In re Panaia, Bankruptcy 7 No. 4-83-00091-G

• Decision Date: 19 June 1986
• Docket Number: Bankruptcy 7 No. 4-83-00091-G,Adv. No. 4-84-0080.
• Citation: 61 BR 959
• Parties: In re David J. PANAIA, Barbara A. Panaia, Debtors. The CONNECTICUT NATIONAL BANK, Plaintiff, v. David J. PANAIA, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

61 B.R. 959 (1986)

In re David J. PANAIA, Barbara A. Panaia, Debtors The CONNECTICUT NATIONAL BANK, Plaintiff, v. David J. PANAIA, Defendant.

Bankruptcy 7 No. 4-83-00091-G, Adv. No. 4-84-0080.

United States Bankruptcy Court, D. Massachusetts.

June 19, 1986.

Michael P. Berman, Berman and Sable, Hartford, Conn.

Joseph B. Collins, Hendel, Collins, Stock & Newton, Springfield, Mass.

MEMORANDUM RE: COMPLAINT TO DETERMINE DISCHARGEABILITY OF A DEBT

JAMES A. GOODMAN, Bankruptcy Judge.

This matter is before the Court on a complaint filed by the Connecticut National Bank (the "Bank") on June 29, 1984, seeking to determine the dischargeability of a debt owed by David J. Panaia ("Panaia") to the Bank. The defendant, Panaia, filed a Motion to Dismiss the proceeding on August 16, 1984, which was subsequently taken under advisement. The parties have agreed that this matter may be decided by the Court on the record now before it.

The Court finds this matter to be a core proceeding. The facts, as found in the complaint, are as follows. In order to satisfy his obligations as guarantor of an equipment lease, under which the Bank was a lessor, and to settle litigation then pending between the parties, David Panaia gave the Bank a promissory note in the amount of $15,000. The note, which was dated September 17, 1982, was secured by a mortgage granted by David Panaia and Barbara Panaia to the Bank on property located in East Longmeadow, Massachusetts. At some point during the prior litigation, David Panaia represented, under oath during a deposition, that he owed a separate institution, the Old Colony Bank, $70,000 and that the indebtedness was secured by a lien on the same East Longmeadow property. The Bank contends that Panaia owed the Old Colony Bank in excess of $150,000 at the time he made that statement.¹ The Bank alleges that they entered into a settlement agreement with Panaia and accepted the promissory note and mortgage in reliance upon his allegedly false representation concerning the amount of his indebtedness to the Old Colony Bank.

Exceptions to discharge are governed by 11 U.S.C. § 523, which states, in relevant part:

(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual from any debt—

. . . . .

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by —

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor\'s or an insider\'s financial condition;

(B) use of a statement in writing —

(i) that is materially false;

(ii) respecting the debtor\'s or an insider\'s financial condition;

(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive . . .

The Bank states in its complaint that it is relying upon section 523(a), but does not indicate specifically which provisions it is relying on. Section 523(a)(2)(A), which deals with false pretenses or representations, specifically excludes statements "respecting the debtor's or an insider's financial condition." Those types of statements are dealt with separately in section 523(a)(2)(B). Paragraphs (A) and (B) of section 523(a)(2) are thus mutually exclusive. 3 Collier on Bankruptcy, § 523.08 at 523-38 (15th ed. 1986).

To fall under section 523(a)(2)(B), the statements need not be formal financial statements. The phrase "respecting the debtor's . . . financial condition" is to be broadly interpreted. Blackwell v. Dabney, 702 F.2d 490, 491 (4th Cir.1983); In re Prestridge, 45 B.R. 681, 683 (Bankr.W.D. Tenn.1985). In the present case, the Debtor's statement concerning the amount of his indebtedness to the Old Colony Bank is a statement respecting his financial condition, and the complaint must therefore rely on paragraph (B) of section 523(a)(2), and not paragraph (A). See Engler v. Van Steinburg, 744 F.2d 1060 (4th Cir.1984); Blackwell v. Dabney, 702 F.2d 490, 491 (4th Cir.1983); In re Prestridge, 45 B.R. 681 (Bankr.W.D.Tenn.1985); In re...