In re Smith

Decision Date29 March 1977
Docket NumberNo. 75-2643A.,75-2643A.
Citation436 F. Supp. 469
PartiesIn re George Britton SMITH.
CourtU.S. District Court — Northern District of Georgia

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John C. Pennington, Stone & Pennington, Atlanta, Ga., R. Keegan Federal, Jr., Orr & Federal, Decatur, Ga., for bankrupt.

Morton P. Levine, Levine, DA'Alessio & Cohn, P. A., Atlanta, Ga., for trustee.

ORDER

RICHARD C. FREEMAN, District Judge.

This is an appeal from an order of the bankruptcy judge in a proceeding originally brought pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701, et seq., in which the bankruptcy judge determined that the obligations of the bankrupt arising under a "Final Judgment and Decree of Divorce" were obligations for the support and maintenance of the bankrupt's former wife and were, therefore, nondischargeable under § 17(a)(7) of the Bankruptcy Act, 11 U.S.C. § 35(a)(7). Before turning to the merits of the instant appeal brought by the bankrupt, a brief review of the salient facts is warranted.

On November 16, 1973, after more than sixteen years of marriage appellant-bankrupt and Mrs. Smith were divorced. Prior to their divorce, appellant and Mrs. Smith had entered into an "Agreement", which was incorporated into the final decree of divorce. In the agreement, the parties expressly recited that "they were desirous of settling their property rights, alimony, maintenance, division of property, custody of and support for the children and attorney's fees for an attorney representing the wife." Pursuant to the terms of the agreement, appellant conveyed to Mrs. Smith his interest in their Atlanta residence and certain ocean-front property located in Hilton Head, South Carolina, the household goods and furnishings, and a 1972 Buick Skylark. The conveyance of both parcels of real estate was subject to existing first mortgages, which Mrs. Smith assumed under the terms of the decree.

Paragraph 2 of the agreement further provided that appellant was to make certain periodic cash payments to Mrs. Smith, including, in paragraph 2(a), the obligation of the appellant to pay $25,000 in cash to Mrs. Smith in six installments over a two-year period. Paragraph 2(b) provided for a lump sum payment of $205,000.00 to be paid in 108 equal monthly installments of $1,900.00 until the lump sum was paid; however, the appellant was given the right to commute any and all unpaid payments to their present cash value and to satisfy the entire obligation at any time during the nine-year period. The installment payments in paragraph 2(b) were expressly denominated as "installment payments of a lump sum" and the agreement further provided that such payments were "absolutely due and payable", and that it was the intent of the parties that "said installments shall not be included in Wife's gross income for federal income tax purposes." Paragraph 2(c) provided for installment payments of $500 per month per child for child support until the children reach the age of eighteen or cease living with their mother.

Paragraph 2(g) was expressly designated as relating to "alimony" payments and provided that appellant would pay $100 per month in periodic installments of alimony. Such alimony payments were to automatically increase by $1,900.00 on the 109th month from the date of the agreement (i. e. after the term in which the $1,900.00 periodic installments required by subparagraph (b) were completed) whether the latter payments had been commuted or not. The payments in paragraph 2(g) were expressly made contingent upon death of the spouse, remarriage, or cohabitation with another man on any sustained basis, whether pursuant to a valid marriage or not.

In other portions of the agreement, the appellant was required to maintain life insurance with benefits payable to his former wife in an amount equal to the unpaid installments due under subparagraph (b), and further that in the event of his death prior to the termination of the installments, such benefits were to be paid in full.

All the installment obligations, with the exception of paragraph 2(b) were subject to modification under the Georgia law providing for modification of permanent alimony, see Ga. Code Ann. §§ 30-220, 222, whereas subparagraph (b) was not subject to modification on account of any contingency.1

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Appellee herein filed a petition before the bankruptcy court seeking a determination that the payments contemplated by paragraph 2 of the instant divorce decree were nondischargeable by reason of section 17(a)(7) of the Act, which provides in pertinent part that:

A discharge in bankruptcy shall release a bankrupt from all of his provable debts, . . ., except such as . . . are for alimony due or to become due, or for maintenance or support of wife or child . . .

