In re Marshall, Bankruptcy No. 81-02643-SW
| Decision Date | 13 October 1982 |
| Docket Number | Adv. No. 81-1783-S.,Bankruptcy No. 81-02643-SW |
| Citation | 24 BR 105 |
| Parties | In re Gene Herbert MARSHALL, Debtor. John E. POE, Plaintiff, v. Gene Herbert MARSHALL, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
A. Ronald Stewart, Springfield, Mo., for plaintiff.
William Wear, Springfield, Mo., for defendant.
Plaintiff hired defendant, who was an auctioneer, to sell 72 acres of farmland which plaintiff owned. The auction was held on May 28, 1976 and the land was sold for $42,000. There was a cash down payment of $8,240, assumption of a $25,800 Federal Land Bank note and the balance was secured by execution of a second deed of trust. The down payment was taken by defendant who said he would hold it in his escrow account until the sale was closed.
On June 23, 1976, the day of the closing, defendant gave plaintiff a check for $6,560, representing the amount due after deduction of the auctioneer's commission. Plaintiff deposited the check on September 10, 1976. It was returned to him, marked insufficient funds. It was deposited a second time and returned for the same reason.
Plaintiff sued defendant on the check in the Circuit Court of Greene County, Missouri and recovered a judgment. When defendant filed his bankruptcy on August 25, 1981, the judgment was scheduled as an unsecured debt. Plaintiff then filed a complaint seeking to determine the dischargeability of this debt. An evidentiary hearing was held and the matter taken under advisement pending the filing of briefs which have now been received.
The evidence shows that defendant deposited $8,200 in his account on June 1, 1976. When he issued the check to plaintiff, the account balance was not sufficient to pay it. There was enough money to pay the check from June 28, 1976 through August 8, 1976 and from August 20, 1976 through August 24, 1976 after which time the account did not have sufficient funds to pay the check.
Plaintiff argues that defendant had an obligation to maintain the account so that the check could be paid. He also contends that defendant misappropriated the funds and that the whole course of conduct makes the obligation non-dischargeable under Section 17 of the Bankruptcy Act. Defendant replies that he did not intentionally use the money, thought the check had been paid shortly after it was issued and never realized the account was insufficient to pay it.
The complaint alleges that "defendant ... appropriated ... proceeds entrusted to his care fraudulently to his own use; and that such action constituted fraud or defalcation while acting in a fiduciary capacity, embezzlement and larceny ...", conduct not dischargeable under Section 523(a)(4) of the Code, Title 11, U.S.C. The parties argue the issue, however, as though Section 17(a)(4) of the Bankruptcy Act was the controlling statute.
The Bankruptcy Code was enacted in 1978 to be effective on October 1, 1979. At that time, the repeal of the Bankruptcy Act was also effective. While the events which are the subject of this litigation occurred in 1976, the bankruptcy was filed in 1981. The Code governs the rights of the parties. Section 401ff, Title 11, U.S.C.
Section 523(a)(4) prohibits discharge "from any debt ... for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." If the debt is to be found non-dischargeable for fraud or defalcation, plaintiff must show that defendant was acting in a fiduciary capacity. 3 Collier on Bankruptcy, ¶ 523.14 (15th Ed.). The relationship must be created prior to the act of wrongdoing and not be a result of the act. In re Pedrazzini, 644 F.2d 756 (9th Cir. 1981); Matter of Dloogoff, 600 F.2d 166 (8th Cir. 1979); In re Weidman, 18 B.R. 249 (Bkrtcy.E.D.Va.1982).
Under Missouri law, an auctioneer is an agent and not a fiduciary. Pasley v. Ropp, 334 S.W.2d 254 (Mo.App.1960); Shopen v. Bone, 328 F.2d 655 (8th Cir. 1964). To convert an agency into a fiduciary relationship requires an agreement in addition to that of the agency arrangement. Matter of Murphy, 9 B.R. 167 (Bkrtcy.E.D.Va.1981). The precise question of whether there is a fiduciary relationship for purposes of Section 523(a)(4) is a matter of federal law, Matter of Murphy, supra; In re Paley, 8 B.R. 466 (Bkrtcy.E.D.N.Y.1981) but reference to state law is helpful. Here the relationship of auctioneer-seller contained none of the attributes of an express or technical trust. There was no fiduciary relationship between plaintiff and defendant when the property was sold.
