In re Capps
| Decision Date | 29 September 1995 |
| Docket Number | Bankruptcy No. 94-05518-BGC-7. Adversary No. 94-00445. |
| Citation | 193 BR 955 |
| Parties | In re Vickie Houston CAPPS, Debtor. James Ronald HOUSTON, Plaintiff, v. Vickie Houston CAPPS, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
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Robert L. Austin, Birmingham, AL, for James Ronald Houston.
Gary W. Weston, Gardendale, AL, for Vickie Houston Capps.
This matter came before the Court for trial on the Complaint filed by Mr. James Ronald Houston. The plaintiff, Mr. James Ronald Houston; the defendant, Ms. Vickie Houston Capps; the attorney for the plaintiff, Mr. Robert L. Austin; and the attorney for the defendant, Mr. Gary W. Weston, appeared. The matter was submitted on the oral stipulation of facts made in open court, the exhibits admitted into evidence as part of that stipulation, the record in the case and the arguments of counsel, who advised the Court that no testimony would be offered.
Ms. Capps and Mr. Houston were granted a divorce from one another on April 11, 1988. Attached to and incorporated in the state court's final judgment of divorce is a settlement agreement executed by both. In the first paragraph of the settlement agreement, Ms. Capps was allowed custody of the parties' two minor children. Regarding the house then owned jointly by Ms. Capps and Mr. Houston paragraph 6 provides:
The home of the parties, and the real property appurtenant thereto, located at 1356 Downs Road, Mt. Olive, Alabama 35117, shall be the sole property of the plaintiff Ms. Capps, and said plaintiff shall have the sole use, right to possession and title thereto. Defendant Mr. Houston hereby relinquishes all of his right, title and interest thereto in the said home, and further agrees to execute a deed in favor of the plaintiff. After the children have graduated from school, in June 1993, plaintiff shall place the home to be sold on the open market, to be sold for the best possible price, after which the existing encumbrances, if any, on the home shall be satisfied. The net proceeds of the sale shall be divided as follows: The sum of $5,000.00 shall be paid the defendant or half of the net proceeds of the sale, whichever is less; the remaining sum shall go to the plaintiff. In the event that plaintiff does not wish to sell the home in June, 1993, she may pay the sum of $5,000.00 to the defendant instead of selling said home.
On the date the divorce judgment was entered, the house was encumbered by a mortgage in favor of First Federal Savings Bank of Bessemer. Otherwise, the house was unencumbered.
In July, 1992, Ms. Capps borrowed $10,300.00 from Warrior Savings Bank and executed a mortgage on the house to secure repayment of the loan. On November 23, 1993, Ms. Capps sold the house for the sum of $28,500.00. From the proceeds of the sale, Ms. Capps paid $14,370.41 to First Federal Savings Bank of Bessemer in full satisfaction of the first mortgage, $8,551.80 to Warrior Savings Bank in full satisfaction of the second mortgage, and $2,789.00 to Mr. Houston. Ms. Capps retained the remainder of the sale proceeds.
Aggrieved that he did not receive $5,000 from the proceeds of the sale, Mr. Houston filed a petition for rule nisi in the state court asking that Ms. Capps be held in contempt for failure to abide by the terms of paragraph 6 of the divorce decree. A settlement was reached and on June 30, 1994, an order was entered which embodied the terms of the settlement. Under the terms of that order, Ms. Capps was adjudged to be in civil contempt for her failure to pay Mr. Houston "his portion of the proceeds of the sale of the marital residence." The order provided further that Ms. Capps could purge herself of the contempt by paying Mr. Houston the sum of $2,711.10 (the balance of the $5,000 plus a $500 attorney's fee) at the rate of $150 per month. Ms. Capps did not pay the amount required under the order of the state court.