11 U.S.C. § 35(a)(7).

Following an evidentiary hearing on the question of dischargeability, the bankruptcy judge determined that the obligations encompassed by subsections (a), (b) and (g) were nondischargeable by reason of § 17(a)(7) since they were in essence payments for support, maintenance or alimony and were not in the nature of a property settlement dischargeable in bankruptcy. In reaching that conclusion, the court considered the facts and circumstances surrounding the execution, the testimony of the attorney who represented Mrs. Smith in connection with the divorce proceedings as well as the testimony of the appellant and Mrs. Smith. While appellant's grounds for appeal number seven, it is clear that the gravamen of the appeal is the bankruptcy judge's finding of fact and conclusion of law that the payments were in effect support payments and, therefore, not dischargeable in bankruptcy. The appellant challenges, particularly, the bankruptcy judge's admission of evidence outside the four corners of what appellant contends is an unambiguous document.

Unbroken judicial precedent establishes that § 17(a)(7) of the Bankruptcy Act exempts from discharge those debts that are founded upon the husband's continuing legal and moral obligation to support and maintain his wife and children. See, e. g., Wetmore v. Markoe, 196 U.S. 68, 25 S.Ct. 172, 49 L.Ed. 390 (1904); Jones v. Tyson, 518 F.2d 678 (9th Cir. 1975); In re Cox, 543 F.2d 1277, 1279 (10th Cir. 1977); Norris v. Norris, 324 F.2d 826, 828 (9th Cir. 1963). Thus, courts have been admonished not to presume that Congress intended as a part of its design in enacting the Bankruptcy Act that by relieving the unfortunate debtor, bankruptcy also absolves the husband of his moral and legal obligations of maintenance and support. Dunbar v. Dunbar, 190 U.S. 340, 23 S.Ct. 757, 47 L.Ed. 1084 (1902); Poolman v. Poolman, 289 F.2d 332 (8th Cir. 1961). See also Goggans v. Osborn, 237 F.2d 186, 189 (9th Cir. 1956). In sum, courts should be reluctant to give effect to mere formal attributes of the agreement and avoid working a hardship "especially where the rights and responsibilities with respect to the family relationship are concerned." Erickson v. Beardall, 20 Utah 2d 287, 437 P.2d 210 (1968).

"Alimony" is usually defined as an allowance of money required to be paid by a former husband to his divorced wife for support and maintenance. See Ga. Code Ann. § 30-201. In contrast, a property settlement agreement deals essentially with a division of property belonging to the husband and wife, and it is well settled that the wife may, for a consideration, settle her claims against her husband's property by private agreement, and waive all claims for support, maintenance, or alimony. Goggans v. Osborn, supra, 237 F.2d at 188; In re Alcorn, 162 F.Supp. 206 (N.D.Cal.1958). Smalley v. Smalley, 176 Cal.App.2d 374, 1 Cal.Rptr. 440 (1959). After a property settlement, the rights of the parties must be determined according to the law of contract and may survive the parties and continue despite contingencies of remarriage, death, or changed financial conditions of either spouse. In re Alcorn, supra. In any event, when a party claims that obligations have been discharged in bankruptcy, the agreement must be analyzed to ascertain whether the agreement merely provides for a property settlement or whether the agreement embodies the legal obligation to support the other spouse, and the decisions in this context tend to find that maintenance and support was intended where the form of the payments more closely resembles a normal support arrangement. Thus, if the obligation terminates upon the death or remarriage of the recipient spouse, the death of the obligee spouse, and if the obligation is payable in installments over a substantial period of time, courts are inclined to rule that maintenance and support, rather than a property settlement, was intended. Annot., 74 A.L.R.2d 758 (1960) (and cases cited therein).

The task for the court is to ascertain the intention of the parties from the agreement, and in construing contracts, such as that incorporated into the decree sub judice, it is the duty of the court to place itself in the position of the contracting parties in order to comprehend the intentions of the parties. E. g., J. M. Huber Corp. v. Denman, 367 F.2d 104 (5th Cir. 1966); Travelers Indemnity Co. v. Holman, 330 F.2d 142 (5th Cir. 1964). This rule of construction applies irrespective of whether the contract is ambiguous or not. Lawrence v. United States, 378 F.2d 452 (5th Cir. 1967). Similarly, in order to ascertain whether the contract is ambiguous or not — as well as its meaning — a court must look beyond any detached language in the contract and, therefore, consider the circumstances surrounding its execution and all other relevant incidents bearing on the intent of the parties or their apparent object in contracting. Adler v. Nicholas, 381 F.2d 168 (5th Cir. 1967); Ludwig Honold Manufacturing Co. v. Fletcher, 405 F.2d 1123 (3d Cir. 1969); In the Matter of Trigg, Case No. B-74-774A (N.D.Ga. May 5, 1975) (Hill, J.). See also, In re Wasden, Bankruptcy No. 475-470 (S...

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