Friendly Finance Co. v. Stover, 40459

• Decision Date: 28 January 1964
• Docket Number: No. 40459,No. 2,40459,2
• Citation: 134 S.E.2d 837,109 Ga.App. 21
• Parties: FRIENDLY FINANCE COMPANY v. James STOVER
• Court: Georgia Court of Appeals

Page 837

134 S.E.2d 837

109 Ga.App. 21

FRIENDLY FINANCE COMPANY v. James STOVER.

No. 40459.

Court of Appeals of Georgia, Division No. 2.

Jan. 28, 1964.

Smith & Smith, Douglas E. Smith, Gainesville, for plaintiff in error.

Stow & Andrews, Robert E. Andrews, Gainesville, for defendant in error.

Syllabus Opinion by the Court

RUSSELL, Judge.

1. 'A discharge in bankruptcy shall release a bankrupt from all his provable debts * * * except such as * * * are liabilities for obtaining money or property by false pretenses or false representations * * *.' 11 U.S.C.A. § 35.

2. Where the bankrupt secures a loan by virtue of a materially false statement in writing, the creditor may object to the discharge or permit the discharge and sue at law on the theory that the discharge did not wipe out the debt. Watts v. Ellithorpe, 1 Cir., 135 F.2d 1(3).

3. Fraud which will prevent the discharge of the debt in bankruptcy proceedings must be actual fraud involving moral turpitude or intentional wrong. Mere implied fraud without actual bad faith is insufficient. A false warranty of title may constitute such fraud. Peel v. Bryson, 72 Ga. 331.

4. The elements of actual fraud are (1) that the defendant made the representations; (2) that at the time he knew they were false; (3) that he made them with the intention and purpose of deceiving the plaintiff; (4) that the plaintiff relied on such representations; (5) that the plaintiff sustained the alleged loss and damage as the proximate result of their having been made. Brown v. Ragsdale Motor Co., 65 Ga.App. 727, 731, 16 S.E.2d 176. These elements are all necessary to be proved to bring the debt within the exception to the discharge. Zerega Distributing Co. v. Gough, 52 Wash.2d 443, 325 P.2d 894. See also Seybold Finance Service, Inc. v. Schwaner, 102 So.2d 317 (La.App.); Accounts Supervision Co. v. Atley, 89 So.2d 508 (La.App.); Commonwealth Loan Co. v. Coleman, Ohio Mun.Ct., 133 N.E.2d 677; Thomas v. Crosby, D.C., 146 F.Supp. 296. Since fraud to be actionable must have been relied upon to the movant's injury it is essential to establish that the creditor was actually induced to part with his funds or property in reliance on the representations. Rudstrom v. Sheridan, 122 Minn. 262, 142 N.W. 313. Omission of a statement of existing debts from a financial statement cannot be the basis of fraud within the exception to the bankruptcy discharge when the creditor in fact had knowledge of the debts at the time the application for credit was received. In re Noble, D.C., 42 F.Supp. 684 (reversed on other grounds, Beneficial Loan Co. v. Noble, 10 Cir., 129 F.2d 425). The creditor must have relied on the debtor's misrepresentation of fact without knowledge as to its falsity to render the debt immune from discharge. Eline v. Richard, 296 Ky. 283, 176 S.W.2d 697; Hoskins v. Velasco Nat. Bank, 48 Tex.Civ.App. 246, 107 S.W. 598.

5. The defendant debtor has been discharged in a bankruptcy proceeding in which the plaintiff's debt was duly scheduled. Subsequent to the discharge plaintiff sued in the Superior Court of Hall County contending that the debt was not dischargeable because the bill of sale on household furnishings pledged as collateral warranted that there were no liens or encumbrances thereon. Plaintiff introduced evidence of prior liens and the defendant admitted that the plaintiff's security was subject to three prior loans secured by bills of sale to secure debt on the same property, but offered uncontradicted testimony that he informed the finance company on the occasion of both this and prior loans as to the existence of such liens and the identity of the other finance companies involved. The evidence was properly admitted over the objection that it varied the terms of a written contract in contravention of Code § 38-501. This action is not, like that of Miller v. Desverges, 75 Ga. 407, one in contract on a breach of...