In re Adkisson

• Court: U.S. Bankruptcy Court — Eastern District of Tennessee
• Writing for the Court: CLIVE W. BARE
• Citation: In re Adkisson, 26 B.R. 879 (Bankr. E.D. Tenn. 1983)
• Decision Date: 25 January 1983
• Docket Number: Adv. No. 3-82-0690.,Bankruptcy No. 3-82-00825
• Parties: In re Morris Evan ADKISSON, d/b/a K-Town Market, also formerly d/b/a Central Ave. Paint & Decoring, Debtor. VOLUNTEER STATE OIL CO., Plaintiff. v. Morris Evan ADKISSON, Defendant.

26 B.R. 879 (1983)

In re Morris Evan ADKISSON, d/b/a K-Town Market, also formerly d/b/a Central Ave. Paint & Decoring, Debtor VOLUNTEER STATE OIL CO., Plaintiff. v. Morris Evan ADKISSON, Defendant.

Bankruptcy No. 3-82-00825, Adv. No. 3-82-0690.

United States Bankruptcy Court, E.D. Tennessee.

January 25, 1983.

Charles E. Rader, Knoxville, Tenn., for plaintiff.

Leon Steinberg, Knoxville, Tenn., for defendant.

MEMORANDUM

CLIVE W. BARE, Bankruptcy Judge.

Plaintiff Volunteer State Oil Company alleges the nondischargeability of a debt arising from fraud or defalcation while the debtor was acting in a fiduciary capacity. 11 U.S.C.A. § 523(a)(4) (1979).¹ Trial was held November 26, 1982.²

I

Volunteer State Oil Company (Volunteer) and the debtor entered into a Commission Marketing Contract (Contract) on April 30, 1977. At that time the debtor was operating a convenient and fast food store with self-service gasoline pumps. The purpose of the Contract (Ex. 2) was to provide for the sale of gasoline and motor fuel products which Volunteer undertook to place on the premises occupied by the debtor. Paragraph 2 of the Contract provides that—

Title to all gasoline placed in said equipment and/or motor fuel products on said premises by Volunteer shall remain in Volunteer, until such gasoline and/or motor fuel products is sold by the debtor to retail customers in the usual course of business. It shall be debtor\'s responsibility to account to Volunteer for all inventories of gasoline and/or motor fuel products supplied by or to debtor.

Paragraph 9 of the Contract states in part—

The debtor further agrees that he will hold in trust for the use and benefit of Volunteer, and not otherwise, for Volunteer all money, checks, and other things of value received by him from the sale of Volunteer\'s gasoline and/or motor fuel products, and agrees that all money, checks, and other things of value so received by him shall be deposited to Volunteer\'s account in a bank designated by Volunteer at least once every 24 hours. If such deposits are made during banking hours, the debtor agrees to secure and deliver to Volunteer a duplicate deposit slip evidencing each deposit and to deliver same to Volunteer. The debtor further agrees that he will daily deliver to Volunteer a full and completed daily report of all sales made during the preceding (sic) 24 hours, accounting for all funds and merchandise by said daily report of sales, duplicate deposit slip(s) from the bank, and credit invoices, if any. . . . In case any deposits are made in a night depository or at other than banking hours, the debtor agrees that as soon as possible, but in no case later than twelve hours after the next opening of the bank, he will secure and deliver to Volunteer the bank\'s receipt or other evidence of the making of such deposits.

The debtor thereafter proceeded to sell gasoline and motor fuel products which Volunteer placed on his premises in accordance with the Contract. However, according to Volunteer, the debtor defaulted in performance of his obligations under the Contract by failing to deposit proceeds received by him from the sale of the gasoline and motor fuel products in Volunteer's bank account every twenty-four hours. Volunteer asserts that as of May 31, 1982, the amount which the debtor should have had in his possession and which he should have been "holding in trust" for it was $1,921.07. Volunteer says this sum has not been remitted to it by the debtor and now seeks a judgment of nondischargeability in this amount.

Although denying generally the allegations set forth by Volunteer, the debtor apparently does not dispute that a shortage occurred. The debtor asserts, but did not substantiate by credible proof, that a payment he made to Volunteer was diverted to rental payments. (The site for the debtor's convenience store and self-service gas operation was leased from Volunteer.) The court is satisfied from the proof that the debtor failed to deposit, in accordance with the terms of the Contract, $1,668.84 of the total amount received by him from the sale of products placed on the premises by Volunteer. The difference in this sum and the sum asserted by Volunteer is represented by credit card sales which were later dishonored. The debtor deposited the "things of value" that he had received in connection with the rejected credit card sales; he now cannot be charged with defalcation when those charges were later rejected.

