In re Ashley, Bankruptcy No. 1-80-00216

Decision Date18 July 1980
Docket NumberAdv. No. 1-80-0087.,Bankruptcy No. 1-80-00216
Citation5 BR 262
PartiesIn re Michael Lee ASHLEY, Debtor. Frank THOMAS, Plaintiff, v. Michael Lee ASHLEY and Ora Dixson, Defendants.
CourtU.S. Bankruptcy Court — Eastern District of Tennessee

Jerry Foster, Chattanooga, Tenn., for plaintiff.

Mark T. Young, Chattanooga, Tenn., for defendant, Michael Lee Ashley.

William B. Petty, Jr., Chattanooga, Tenn., for defendant, Ora Dixson.


RALPH H. KELLEY, Bankruptcy Judge.

This cause came on to be heard upon the complaint of Frank Thomas against Michael Lee Ashley and Ora Dixson praying:

(1) That the Court, upon a hearing, determine that the debt owed by the bankrupt to Frank Thomas . . . be found to be nondischargeable.

(2) That the lien asserted by Ora Dixson be held invalid.

(3) That Frank Thomas have a lien upon said vehicle by reason of . . . judgment and execution.

Both defendants filed an answer denying the allegations of the complaint and Ora Dixson filed a cross-complaint against Frank Thomas and Flossie Weill, trustee, praying:

(1) That her security interest in the 1969 Camaro be confirmed and that she be given possession of said vehicle;

(2) That the Plaintiff/Cross-Defendant, Frank Thomas, be ordered to pay her monetary damages to compensate her for any decrease in value to the vehicle resulting from waste, depletion, or the stripping of said vehicle while it has been in the possession of Frank Thomas or his agents;

(3) That the Plaintiff/Cross-Defendant, Frank Thomas, be ordered to pay her damages in the amount of her costs, including attorney fees, resulting from his frivolous and completely unfounded lawsuit;

(4) That Flossie Weill, Trustee, Defendant, be ordered to take immediate possession of the vehicle and remove it to a place of safe keeping and that, in conjunction with such removal, the contents be inventoried and the vehicle examined by the Debtor and your Defendant/Cross-Plaintiff, Ora Dixson, or their agents, so that the exact damages done to said vehicle may be ascertained;

(5) That, if the Plaintiff/Cross-Defendant, Frank Thomas, fails to pay any damages assessed against him in this proceeding, the Defendant/Cross-Plaintiff, Ora Dixson, be allowed to recover said sums from the bond posted by the Trustee.

At an earlier hearing the court found that Ora Dixson had a perfected security interest in a 1969 Chevrolet Camaro automobile, Vehicle Identification No. 124379N566465, and was entitled to immediate possession of the vehicle.

On May 23, 1980 a non-suit was entered as follows:

NOW COMES your Cross-Plaintiff, Ora Dixson, and herewith nonsuits her action against Flossie Weill, Trustee, evidence having been supplied your Cross-Plaintiff that all damages incurred by your Cross-Plaintiff were sustained before Flossie Weill qualified as Trustee.

The issues before the court are (1) whether the debt owing to Frank Thomas is dischargeable and (2) whether Frank Thomas is liable to Ora Dixson.

On December 2, 1979, Frank Thomas obtained judgment against the debtor which ordered:

(1) That the sale of the boat described in the complaint by the defendant to the plaintiff, be and the same is hereby rescinded and for naught held and plaintiff is awarded judgment against the defendant for the sum of Four Thousand ($4,000.00) Dollars, being the purchase price of the boat and accessories. Upon payment of this sum and all other sums herein decreed, all right, title and interest and possession of the boat shall be awarded defendant.
(2) Plaintiff is awarded the sum of One Thousand ($1 000.00) Dollars as additional damages by reason of such sale.

The judgment also contained the following language:

The Court is further of the opinion and accordingly finds that the defendant was guilty of misrepresentation in the sale of the craft to the plaintiff in that the same was defective and known unto the defendant to be unfit for ordinary purposes for which a craft of this nature would be intended. The Court is further of the opinion and accordingly finds that the defendant was guilty of breach of warranties provided by Tennessee Code Annotated Section 47-2-313, Section 47-2-314 and Section 47-2-315 and accordingly that the application of the plaintiff to rescind the sale should be allowed.

The Chancery Court pleadings indicate plaintiff's reliance upon the Uniform Commercial Code. The state court in its default judgment did not find debtor guilty of fraud involving moral turpitude and intentional wrong.

