In re Magnusson
| Decision Date | 01 October 1981 |
| Docket Number | Bankruptcy No. 80 01792,A.D. No. 81 0091. |
| Citation | 14 BR 662 |
| Parties | In re Douglas MAGNUSSON, f/d/b/a JDI Chevron, Debtor. WATERBURY COMMUNITY FEDERAL CREDIT UNION, Plaintiff, v. Douglas MAGNUSSON, f/d/b/a JDI Chevron and Stephen D. Gerling, Trustee, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
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Mark A. Wolber, Utica, N.Y., for plaintiff.
James M. Kernan, Oriskany, N.Y., for debtor.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
On November 19, 1980, Douglas Magnusson, f/d/b/a JDI Chevron (hereinafter, the Debtor) filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code, 11 U.S.C. 101, et seq. (hereinafter, the Code). That petition was subsequently converted to a Chapter 7 proceeding. On April 23, 1981, the Waterbury Community Federal Credit Union (hereinafter, the Credit Union) filed a complaint pursuant to Rule 701(7) of Bankruptcy Procedure thereby commencing an adversary proceeding to determine the dischargeability of a debt owing to the Credit Union from the Debtor.
Basically, the Credit Union's Complaint alleges that (1) it extends credit, i.e., loans to its "customers"; (2) the extension of credit is dependent upon financial status information provided by customers to the Credit Union at the time application for credit is made; (3) on May 6, 1979 the Debtor submitted a written signed application to the Credit Union for a loan, in the sum of $1,000.00; (4) the Credit Union granted the loan to the Debtor; (5) the Credit Union, in extending such credit to the Debtor, relied upon the submitted application which contained materially false information on the Debtor's financial condition; (6) such application was made with an intent to deceive and defraud the Credit Union; (7) the debt enumerated, having been fraudulently obtained, is nondischargeable under the provisions of the Bankruptcy Code. The Credit Union alleges its claim to be in the amount of approximately $1,229.53.
The Debtor's answer denies all the Complaint's substantive allegations but for the fact that on May 7, 1979, the Credit Union did lend the Debtor the sum of $1,000.00 and is a creditor of the Debtor. The prayer for relief seeks a determination that the debt is dischargeable and dismissal of the complaint.
Mrs. Dolores Copperwheat, an assistant treasurer of the Credit Union, Mr. Eric Miller, a loan approval officer for the Credit Union, Richard Copperwheat, the Credit Union's manager-treasurer; and the Debtor presented testimony to the Court. The Court makes these findings:
1. The Credit Union is open to the entire local community. The acquisition of a loan is possible once an individual becomes a member of the Credit Union. Membership is a mere formality.
2. On May 6, 1979, the Debtor met with Mrs. Copperwheat at her home out of which the Credit Union is operated. The membership application took little time. The Debtor then filled an "APPLICATION FOR LOAN" (Ex. 1) (hereinafter, the Application) consisting of a single 8 × 5 inch card. Mr. Copperwheat testified that the terms of the Application are to be read as: a loan for one thousand dollars ($1,000.00); for twenty-four months; installments monthly of $48.78. The card's front portion, inconspicuously, states The Debtor signed the card on the front.
3. On the reverse side of the card there is a one-half portion which states:
APPLICANT'S STATEMENT
"I WARRANT AND REPRESENT AS AN INDUCEMENT
TO GRANTING THE LOAN IN
THE SUM OF $__________ THAT THE FOLLOWING
IS A TRUE AND CORRECT LIST OF
ALL MY OBLIGATIONS."
CREDITOR ADDRESS AMT. OWING
--------------------------------------------
Oneida National* $ 3500.00*
Sears* $ 430.00*
Wards* $ 275.00*
Only three lines provide space for names of creditors and amounts after dollar symbols. The Debtor signed the signature line provided. He also indicated on appropriate lines that: his employer, as of April 11, 1978, was Revere Copper & Brass, Rome, N.Y.; his weekly salary was $260.___; and "AUTO OWNED" was Chevy '74. (* Debtor's longhand entry).
4. Mrs. Copperwheat testified that she helped the Debtor start the Application but he completely filled in the "Applicant's Statement" side on his single visit, in her presence. No conversation was had between Mrs. Copperwheat and the Debtor concerning the "Applicant's Statement" portion of the Application. Without specific recollection to this Application, Mrs. Copperwheat testified that she tells all loan applicants that "all debts be listed" and that the Applicant must fill in this portion of the application including his length of employment and salary. Mrs. Copperwheat also testified that she and the Debtor never spoke concerning any of his debts as he filled out the Application. Mrs. Copperwheat did not mention to the Debtor the ability to add additional sheets to list his debts. The Application was completed in 20-30 minutes.
