In re Preston

• Decision Date: 27 January 1983
• Docket Number: Civ. A. No. 82-769-N.
• Citation: 47 BR 354
• Court: U.S. District Court — Eastern District of Virginia
• Parties: In re Gerald Boyd PRESTON and Kishiko Preston, Debtors. James J. FLEMING, Plaintiff, v. Gerald Boyd PRESTON, Defendant.

47 B.R. 354 (1983)

In re Gerald Boyd PRESTON and Kishiko Preston, Debtors James J. FLEMING, Plaintiff, v. Gerald Boyd PRESTON, Defendant.

Civ. A. No. 82-769-N.

United States District Court, E.D. Virginia, Norfolk Division.

January 27, 1983.

Ruth A. Gibson, Norfolk, Va., for plaintiff.

Barry L. Jenkins, Virginia Beach, Va., for defendant.

ORDER

KELLAM, Senior District Judge.

James J. Fleming filed objections to the discharge of Gerald Boyd Preston (Bankrupt) asserting that monies loaned to Bankrupt, evidenced by two promissory notes, one of $9,715.62 and the other for $6,565.30, had been obtained by fraud, thus barring discharge of the debt. Fleming alleged that Bankrupt was a free-lance financial broker, and "expressly contracted that the monies would be used by a California corporation to leverage large life insurance premiums" Par. 5 of Complaint; that the funds were not used for that purpose; and that the representations were false. Each of the notes given for the monies advanced were signed by Fleming and Preston, and contained the following language:

The Lender agrees that Debtor may use the proceeds of this note for whatever purpose he sees fit, including but not limited to, real estate acquisition, business development, or other investment.

Copies of the notes were attached to the complaint and made a part thereof.

When the larger note came due on August 19, 1981, Bankrupt delivered to Fleming a check thereof. The check was returned by the bank for "insufficient funds." The evidence established that Bankrupt knew at the time he issued the check that he did not have sufficient funds in his bank account to cover it.

Bankrupt filed a motion to dismiss and each party moved for summary judgment. The Bankruptcy Court dismissed the complaint as to the note for $6,565.30, but refused to do so as to the note for which the check had been given. Following presentation of the evidence, the Bankruptcy Court denied a discharge as to the debt for which the check had been issued. Fleming and Bankrupt have each appealed.

There is no material dispute in the evidence. Fleming asserts he should have been permitted to introduce evidence of his alleged agreement as to the restrictions on the use of the monies, regardless of the language in the note. Bankrupt asserts that the denial of the discharge because of the giving of the bad check was erroneous.

I.

As to the note for $6,565.30, the Bankruptcy Court held that evidence of any prior restrictions on the use of the money could not be presented because it was a clear attempt to vary the express written language of the note. Fleming contended that because he alleged fraud, parol evidence was admissible to show that Bankrupt had agreed to invest the funds in specific properties, even though contrary to the language of the note. As to the second note for which the check was given, Bankrupt says that even though the check given for the $9,715.62 note was returned by the bank because of insufficient funds in his account to pay the check, such was not justification to deny his discharge as to that debt.

A.

Oral agreements between the parties to a written contract made before or at the time of the execution of the contract are inadmissible to vary, alter or contradict its terms or to affect its construction, because all such alleged oral agreements are considered as merged in the written contract. An unambiguous written contract cannot be varied by proof of a parol agreement different from that contained in the written contract. Culver v. Wilkinson, 145 U.S. 205, 12 S.Ct. 832, 36 L.Ed. 676 (1892); Richardson v. Hardwick, 106 U.S. 252, 1 S.Ct. 213, 27 L.Ed. 145 (1882); Hawkins v. United States, 96 U.S. 689, 6 OTTO 689, 24 L.Ed. 607 (1877). This is the law in Virginia controlling here, for the contract was made in Virginia. Lewis v. Lowry, 322 F.2d 453, 455, (4th Cir.1963); Rock-Ola Mfg. Corp. v. Wertz, 282 F.2d 208, 210 (4th Cir.1960). The rule applicable in Virginia was clearly stated in Pulaski National Bank v. Harrell, 203 Va. 227, 123 S.E.2d 382, 387 (1962) thusly:

The rule which excludes parol evidence when offered to vary the terms and conditions of an integrated written contract has nowhere been more strictly adhered to in its integrity than in Virginia. It, in effect, declares that, where parties have reduced their contract to a writing which imposes a legal obligation in clear and explicit terms the writing shall be the sole memorial of that contract, and it is conclusively concluded that the writing contains the whole contract, and is the sole evidence of the agreement. Stewart-Warner Corporation v. Smithey, 163 Va. 476, 487, 175 S.E. 882 1934.

The rule is concisely stated in 7 Michie\'s Jurisprudence, Evidence, § 131, page 489, and many cases cited in support:

"It is conclusively presumed that the whole engagement of the parties was reduced to writing, and all oral testimony of a previous colloquialism between the parties, or of conversation or declarations at the time when it was completed, or afterwards, as it would tend, in many instances, to substitute a new and different contract for the one which was really agreed upon, to the prejudice possibly of one of the parties, is rejected."

While Fleming asserts there was fraud or misrepresentation on the part of Bankrupt, the alleged fraud or misrepresentation is the assertion that Bankrupt would use the money for a specific purpose. Such a contention is completely contradictory of the language of the contract which each of the parties signed. This is not a case where the agreement between the parties has not been reduced to writing, nor is it a case where the offered parol evidence does not contradict the specific language of the written contract. Nor is it a case of alleged mutual mistake, nor is evidence offered in explanation of ambiguous language, or to cover some item not set forth in the contract, or to show additional independent facts contemporaneously agreed upon in order to establish the entire contract between the parties. The tendered evidence is directly contradictory of the written contract signed by the parties. It was not admissible.

B.

Bankrupt asserts that the Bankruptcy Court erred in denying a discharge of the debt of some $9,715.62. When the note given for this sum fell due, Bankrupt issued a check for this sum to cover it. The check was returned by the bank for insufficient funds. Fleming therefore says the debt is not dischargeable in bankruptcy because of fraud or misrepresentation. The issue is—does a debt which is otherwise dischargeable become nondischargeable because the debtor attempts to pay the debt by a check that is subsequently dishonored.

Section 523(a) of Title 11 of the United States Code provides that a discharge in bankruptcy does not discharge an individual from any debt

(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit by

(A) false pretenses, a false representation, or actual fraud, etc.

We commence with the principle that Fleming must "prove every element as to fraudulent conduct charged and this proof must be clear, cogent and convincing." In Re Walter Duiser, 8 B.R. 397, 400 (Bkrtcy.W.D.Va.1981). See also Brown v. Buchanan, 419 F.Supp. 199, (D.C.Va.1975); Danns v. Household Finance Corp., 558 F.2d 114 (2 Cir.1977). "In view of the well-known purposes of the bankruptcy law, exceptions to the operation of a discharge thereunder should be confined to those plainly expressed." Gleason v. Thaw, 236 U.S. 558, 592; 35 S.Ct. 287, 289, 59 L.Ed. 717 (1915). To bar a discharge under § 523(a) the party alleging fraud must prove actual or positive fraud, not merely fraud implied by law. In Re Taylor, 514 F.2d 1370, 1373 (9th Cir.1975). The objecting party must prove (a) the debtor made the representations, (b) that at the time he knew they were false, (c) that he made them with the intention and purpose to deceive the creditor, (d) that the creditor relied on such representations, and (e) that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made. In Re Taylor, supra. In accord, Sweet v. Ritter Finance Co., 263 F.Supp. 540, 543 (D.Va.1967); In Re...