Finding a defalcation in the amount of $1,668.84, this leaves for determination whether this indebtedness is rendered non-dischargeable by § 523(a)(4), that is, whether the debtor was acting in a fiduciary capacity. The issue is a matter of federal law. Matter of Angelle, 610 F.2d 1335, 1341 (5th Cir.1980).

II

Section 523(a) of the Bankruptcy Code enacts in part:

A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt—

. . . . .

(4) for fraud or defalcation while acting in a fiduciary capacity. . . .

Although the Bankruptcy Code does not include a definition for "fiduciary capacity," there are numerous decisions involving exceptions to dischargeability, based on Code § 523(a)(4) or its progenitors, wherein the meaning of the term has been thoroughly considered. 3 Collier on Bankruptcy ¶ 523.14c (15th ed. 1982). The term originally appeared in the federal bankruptcy laws in the Bankruptcy Act of 1841; the phrase qualified those "defalcations" which would not be discharged. The United States Supreme Court had occasion to consider the meaning of fiduciary capacity very shortly after its appearance in the Bankruptcy Act of 1841. One of the issues before the Court in Chapman v. Forsyth, 43 U.S. (2 How.) 202, 11 L.Ed. 236 (1844), was whether a commission merchant and factor who retained the proceeds from the sale of his principal's goods was a fiduciary debtor of his principal, thereby excepting the debt to the principal from the factor's discharge in bankruptcy.

If the act embrace such a debt, it will be difficult to limit its application. It must include all debts arising from agencies; and indeed all cases where the law implies an obligation from the trust reposed in the debtor. Such a construction would have left but few debts on which the law could operate. In almost all the commercial transactions of the country, confidence is reposed in the punctuality and integrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the first section of the act.

The cases enumerated, "the defalcation of a public officer," "executor," "administrator," "guardian," or "trustee," are not cases of implied, but special trusts, and the "other fiduciary capacity" mentioned, must mean the same class of trusts. The act speaks of technical trusts and not those which the law implies from the contract. A factor is not, therefore, within the act.

Chapman v. Forsyth, 43 U.S. (2 How.) 202, 208, 11 L.Ed. 236 (1844).

Since the Chapman decision in 1844, courts have continued to find that the fiducial relationship necessary to except a debt from discharge exists only in cases involving express or technical trusts, as opposed to either a constructive or implied trust or a trust ex maleficio. Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934); In re Johnson, 691 F.2d 249, 251 (6th Cir.1982). The legislative history of Code § 523(a)(4) does not indicate Congress intended to modify the long-standing meaning of the term "fiduciary capacity." Consequently, trust obligations may be excepted from a debtor's discharge under § 523(a)(4) only if the trust is an express or technical trust.

Plaintiff submits that the general characteristics of an express trust are: (1) sufficient words to create a trust; (2) a definite subject; and (3) a certain and ascertained object or res. 89 C.J.S. Trusts § 22 (1955); In re Thornton, 544 F.2d 1005, 1007 (9th Cir.1976). It is plaintiff's contention that an express trust is created by the express words of the grantor identifying the property, persons, and purposes of the trust. See Kaphan v. Toney, 58 S.W. 909, 912-13 (Tenn.Ch.App.1899). Plaintiff further contends that the Contract with the debtor satisfies the requirements of an express trust. Plaintiff asserts: (1) paragraph 9 of the Contract explicitly required the debtor to hold in trust all money and other things of value received from the sale of plaintiff's goods and to make daily deposits in a bank account owned by plaintiff; (2) the subject matter of the trust was the debtor's operation of a business in which debtor agreed to sell plaintiff's products; and (3) the gasoline and/or motor fuel products were the object of the trust.

The debtor, on the other hand, argues that the Contract did not create a true trust relationship because it is no more than a simple commercial agreement between a creditor and his debtor. According to the debtor, the character of a debt relationship, as opposed to the form thereof, should determine whether a fiducial relationship exists.

The nondischargeability of the sum plaintiff seeks to except from the debtor's discharge is contingent upon the existence of an express or technical trust between the parties. Chapman v. Forsyth, 43 U.S. (2 How.) 202, 11 L.Ed. 236 (1844). The following definitions are of interest:

Express trust—A trust created or declared in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties.

Constructive trust—A trust raised by construction of law, or arising by operation of law, as distinguished from an express trust.

Implied trust—A trust raised or created by implication of law; a trust implied or presumed from circumstances.

Trust ex maleficio—A species of constructive trust arising out of some fraud, misconduct, or breach of faith on the part of the person to be charged as tr

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