In re Adams

• Decision Date: 18 December 1973
• Docket Number: No. BK72-4008,BK72-4013.,BK72-4008
• Citation: 368 F. Supp. 80
• Parties: In the Matter of Robert Eugene ADAMS, Sr., Bankrupt. In the Matter of Arthur Joseph FIEGEN, Bankrupt.
• Court: U.S. District Court — District of South Dakota

368 F. Supp. 80

In the Matter of Robert Eugene ADAMS, Sr., Bankrupt.

In the Matter of Arthur Joseph FIEGEN, Bankrupt.

Nos. BK72-4008, BK72-4013.

United States District Court, D. South Dakota, S. D.

December 18, 1973.

Robert L. O'Connor, Sioux Falls, S. D., for Robert Eugene Adams, Sr.

J. Bruce Blake, Sioux Falls, S. D., for Arthur J. Fiegen.

Timothy J. Nimick of Woods, Fuller, Schultz & Smith, Sioux Falls, S. D., for Time Loan Plan, Inc.

MEMORANDUM DECISION

NICHOL, Chief Judge.

These two cases, consolidated for purposes of decision, come before this court upon petitions for review filed by Time Loan Plan, Inc. (Petitioner), a creditor of the bankrupts. In each case, Petitioner challenges the referee's order permitting the discharge of the debt owed by the bankrupt to Petitioner. The challenge in each case is predicated upon Petitioner's contention that the loan creating the debt was extended by Petitioner in reliance upon a materially false written statement relating to bankrupt's financial condition and made by bankrupt with intent to deceive, thus precluding discharge under 11 U.S.C. Sec. 35(a)(2) (1960), amending 11 U.S.C. Sec. 35(a) (1898). Proper understanding requires separate analyses of the circumstances surrounding each bankrupt's loan transaction.

Arthur J. Fiegen applied to Petition.r for a loan of $540.00 on April 23, 1971. Mr. Fiegen had been a customer of Petitioner prior to that time and had satisfactorily paid off three notes held by Petitioner. He testified that he fully informed Petitioner of his situation— that he had just lost his business and needed money to pay accumulated withholding taxes. He was requested to fill out and sign a writing described as a "financial statement" and testimony was conflicting as to whether he was told to list all of his debts, both business and personal, at the time the request was made. Mr. Fiegen testified that he had informed Petitioner's manager that, since he was applying for a business loan, he was only going to list his business debts. Printed on the financial statement in bold red letters, however, was the sentence "Applicants must list all debts—do not under any circumstances omit any debts." The statement made no provision for a listing of assets. The referee found that Petitioner's agent had failed to explain the legal significance of a material and intentional omission of debts—he failed to explain that such an omission would deprive debtor of the protection of bankruptcy proceedings by causing the non-dischargeability of the debt owed to Petitioner. The entire credit transaction took no more than one-half hour. Petitioner made no inquiry through the credit bureau. Asked whether it was usual to do so, Petitioner's office manager testified: "Mostly, unless it is a customer we have had and, as to their pay habits, they have established them within our office." The referee made no specific finding as to the amount of debts which were omitted from the financial statement. Petitioner contends that $7000-$8000 in additional debts existed at the time of the making of the financial statement, none of which were included thereon.

Robert E. Adams applied to Petitioner for a loan of $496 on August 23, 1972. The loan was to be repaid in 24 monthly installments of $35 each for a total of $720. Mr. Adams, who had never made use of Petitioner's financial services in the past, was requested to fill out the financial statement previously described. He listed debts in excess of $28,800, omitting, however, what the referee calculated to be $1800 in debts. Mr. Adams testified that he was asked to list only his own debts and that, since the loan was being made to him and to him only, he did not list debts which he felt were owed by his wife. Since Mr. Adams was a new customer, Petitioner did telephone the credit bureau and received an oral report which was consistent with the financial statement. Petitioner's manager, Mr. Lawrence Bierman, testified that he thought he had asked for Mr. Adams' monthly debt-payment schedule, but that schedule was not reduced to a writing.

In each case the referee found that the bankrupt had not intended to deceive Petitioner, that the misrepresentation was not material and that Petitioner had not relied upon the misrepresentation. Since ...