In re McGrath, 79 Civ. 3518.

• Decision Date: 06 August 1980
• Docket Number: No. 79 Civ. 3518.,79 Civ. 3518.
• Citation: 7 BR 496
• Parties: In re William K. McGRATH, Bankrupt-Appellant. Rebecca M. SEAVER, Plaintiff-Respondent, v. William K. McGRATH, Defendant-Appellant.
• Court: U.S. District Court — Southern District of New York

7 B.R. 496 (1980)

In re William K. McGRATH, Bankrupt-Appellant Rebecca M. SEAVER, Plaintiff-Respondent, v. William K. McGRATH, Defendant-Appellant.

No. 79 Civ. 3518.

United States District Court, S.D. New York.

August 6, 1980.

Herbert Adler, New York City, for plaintiff-respondent.

Ira H. Leibowitz, Garden City, N.Y., for defendant-appellant.

MEMORANDUM OPINION

MOTLEY, District Judge.

William McGrath, appellant, has appealed to this court from a decision and order of the Bankruptcy Court (Schwartzberg, J.) holding that McGrath's liability for a sum of money procured from respondent, Rebecca Seaver, was not discharged under section 17(a)(2) of the Bankruptcy Act on the ground that McGrath obtained the money by fraud. Seaver had instituted an action against McGrath for fraudulent inducement.

McGrath was the president of Sound Yacht Basis, Inc. and Sound Yachts, Inc., its subsidiary, as well as the president and sole shareholder of Associated Management Services, Inc., the parent corporation of Sound Yacht Basin, Inc. The subsidiary, Sound Yacht, Inc., was engaged in the business of selling and distributing motor boats, sailboats and other types of nautical equipment. This corporation was the representative of several yacht manufacturers, including Endeavour Yacht Co.

In 1976, Seaver saw an advertisement of Sound Yacht, Inc. for the sale of a used 32 foot Endeavour Yacht. Seaver contacted the offices of Sound Yacht to purchase this boat and placed a deposit of $500.00 on the boat. After this point, Seaver informed McGrath that she wanted a new engine placed in the boat. McGrath advised her that such placement would be impracticable and suggested that she purchase a new model of the yacht with extra equipment and the type of engine she requested. The new yacht had a purchase price of $26,951.00. McGrath informed Seaver that the quoted price would remain in effect for only a short time longer and stated that the price could be held only if an order were placed quickly. McGrath also stated that Seaver's chances of obtaining discounts on the yacht and equipment would be improved in proportion to the amount of money advanced. Seaver testified that she relied on McGrath's statements that the money would be forwarded immediately to Endeavour for production of the yacht and purchase of equipment. Seaver delivered two checks for a total amount of $26,451.00. McGrath did not immediately transfer the funds to Endeavour, but instead placed the money in the tax escrow account of Sound Yachts. What ultimately occurred was that Seaver never received the yacht. Nor did she receive a refund of the $26,451.00 and the $500.00 deposit.

The Bankruptcy Court found that McGrath had obtained the money from Seaver by false pretenses. The court found that McGrath had represented to Seaver that he would deliver immediately the money to Endeavour. McGrath's deposit of the funds in the escrow account was sufficient evidence of his lack of intent to perform as requested in addition to an intent to deceive Seaver. The court further found that Seaver relied on this representation and was injured as a result of this representation. Finally, the court found that McGrath was personally liable for this fraud committed in the course of his official duties as a corporate officer.

Appellant challenges as clearly erroneous the findings of the Bankruptcy Court with respect to the issue of obtaining the money under false pretenses. The crux of his contention is that insufficient evidence of his intent to deceive Seaver was adduced at trial. Appellant also claims that mere non-performance of the contract to procure a boat for respondent Seaver does not as a matter of law give rise to an inference of fraud.

Appellant's argument is weak. Appellant contends that the allegedly false statement was his representation to Seaver that the contract would be performed, that is to say that he would obtain the new yacht for Seaver embellished with the request equipment. This representation, which is, in effect, a statement concerning McGrath's duty under the purchase contract, is not the representation that was at issue in the bankruptcy proceeding nor was it...