Nor does the fact that defendant said he would put the money into an escrow account change the relationship into a fiduciary one. The Court concludes that the only representation which was made was that defendant would hold the money for plaintiff until the sale closed. He did that. The debt arose when the check was issued and not paid. Even if defendant had misrepresented the nature of the account, the vice in this matter is not in that but rather that the check was not honored at a later time. The commitment to hold the money did not create a fiduciary relationship. In re Paly, supra; In re Dawson, 16 B.R. 343 (Bkrtcy.N.D.Ill.1982).
Nor is the debt non-dischargeable merely because the debtor at various times had insufficient funds in his account to pay it. There is no evidence that he knew the check was not covered when he wrote it. At various times after the check was issued there were sufficient funds in the account to pay it. Absent some independent representation, the fact that the check was not good from time to time is insufficient to create a non-dischargeable debt promised on fraud. In re Barth, 4 B.R. 141 (Bkrtcy. W.D.Mo.1980); Matter of Murray, 7 B.R. 899 (Bkrtcy.W.D.Mo.1981).
Section 400.3-503(2) establishes 30 days as a reasonable time for presentment "of an uncertified check which is drawn and payable within the United States ..." But that period is only a point of beginning of the analysis; it does not establish any absolute rule. Absent a showing of prejudice to the drawer, delays of several weeks may be acceptable. Salisbury v. Renick, 44 Mo. 554 (1869); Light v. Kingsbury, 50 Mo. 331 (1872); Bartleman v. Humphrey, 441 S.W.2d 335 (Mo.1969).
Regardless of the delay in presentment, "the check ... is an absolute appropriation of so much money in the hands of his banker to the holder of the check, and there it ought to remain until called for; and, unless the drawer actually suffers by the delay, ... he has no reason to complain of delay not unreasonably protracted." Nelson v. Kastle, 105 Mo.App. 187, 79 S.W. 730 (1904). In Nelson there was a delay of two and a half years and the verdict for defendant was affirmed as plaintiff has failed to show the drawer was not injured by the delay.
Here the plaintiff held onto the check because he was accumulating funds to purchase some real estate. For most of the time from the issuance of the check until it was presented, there was sufficient money in debtor's account to pay the check. The delay did allow debtor to use the money in the account for purposes other than the payment of the check and thus created the possibility of a non-dischargeable debt. There is no evidence as to what payments debtor made with those funds and no evidence that those payments had to be made as opposed to holding the funds for the check issued to plaintiff. Prejudice suggests the existence of events beyond the control of a party. Here debtor has made no showing of prejudice except that he had the opportunity to use the funds and carelessly did so. This is not the type of prejudice contemplated by the statute.
There is little question but that debtor used the money in his account for his own use, thus depriving plaintiff of payment. Under Missouri law such conduct constitutes a conversion. "Conversion is the unauthorized assumption of the right of ownership over the personal property of another to the exclusion of the owner's right." Houston v. Columbia Fed. Sav. & Loan Ass'n., 569 S.W.2d 211, 214 (Mo.App. 1978). Proof of conversion can be shown "(1) by tortious taking; (2) by any use or appropriation to the use of the person in possession, indicating a claim of right in opposition to the rights of the owner, (3) by a refusal to give us possession to the owner on demand." Arnold v. Prange, 541 S.W.2d 27, 30 (Mo.App.1976).
Here, when debtor used the money in the account and depleted the balance so that the check to plaintiff could not be paid, he converted the money to his own use. The fact that he may have done so only carelessly is not controlling. Schulte v. Florian, 370 S.W.2d 623 (Mo.App.1963). It is the use of the property and not the motivation which creates the conversion. United Missouri Bank South v. U.S., 423 F.Supp. 571, 577 (D.C.W.D.Mo.1976).
Section 17(a)(2) of the Bankruptcy Act, (Section 35, Title 11, U.S.C.) now repealed, provided that a debt arising out of willful or malicious conversion was not dischargeable. The legislative history of the Code reported in House Report No. 95-595, reprinted in App. 2 Collier on Bankruptcy 364 (15th Ed.), ...
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