In re Jones

• Decision Date: 21 February 1980
• Docket Number: Bankruptcy No. 7-79-00820 Adversary Proceeding No. 7-79-0004.
• Citation: 3 BR 410
• Parties: In re Calvin Brent JONES, Debtor. FIRST AND MERCHANTS NATIONAL BANK OF RADFORD, Plaintiff, v. Calvin Brent JONES and Byron R. Shankman, Counsel for Debtor and Franklin P. Pulley, III, Trustee, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Virginia

3 B.R. 410 (1980)

In re Calvin Brent JONES, Debtor FIRST AND MERCHANTS NATIONAL BANK OF RADFORD, Plaintiff, v. Calvin Brent JONES and Byron R. Shankman, Counsel for Debtor and Franklin P. Pulley, III, Trustee, Defendants.

Bankruptcy No. 7-79-00820 Adversary Proceeding No. 7-79-0004.

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

February 21, 1980.

Byron R. Shankman, Pulaski, Va., for debtor-defendant.

Jerry K. Jebo, Jebo & Rosenthal, Radford, Va., for plaintiff.

MEMORANDUM OPINION AND ORDER

H. CLYDE PEARSON, Bankruptcy Judge.

Plaintiff, First and Merchants National Bank of Radford (Bank), filed a Complaint herein against the Defendant, Calvin Brent Jones (Jones), seeking a determination of the dischargeability of its debt in the sum of $4,100.38. The grounds alleged in support of the Complaint being that the Defendant, Jones, obtained money by fraud and false pretenses, pursuant to § 11 U.S.C. § 523(a)(2).¹

The facts appearing from the evidence generally is as follows: the Defendant, Jones, first obtained a loan from the Bank on August 26, 1977, with an initial loan of $1,700.00 together with interest and other charges resulting in a total balance due of $2,635.42. The Defendant executed a loan application form which the Bank uses for such purposes upon which certain personal information was set forth at the bottom of which, in a space provided for the listing of debts owed by the applicant, there was set forth a loan due United Virginia Bank— Lynchburg—auto loan, with no amount specified, F & M—with no amount, Am Cr?—$250.00, Master Charge—$250.00; that when the initial loan was obtained, Jones' credit rating was established and confirmed by a check with the local credit bureau, which the Bank obtained in addition to its records concerning the application.

Thereafter, the Defendant maintained a satisfactory credit rating as a customer of the Plaintiff. On April 3, 1979, the Defendant obtained from the Bank a loan of $500.00, executing another loan application upon the identical form as that used initially on August 26, 1977. An examination of this form reflects that the space provided for the listing of debts owed by the Defendant was left entirely blank. The only information listed thereupon was that of up-dating personal information such as Defendant's address, phone number, employment and salary.

Thereafter, on June 1, 1979, the Debtor obtained another loan from the Bank in the amount of $1,000.00, executing still another loan application upon a similar form upon the face of which in the space provided for listing debts owed by the Debtor was, likewise left completely blank. The fragmentary information listed upon said application form consisted solely of an up-dating as to address, employment, salary and telephone number, with a notation that the purpose of the loan was for refinancing of a current loan with the advancement of new money in the amount of $485.00.

Shortly thereafter, on April 16, 1979, the Defendant appeared and co-signed a note for his step-brother in the amount of $1,719.84. The evidence indicated that the Defendant's credit standing with the Bank on this date was such that the Bank was willing to accept the Defendant as a co-maker upon the loan of the step-brother, who apparently had not theretofore been a customer of the Bank, and whose credit rating was unknown to the Bank.

Shortly thereafter, and unfortunately for all concerned, on June 29, 1979, the step-brother had absconded, was of course, not making payments, at which time the Defendant visited the Bank with the unpleasant news. Thereupon, the loan of the step-brother, as well as the current loan balance of the Defendant was refinanced in the amount of $4,100.00, at which time still another of the loan applications was executed by the Defendant. Upon this loan application, as was true with the others, except the first one, in the space for listing of debts, it was entirely blank. This application form, likewise, appeared to contain only an up-dating of pertinent personal information as to address, phone number, employment and salary. The foregoing loan application forms were introduced into evidence as Plaintiff's Exhibits 1, 2, 3 and 4 in their chronological order.

The evidence further showed that at the time of the execution of the loan applications following the first one in question, the Defendant did, in fact, owe additional debts including, of course, the indebtedness owing to the Plaintiff. The Defendant testified generally as to the signing and executing the loan applications, each of which were apparently routinely handled in the renewals other than the first one; that he in fact, had other debts owing at the times when the loan applications were executed, and that the applications were executed in the presence of the Bank Official without any discussions whatsoever as to what other debts the Defendant owed at the times in question; that the last application upon which the Complaint herein is predicated took a very brief period of time, and was solely for the purpose of consolidating the Debtor's present loan and the step-brother's loan into one obligation; that the payments were made upon the consolidated loan until the Defendant's work at his place of employment was reduced, making it impossible for the Defendant to make the payments thereon, resulting ultimately in the Defendant's petition for relief, which was filed in this Court on October 5, 1979.

It is the loan application used in the consolidation that the Bank claims was fraudulent in that the Defendant failed to list all his debts thereon.

The established law relating to dischargeability of debts under the Bankruptcy Act of 1938, § 17a(2) 11 U.S.C. § 35(a)(2) has, for the most part, been incorporated as to such cases in 11 U.S.C. § 523(a)(2). The revision notes reflect that essentially only in two instances are changes made. The first change in 11 U.S.C. § 523 includes the additional wording "actual fraud". The second instance which is material here, includes the wording that the creditor "reasonably relied" upon the alleged written statement. Accordingly, the existing case law construing § 17 of the Act of 1938 is applicable to and should be followed in the resolution of dischargeability questions under the Bankruptcy Reform Act of 1978, 11 U.S.C. § 523.

The elements required to be found must include each of the following: that a false representation was made, in writing for the purpose of obtaining money or property, etc., which was "reasonably relied" upon by the creditor to its detriment. The element in question here is essentially the question of the Defendant's "intent" to make a false and fraudulent statement which was "reasonably relied" upon by...