5. On May 7, 1979, the Debtor returned to Mrs. Copperwheat's home to sign a promissory note and Truth-in-Lending Disclosure Statement (Ex. 2). Mrs. Copperwheat duly witnessed the Debtor's signing and receipt of copies of those documents. Mrs. Copperwheat issued a Credit Union check (No. 3148) dated May 7, 1979, signed by Richard Copperwheat for the sum of one thousand dollars ($1,000.00). This check was endorsed by the Debtor and negotiated.
6. The Credit Union put the Debtor's bankruptcy petition and schedule of creditors into evidence (Ex. 4). Upon direct examination of the Debtor, it was clearly established that one of the fourteen listed obligations was not listed on the Credit Application although it was incurred and still outstanding as of May 6, 1979. It was an obligation between Revere Employees' Credit Union and the Debtor in the sum of $1,109.03. Debtor's further testimony stated that this "Revere" obligation pertained to a purchase money loan to buy the Debtor's "Chevy 74" car. This obligation was an initial loan of $1,500.00 which was being re-paid by automatic weekly deductions from the Debtor's paycheck.
7. Mr. Eric Miller is a loan officer of the Credit Union and his duties include running credit checks, reviewing loan applications, and approving such applications. Mr. Miller was the sole approving officer on this loan. He testified that: his approval rested upon the debts listed on the Application; he made no verification of the correctness of these debts or the existence of other debts attributable to the Debtor; he accepted the Application on its face and relied entirely on the Application in granting his approval. Mr. Miller believed that the term "all debts" contained in the Application instructions, meant "all". Miller testified that had he known of the "Revere" debt for $1,000.00, he would not have approved the loan.
8. Mr. Miller further testified that the listed debts were the gauge by which he determined the Debtor's ability to pay. Upon looking at the debts, Miller felt that the Debtor's stated income was sufficient to meet monthly payments. Mr. Miller did inquire of Mrs. Copperwheat who personally verified that the Debtor "works at Revere". Upon cross-examination, Mr. Miller stated that knowledge of monthly payments owing on outstanding debts "would have been helpful" but, here, they were not requested. Mr. Miller stated that a gross monthly debt figure could then be compared to a gross monthly income figure. He further testified that in his approval he "checked creditors he (Debtor) owed money to — that didn't seem excessive" and Mr. Miller thought the Debtor made a good salary. Approval of the loan was made on May 6, 1979. After such approval the promissory note documents, supra, (Ex. 2) were typed.
9. The Debtor testified that he (1) read and understood that the Application requested him to list "all" his obligations; (2) listed the debts he knew at the time and as the Application "had room" to list; (3) that nobody informed the Debtor to list more than there was room provided. The Debtor also testified that he did not ask what to do if there were more outstanding debts than room allowed to list nor whether to differentiate between "minor" or "major" debts. The Debtor considered himself to have four major outstanding debts at the time he executed the Application.
10. The Debtor testified that he was led to believe he was to list only his "major" debts on the three "dollar sign" spaces provided on the Application. He listed his car, as requested, but, the Court notes, the Application did not inquire as to outstanding encumbrances on the "Auto". He listed a gross, not net, weekly salary amount.
11. The Debtor denied omission of the "Revere" debt to make his Application reflect a better financial condition; "I listed all my major debtors (sic) that I knew at the time . . ." The Debtor testified that a sketchy discussion was had concerning the "Revere" debt with Mrs. Copperwheat, but she denies that fact.
12. The Debtor, knowing of the automatic deduction to his paycheck for the "Revere" debt explained that he listed his creditors vis-a-vis what money he had left after receiving his paycheck although he did not list his salary figure as a "net" amount. The Debtor's testimony was given in a credible and sincere manner.
13. The Debtor was involuntarily laid off by Revere, his employer, in May, 1980.
14. The Credit Union's employees work on a voluntary noncompensated basis.
15. Mr. Copperwheat testified that the Credit Union did receive some payments from the Debtor. The initial monthly payment of June 7, 1979 was received on June 8th, in full, for $48.78. No payments...
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