In re Schmidt, Bankruptcy No. 83-60457
| Decision Date | 06 October 1986 |
| Docket Number | Bankruptcy No. 83-60457,Adv. No. 83-6159. |
| Citation | 70 BR 634 |
| Parties | In re Charles Douglas SCHMIDT Debtor. HOWARD & SONS, INC., Plaintiff, v. Charles Douglas SCHMIDT Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
Jill Olson, Merrillville, Ind., for debtor.
Daniel Freeland, Highland, Ind., Harold Abrahamson, Hammond, Ind., for creditor — Howard & Sons.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND JUDGMENT
This adversary proceeding came on for a bench trial on May 8, 1986 pursuant to pretrial Order of October 25, 1985 on the amended complaint of G and E Incorporated d/b/a Howard and Sons (hereinafter: "Howard") filed on June 20, 1983 alleging that the indebtedness to it by the Debtor-Defendant, Charles Schmidt (hereinafter: "Schmidt") is nondischargeable on the grounds of fraud pursuant to 11 U.S.C. § 523(a)(2).
Submitted. Evidence and arguments heard.
Findings of Fact
Howard's president, Francis Eenigenburg testified as follows:
Schmidt had been an employee of Howard for over ten years and then had decided to go into business himself and in fact did open up a meat market in Wheatfield, Indiana. On January 30, 1980 Howard and Schmidt entered into an "Exclusive Purchase Contract" (Plaintiff's exhibit no. 1). Pursuant to this contract Howard agreed to in turn sell Schmidt all of Schmidt's beef and pork products and Schmidt agreed to sell exclusively certain products of Howard as set out therein. The terms of payment pursuant to clause 4 of the purchase agreement was that Schmidt pay for all deliveries within ten (10) days from the date of delivery.
Eenigenburg further related that Schmidt went into default on the purchase of the product in the sum of approximately $42,000.00 and a suit for said monies was filed in the Porter Superior Court. Settlement negotiations then ensued and the parties orally agreed that Schmidt would pay for products by check on delivery and in addition pay $100.00 at the time of each delivery to apply on the unpaid arrearage.
Finally, on July 14, 1981, the parties and Chuck's Meat and Produce, Mart, Inc., Schmidt's alleged corporation (hereinafter "Chuck's"), entered into a written agreement entitled "mutual release" to settle the claims of Howard versus Schmidt and Chuck's arising out of the January 30, 1980 agreement (Plaintiff's exhibit no. 3). The agreement provided as follows:
The agreement does not refer to the total amount due by the Defendant to the Plaintiff as the result of the sale of the product by the Plaintiff to the Defendant pursuant to the original agreement at the time the mutual release was executed, nor does it refer to the four checks issued by the Defendant to the Plaintiff just prior to the execution of the agreement. (See Plaintiff's exhibit no. 2 infra). Neither did it refer to the value of the inventory that the Defendant agreed to return to the Plaintiff.
Eenigenburg further related that prior to execution of the agreement he discussed the wholesale value of the remaining inventory to be returned to Howard with Schmidt's attorney during the settlement negotiations and just prior to signing the mutual release. According to Eenigenburg, Schmidt's attorney stated that the wholesale value thereof was $15,000.00 to $20,000.00, but that he was not given an opportunity to physically inspect the product prior to the execution of the mutual release as Schmidt refused to allow a representative of Howard to take an inventory. Eenigenburg related that when Howard did in fact take the physical inventory on July 15, 1981, the wholesale value of the product was in fact $8,000.00.
Eenigenburg asserted that just prior to the execution of the mutual release on July 14, 1981, Chuck's had issued four checks to Howard (Plaintiff's exhibit no. 2). These checks were as follows:
Ck.No. Date Drawer Signatory Drawee Amount Check Memo
819 7/07/81 Chuck's C.Schmidt Howard $ 100.00 on Account
828 7/10/81 Chuck's P.Schmidt Howard $ 100.00 on Account
818 7/10/81 Chuck's C.Schmidt Howard $4,770.00 Inv.31134
827 7/13/81 Chuck's P.Schmidt Howard $ 578.00 Inv.31253
Eenigenburg stated that all checks were deposited prior to the execution of the July 14, 1981, mutual release and credit for these checks were given by Howard in arriving at the settlement although as noted above, no dollar amount as to the balance due by Schmidt to Howard was set out in the mutual release nor was a dollar amount assigned to the value of the remaining inventory.