Mr. Houston contends that, by granting a second mortgage on the property, Ms. Capps became obligated to pay him $5,000, since the presence of the second mortgage resulted in his receiving less than that amount from the proceeds of the sale. That contention, of course, presupposes that Ms. Capps was forbidden by the divorce settlement from placing or allowing additional encumbrances on the property, at least to the extent that it would result in Mr. Houston receiving less than $5,000 for his interest in the house. The proper construction of the divorce settlement was firmly established by the state court's June 30 order, and Ms. Capps is now foreclosed from arguing that, under the divorce settlement, she was entitled to obtain a second mortgage on the property and could thereby diminish the amount that Mr. Houston would receive from the house sale proceeds.1
Mr. Houston alleges first that the debt owed to him by Ms. Capps is nondischargeable by virtue of 11 U.S.C. § 523(a)(2)(A). Section 523(a)(2)(A) of the Bankruptcy Code makes nondischargeable a debt for obtaining money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretense, a false representation, or actual fraud. In order to preclude the discharge of a particular debt because of a debtor's false representation, a creditor must prove that the debtor made a false representation, that at the time the debtor knew the representation was false, that the debtor made the representation with the purpose and intention of deceiving the creditor, that the creditor relied on the representation and the creditor's reliance was reasonably founded, and that the creditor sustained loss or damage as a result of the representation. In re Hunter, 780 F.2d 1577, 1578 (11th Cir.1986). "The debtor must be guilty of positive fraud, or fraud in fact, involving moral turpitude or intentional wrong, and not implied fraud, or fraud in law, which may exist without the imputation of bad faith or immorality." Id. See also Neal v. Clark, 95 U.S. 704, 5 Otto 704, 24 L.Ed. 586 (1887); Gabellini v. Rega, 724 F.2d 579 (7th Cir.1984); In re Pedrazzini, 644 F.2d 756 (9th Cir.1981); Massachusetts v. Hale, 618 F.2d 143 (1st Cir.1980); In re Preston, 47 B.R. 354 (E.D.Va.1983); In re Byrd, 9 B.R. 357 (D.D.C.1981); 124 Cong.Rec. 32399 (1978) reprinted in 1978 U.S.C.C.A.N. 5787, 6436, 6453 (Statement of Representative Edwards).
An actual, overt representation is the sine qua non of Section 523(a)(2)(A). In re Hunter, 780 F.2d at 1578. Mr. Houston offered no testimony regarding any specific representations made by Ms. Capps to him and does not describe in his complaint the representations upon which his fraud allegations are based. According to the stipulation of the parties, and the written exhibits admitted into evidence, it is clear that the debt owed to Mr. Houston is based on Ms. Capps noncompliance with the divorce settlement by refusing to give him $5,000 from the house sale and not on any promise or representation made directly to Mr. Houston by her. The only "representation" purportedly made by Ms. Capps directly to Mr. Houston was that she would give Mr. Houston one half of the net proceeds of the house sale over and above the mortgage existing on the date the divorce settlement was executed, up to a maximum of $5,000. A promise to perform an act in the future is a present representation and, if the promise is not ultimately performed, may constitute fraud if, at the time the promise was made, the defendant intended not to do the act promised and intended to deceive the plaintiff. E & S Facilities, Inc. v. Precision Chipper Corporation, 565 So.2d 54, 59 (Ala.1990). If, when she made that "representation," Ms. Capps knew that she was going to get a second mortgage, or intended to get a second mortgage, and that, as a result, Mr. Houston would not receive $5,000 from the sale proceeds, Mr. Houston might have a legitimate basis under Section 523(a)(2)(A) for averting the discharge of his debt. However, since no testimony was offered by Mr. Houston, the Court has no basis for determining that Ms. Capps did not, in fact, intend to keep her promise when she made it. The mere failure to keep a promise is not, by itself, sufficient to prove an intention to deceive or an intention not to perform the promise. Mason and Dixon Lines, Inc. v. Byrd, 601 So.2d 68, 73 (Ala.1992).
Mr. Houston also contends that the debt owed to him by Ms. Capps is non-dischargeable by virtue of 11 U.S.C. § 523(a)(4). Section 523(a)(4) makes nondischargeable debts resulting from fraud or defalcation while acting in a fiduciary capacity. Mr. Houston's contention is that Ms. Capps was, under the terms of the divorce settlement, a fiduciary, duty bound, upon the sale of the house, to pay him $5,000 of the sale proceeds, and her defalcation in that capacity, by failing to give him the full portion to which he was entitled under the terms of the divorce settlement, rendered the debt thereby created nondischargeable. Section 523(a)(4)'s fiduciary defalcation exception is limited in application to situations involving express trusts, and does not have application to trusts implied by law, such as constructive or resulting trusts, or trusts implied from contract.2 The term "fiduciary" in Section 523(a)(4), according to federal case law, refers to a trustee of an express trust. Whether the relationship between Mr. Houston and Ms. Capps may properly be characterized as an express trust, however, must be determined by reference to Alabama state law.3
Generally speaking, "a trust is a confidence reposed in one person, by and for the benefit of another, with respect to property held by the former, for that other's benefit." Gordon v. Central Park Little Boys League, 270 Ala. 311, 316, 119 So.2d 23, 27 (1960)...
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