In re Alloway
Decision Date | 10 February 1984 |
Docket Number | Bankruptcy No. 82-04590G,Adv. No. 83-0128G. |
Citation | 37 BR 420 |
Parties | In re Walter ALLOWAY, Carolyn Alloway, Debtors. Ruth RANKIN a/k/a Ruth Alloway, Plaintiffs, v. Walter ALLOWAY, Defendant. |
Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Henry Wessel, Wessel & Carpel, Philadelphia, Pa., for plaintiff, Ruth Rankin a/k/a Ruth Alloway.
David Rosenberg, Media, Pa., for defendant, debtor, Walter Alloway.
Samuel M. Brodsky, Philadelphia, Pa., trustee.
The issue at bench is whether we should grant the husband/debtor's former spouse an exception to discharge under 11 U.S.C. § 523(a)(1) and (a)(5). For the reasons stated herein we will deny the requested relief.
The parties have expressly waived an evidentiary hearing on this matter, so the following evidence has been drawn from the parties' stipulation and uncontested statement of facts.1 Ruth Rankin ("Rankin") and her then husband, Walter Alloway ("the debtor"), moved toward dissolving their marriage by executing a property settlement agreement on January 11, 1980. In part, the agreement transferred the debtor's interest in a jointly held parcel of realty to the wife and further provided that the debtor would be responsible for the payment of several liens on the property held by the Internal Revenue Service ("IRS"). "The debtor's assumption of responsibility of the tax liability was necessary to permit Rankin to maintain the household for herself and her son."2 Prior to the execution of the property settlement agreement Rankin received $25.00 per week from the debtor for her own maintenance and $125.00 for that of her child although after the agreement was signed she received only $85.00 per week for the child's maintenance. Rankin was compelled to sell the realty on April 10, 1981, due to her inability to maintain it because of insufficient income. To complete settlement, Rankin satisfied the IRS tax liens. She did not receive a written assignment from the taxing authority for the payment. At the time of the sale the debtor's wages had been garnisheed for payment of the tax. Shortly thereafter a state arbitration proceeding fixed the debtor's obligation at $11,710.86. The debtor filed a petition for relief under chapter 7 of the Code on September 28, 1982. Rankin commenced the action at bench seeking an exception to the debtor's discharge of the said debt pursuant to 11 U.S.C. § 523(a)(1) and (a)(5).
In pertinent part § 523(a) states as follows:
The burden of proving an exception to discharge is on the party seeking such relief. Schlecht v. Thornton, 544 F.2d 1005, 1006 (9th Cir.1976); Household Finance Corp. v. Danns, 558 F.2d 114, 116 (2d Cir.1977); Kleppinger v. Kleppinger (In Re Kleppinger), 27 B.R. 530, 531 (Bkrtcy.M.D.Pa.1982). In Re Vickers, 577 F.2d 683, 687 (10th Cir. 1978).
In addressing § 523(a)(1), Rankin asserts that under § 509(a)3 she became subrogated to the IRS's purportedly nondischargeable claim against the debtor upon her payment of his tax liability. The clear weight of authority holds that one who has paid the tax liability of another, subject to the limitations of § 509(a), may be subrogated to the claim of the taxing authority and may thus seek an exception to discharge based on that claim. Western Surety Co. v. Waite, 698 F.2d 1177 (11th Cir. 1983); Thomas International Corp. v. Morris International Corp. v. Morris (In Re Morris), 31 B.R. 474 (Bkrtcy.N.D.Ill.1983); Woerner v. Farmers Alliance Mutual Ins. Co. (In Re Woerner), 19 B.R. 708 (Bkrtcy.D. Kan.1982); In Re Co-Build Companies, Inc., 21 B.R. 635 (Bkrtcy.E.D.Pa.1982) ( ); contra National Collection Agency, Inc. v. Trahan, 624 F.2d 906 (9th Cir.1980) ( ). Consequently, we hold that, under the Code, one who pays the tax claim of another may be subrogated to the right of the taxing authority to seek an exception to discharge. Notwithstanding, "subrogation is not a matter of strict right but is purely equitable in nature, dependent upon the facts and circumstances of each particular case." Co-Build, supra, 21 B.R. at 636. The nature of this equitable doctrine has been described as follows:
Subrogation is now a mechanism so universally applied in new and unknown circumstances that it is easy to overlook that it originates in equity. Every facet, whether substantive or procedural, is controlled by the equitable origin and aim of subrogation. These principles, so well established that to cite cases would be an affectation, find expression in accepted texts, as the following excerpts reflect. "Legal subrogation is a creature of equity not depending upon contract, but upon the equities of the parties." 50 Am.Jr. Subrogation § 3 at 679. . . . It is § 10 at 688. Because its object is § 11 at 690. As § 12 at 690-91. And it "will not be enforced to the prejudice of other rights of equal or higher rank, or to displace an intervening right or title, or to overthrow the equity of another person."
Compania Anonima Venezolana De Navegacion v. A.J. Perez Export Co., 303 F.2d 692, 697 (5th Cir.1962), cert. den. 371 U.S. 942, 83 S.Ct. 321, 9 L.Ed.2d 276. The debtor urges the application of an additional principle of subrogation which is that the remedy will not be applied to one who was a mere volunteer in paying the obligation of another. United States v. Commonwealth of Penna., Dept. of Highways, 349 F.Supp. 1370, 1379 (E.D.Pa.1972). We find this principle to be inapplicable in the instant case since Rankin was secondarily liable on the tax obligation and consequently was not a volunteer in paying the debt.
Having dealt with the issue of subrogation Rankin briefly addresses the question of whether the tax claim at issue would be nondischargeable under § 523(a)(1) if it were still held by the IRS. She fails to present any legal or factual basis to support such a conclusion except for an argument apparently based on § 507(a)(6)(A)(i)4 as incorporated in § 523(a)(1). Rankin argues that an application of the "limitation that the claim is to be for a tax for which the return was last due within three years before the filing of the petition . . . would be inequitable under the circumstances of this case and would defeat rather than further the legislative purpose behind the non-dischargeable tax scheme established by Congress." Contrary to Rankin's assertion, we find no equities in the case which would compel us to ignore the three year limitation period of § 507(a)(6)(A)(i). Consequently, the discharge of the debt is not barred by § 523(a)(1) since Rankin has failed to prove that the tax is of one of the types enumerated in that subsection.
As stated above Rankin also asserts that the debt is not dischargeable under § 523(a)(5) since the debtor's obligation to satisfy the tax lien was in the nature of alimony, maintenance or support. This section has four requirements: (1) the debt must be owed to a spouse, former spouse, or child of the debtor; (2) for alimony, maintenance or support; (3) arising under a separation agreement, divorce decree or property settlement agreement; and (4) it must not be assigned except under § 402(a)(26) of the Social Security Act. § 523(a)(5). Thus, § 523(a)(5) will not bar the discharge of an obligation from the debtor to his former spouse unless the debt is for alimony, maintenance or support. Whether in any given case such obligations are in fact for "support" and therefore not dischargeable in bankruptcy, is a question of fact to be...
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