Eenigenburg stated that the two $100.00 checks were for payment on account to be applied to the arrearage, and that while the two invoice numbers on the two other checks were Howard invoice numbers, he did not have personal knowledge as to exactly what product was purportedly paid for by those checks, when the product was delivered, or whether said checks were post-dated or not as was occasionaly done in past.
The parties stipulated that check # 819 was deposited July 9, 1981; check # 818 was deposited July 10, 1981, and check # 828 was deposited July 13, 1981. The deposit date on check # 827 could not be deciphered.
The plaintiff then introduced plaintiff's exhibit no. 4 which were stop payment requests signed by Patricia Schmidt on behalf of Chuck's stopping payment on all four of the above checks. The request to stop check # 818, # 819 and # 827 were made on July 13, 1981, and the request to stop payment on check # 828 was made on July 14, 1981. Only one stop payment request stated a reason for the stop payment and that was check # 818 which stated "defective meat".
Eenigenburg declared that Schmidt never advised him that he intended to stop payment on the checks and that if Schmidt had so advised him he would have never entered into the mutual release dated July 14, 1981.
The mutual release agreement was executed at the office of Schmidt's counsel. Schmidt was not present nor was Howard's attorney as Howard's attorney advised he would not be there. Eenigenburg related he agreed to proceed on that basis, was given an opportunity to read the mutual release, did in fact read the mutual release and voluntarily agreed to proceed with the settlement on that basis. No discussions were had between Eenigenburg and Schmidt regarding the terms of the mutual release.
Eenigenburg stated that after the mutual release was signed he was personally present and heard Schmidt state that he was aware the stop payment request was made prior to the execution of the mutual release and that the stop payment requests were executed by Patricia Schmidt upon Schmidt's instructions.
Schmidt was not present at the trial and presented no evidence. Schmidt's counsel tendered a discovery deposition taken at Schmidt's request. Howard objected and the court sustained that objection.
The Court takes judicial notice of Schedule A-3 of Schmidt's unsecured claims which lists a disputed debt to Howard in the sum of $48,368.90 and 2.C of Schmidt's statement of Financial Affairs where he stated he was a partner in Chuck's Meat Market but did not advise who the other partners were.
No evidence was presented as to whether Chuck's Meat and Produce Mart, Inc., was in fact a corporation although that designation appeared on the four checks as the drawer where stop payment requests had been issued.
Schmidt moved to dismiss the case pursuant to Fed.R.Civ.P. 12(h) on the grounds that the real parties in interest was Chuck's and not Schmidt and pursuant to Fed.R.Civ.P. 41(b) that upon the facts and the law Howard had shown no right to relief. The Court denied both motions.
At the outset the Court would like to note some basic legal principles that apply to adversary proceedings instituted by a creditor to have a debt determined to be nondischargeable pursuant to 11 U.S.C. § 523.
In keeping with the purpose of the Bankruptcy Code, exceptions to the general rule of dischargeability of debts are to be strictly construed in favor of the Debtor. In re Linn, 38 B.R. 762 (9th Cir. B.A.P.1984); In re Marino, 29 B.R. 797 (N.D.Ind.1983). The exceptions to dischargeability must be narrowly construed against the creditor's objections, and confined to those plainly expressed in the Code. In re Norman, 25 B.R. 545 (Bankr. S.D.Cal.1982). This is done to effectuate the fresh start policies of the Bankruptcy Code. In re Levitan, 46 B.R. 380 (Bankr. E.D.N.Y.1985); In re Nicoll, 42 B.R. 87 (Bankr.N.D.Ill.E.D.1984).
Although, the nondischargeability provision of the Bankruptcy Code has no provisions allocating the burden of proof brought under it, the creditor must establish that the debt is nondischargeable and has the burden on each element. In re Kreps, 700 F.2d 372, 376 (7th Cir.1983); In re Bowers, 43 B.R. 333 (Bankr.E.D.Pa. 1984); Matter of Reinstein, 32 B.R. 885 (Bankr.E.D.N.Y.1983); In re Paley, 8 B.R. 466 (Bankr.E.D.N.Y.1981). The creditor objecting to discharge of a debt in bankruptcy bears a heavy burden of proof to establish that the debt is squarely within the statutory exceptions. In re Marino, 29 B.R. 797, 799, supra. The party objecting on the ground of fraud must establish each element of the claim by clear and convincing evidence. In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985).
The Court...
To continue reading
Request your trial