findings or conclusions in the process of entering his own decision and orders.

In Determining Whether a Judgment is Dischargeable, the Trial Court may look Behind the Judgment and Consider Entire Record.

In determining whether the liability of a judgment debtor is dischargeable in bankruptcy under sec. 17(a) of the Bankruptcy Act, Wisconsin follows the liberal practice of permitting a court to look behind a judgment and to consider the entire record, and the actual fact disclosed thereby as the basis for the adjudged liability will govern. ⁷

Applying this rule to the instant case, Judge LANDRY was permitted to look behind the judgment entered on the basis of Judge SWIETLIK'S findings of fact and conclusions of law to ascertain whether or not this LeRoy judgment was dischargeable in bankruptcy. Park of the record that he could consider was Judge SWIETLIK'S decision. Although LeRoy based his original action in Judge SWIETLIK'S court on breach of contract by Shelton, in the proceedings before Judge LANDRY he was not prevented from looking behind the LeRoy judgment and concluding that the debt was not properly dischargeable in bankruptcy.

The Judgment Entered as a Result of the Proceedings Before Judge SWIETLIK was not Dischargeable under Section 17(a) of the Bankruptcy Act

In his decision Judge SWIETLIK determined that Shelton had breached his construction contract with LeRoy in a number of respects and as pertinent here stated:

'The court is satisfied from the evidence that all payments made to the plaintiff by the general contractor, as evidenced by checks included in Exhibit 1, came from funds which the general contractor received from the defendant of his financing agent, the West Side Savings & Loan Association, on account of the amount due him for constructing defendant's premises.

'However, the court is also satisfied that some of these checks, referring particularly to those paid to the plaintiff in the month of December, 1954, were given to the plaintiff for work done on the Bartels job and not for work done on the defendant's premises. [Emphasis added.]

* * *

* * *

'It does appear that the general contractor used money which he received from the defendant on account of said contract to pay the plaintiff who worked on premises other than the defendant's premises here in question. This is especially true of payments made by the general contractor to the plaintiff in the month of December, 1954. The court is satisfied that the December payments were made to plaintiff for work which he performed on the Bartels job.

* * *

* * *

'Money paid to a general contractor by the owner of premises under construction is a trust fund. * * *

* * *

* * *

'* * * Burton T. Shelton, breached his contract with the defendant in the following respects:

'(b) His failure to furnish mechanic's liens and his failure to pay materialmen and laborers although he received payments on account of the contract price exceeding the amount of the work done. The evidence disclosed that five liens were filed against the defendant's premises for work done and material furnished to said premises, to wit: [Emphasis added.]

'1. 55918--filed by Donald Bastian, for the sum of $707.20.

'2. 55919--filed by Roman Hasselberger, on July 13, 1955, for work done between the 28th day of December, 1954, and the 2nd day of June, 1955, for the sum of $148.50.

'3. 55979--for lumber furnished * * * and unpaid for from the 15th day of March, 1955, to the 17th day of June, 1955, in the sum of $965.85.'

(Nos. 4 and 5 are other liens not pertinent here.)

Judge LANDRY, in his first opinion, dated July 26, 1962, concluded in part:

'The opinion of the trial court in the instant case sufficiently supports the defendant's contention that the violation of the trust constituted a valid defense to a discharge of this debt in bankruptcy.'

In his second opinion, dated November 29, 1962, Judge LANDRY stated this in amplification:

'The fact that the original trial court granted judgment for a specific sum does not compel the conclusion that Shelton misapplied funds entrusted to him precisely in that amount. LeRoy's claim against Shelton is for damages sustained by breach of contract, and only to the extent to which those damages are attributable to misapplication or misappropriation is the indebtedness not dischargeable in bankruptcy.

* * *

* * *

'* * * Shelton had the burden of coming forward with proof either to rebut the legal inference that this net balance was more than his cost and profit would have been or that the contract was improvident for him, resulting in operating below cost. His failure so to do leads to the conclusion that this sum was misapplied in accordance with the reasoning employed by the decision of this court on special proceedings. * *...