The Bankruptcy Court may look behind a judgment to determine if the basis for liability is fraud and thus whether the debt is dischargeable. The Court of Appeals in In re Johnson, 323 F.2d 574 (3rd Cir. 1963) at page 578 states:

"Since the Bankruptcy Act is specific as to non-dischargeable debts, it was permissible, even necessary in the circumstances, for the Bankruptcy Court to inquire into the nature of the liability which had been reduced to judgment in order to determine whether it falls within the Act, and further to inquire into the circumstances surrounding the creation of the debt or the entry of the judgment. Poolman v. Poolman 289 F.2d 332 (8th Cir. 1961); Personal Industrial Loan Corporation v. Forgay 240 F.2d 18 (10th Cir. 1956); State Finance Company v. Morrow 216 F.2d 676 (10th Cir. 1954); Margolis v. Nazareth Fairgrounds 249 F.2d 221 (2nd Cir. 1957); White v. Public Loan Corporation 247 F.2d 601 (8th Cir. 1957)."

The Supreme Court of the United States on June 4, 1979, said:

. . . we hold that the bankruptcy court is not confined to a review of the judgment and record in the prior state-court proceedings when considering the dischargeability of respondent\'s debt. Adopting the rule respondent urges would take § 17 issues out of bankruptcy courts well-suited to adjudicate them, and force those issues onto state courts concerned with other matters . . . Brown v. Felsen, 5 Bankr.Ct.Dec. 226.

The court has allowed two hearings so that all proof could be heard.

At the first hearing Frank Thomas testified that he bought a boat, motor, and trailer from the debtor for $4,000.00. It had been advertised in the newspaper.

On one occasion he came by debtor's residence and examined the boat. On another day Mr. Thomas and the debtor took the boat out on Chickamauga Lake. They were out for two or three hours and they fished some.

Mr. Thomas noticed the transom was damaged and felt at the price he was paying he could afford to have it repaired.

After purchasing the boat he noticed it leaked. He took the boat to the factory and had the transom fixed for $350.00. After this repair the factory people told Mr. Thomas it would cost an additional $1900.00 to have the hull repaired.

In response to questions from the court Mr. Thomas estimated the motor was worth $2,500.00 or $2,600.00 and the trailer was worth $800.00 to $1,000.00. He had no complaint about the motor or trailer.

He testified the boat would have been worth $2,500.00 if it had not have leaked. He further testified that when he was out on the lake in the boat with the debtor that he did not notice that it leaked.

On cross-examination Mr. Thomas was asked if debtor's father showed him where patching had been used to repair the bottom of the boat. He answered that he was told the patching was for stress cracks.

Mr. Ashley, the debtor, testified that he bought the boat used in May, 1978. It leaked some but the marina from whom debtor purchased the boat would not make repairs saying that it didn't warrant used boats. The debtor said he told Mr. Thomas of his problem. He says Mr. Thomas saw the "spot" on the bottom of the boat which had to be patched.

The debtor testified he used the boat about three times per week, and from time to time patched the "spot" again if it started leaking.

Mr. Ashley said that he and his father both pointed out the patched place and Mr. Thomas admits that he saw the patch. Apparently, it is Mr. Thomas' position that he was not told of the leak. The debtor says Thomas was advised of the problem and saw the patch.

Albert Ashley, Jr., father of the debtor, testified, that Thomas got under the boat with him and looked at the spot. He testified that Mr. Thomas said, in effect, that he could afford to put a new bottom on the boat considering the price he was paying. Mr. Ashley testified that his son never wrecked the boat.

Maxine Ashley, mother of the debtor, testified that she saw Mr. Thomas crawl under the boat with her husband.

At the second hearing Ronald S. Coleman testified that he accompanied Thomas to debtor's residence where Thomas looked at the boat. The witness didn't remember whether debtor was present. He recalled that Thomas looked under the boat with debtor's father. He testified that debtor's father said his boy would not sell a bad boat.

The next witness was Larry Lovelady who testified that the debtor told him he had hit a stump and damaged the transom. He had done some repairs on the boat but could not repair the transom.

Mrs. Dixson testified that it cost $359.00 to replace tires and wheels on the automobile which Mr. Thomas had attached. At the first hearing Mr. Roberts testified that a deputy sheriff brought the car to his garage for storage. He further testified that a thief had cut a hole in his fence and stole the tires and wheels.


All claims are dischargeable in bankruptcy, except those specifically excepted in 11 U.S.C. § 523. See: Collier on Bankruptcy (15th ed.), Vol. 3, § 523.

The present controversy involves Section 523(a)(2) which excepts from discharge debts

". . . for obtaining money, property, services, or an extension, renewal, or refinance of credit, by —
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor\'s or an insider\'s financial condition . . . "

Section 523(a)(2) is derived, with slight modification, from section 17a(2) of the Bankruptcy Act.

There is no indication that "false...

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