In re Stangler

• Decision Date: 14 September 1995
• Docket Number: Bankruptcy No. 3-94-1484. Adv. No. 3-94-246.
• Citation: 186 BR 460
• Parties: In re Arlene Lois STANGLER, Debtor. Molly T. SHIELDS, Trustee of the Bankruptcy Estate of Arlene Lois Stangler, Plaintiff, v. Richard J. STANGLER, Defendant.
• Court: U.S. Bankruptcy Court — District of Minnesota

186 B.R. 460 (1995)

In re Arlene Lois STANGLER, Debtor.

Molly T. SHIELDS, Trustee of the Bankruptcy Estate of Arlene Lois Stangler, Plaintiff, v. Richard J. STANGLER, Defendant.

Bankruptcy No. 3-94-1484. Adv. No. 3-94-246.

United States Bankruptcy Court, D. Minnesota, Third Division.

September 14, 1995.

Timothy Ewald, Minneapolis, MN, for plaintiff.

Kurt M. Anderson, Minneapolis, MN, for defendant.

ORDER

DENNIS D. O'BRIEN, Chief Judge.

This matter was heard on July 10, 1995, on Defendant's Motion For Amended Findings And Order For Judgment And/Or New Trial. Appearances were noted in the record. The Court, having heard and received arguments; having reviewed the pleadings and relevant files; and, being fully advised in the matter; now makes this Order pursuant to the Federal and Local Rules of Bankruptcy Procedure.

I.

STATEMENT OF THE CONTROVERSY.

This adversary proceeding was brought by Plaintiff, Molly Shields, as Trustee of the Bankruptcy Estate of Arlene Lois Stangler, for turnover by Defendant Richard Stangler of a debt that is a matured past-due note owing to Ms. Stangler at filing of her bankruptcy. The proceeding was brought pursuant to 11 U.S.C. § 542(b). Mr. Stangler defended the action on the ground that the note is unenforceable, because it is a post-discharge reaffirmation of a debt that was discharged in his own earlier bankruptcy case.¹

Prior to trial, the parties filed a stipulation of facts, pursuant to a trial order entered on May 3, 1995. The stipulation contained these recitations of relevant undisputed facts:

1. On or about May 17, 1988, Loretta J. Crosby and Leon Pittman granted to Defendant and Arlene Stangler ("Debtor"), as joint tenants, real property in Le Sueur County (the "Crosby farm"), a portion of which is described as:

The North 2,254 feet of the West 1,990 feet of said Northwest Quarter of Section 26, Township 110 North, Range 23 West, Le Sueur County, Minnesota, excepting therefrom all that portion of the West 32 acres of the West One-half of the Northwest Quarter, Section 26, Township I 10 North, Range 23 West, that lies North of the center of Dodd Road, which runs in a general Northwesterly and Southeasterly direction across the above described tract.

2. Pursuant to the Le Sueur County District Court\'s Order for Judgment and Judgment and Decree, dissolving the marriage between Defendant and Debtor, filed on April 30, 1990, and the quit claim deed dated May 11, 1990, Defendant became entitled to all right, title, interest and equity in the above-described portion of the Crosby Farm, subject to a lien in favor of Debtor in the amount of $31,600.

3. The defendant filed Chapter 7 bankruptcy, Minn.Bky. X-XX-XXXX, on May 6, 1991. Debtor was listed as a secured creditor on Schedule A-2 with a $31,000 marital lien. On August 12, 1991, the bankruptcy court entered a discharge of the defendant.

4. On December 26, 1991, the defendant signed a promissory note ("Promissory Note") in favor of the debtor in the amount of $20,000. A copy of the note was attached to the Complaint in this matter. The note provided for a payment schedule as follows: $4,000 payable on December 1, 1992; $4,000 payable on December 1, 1993; $4,000 payable on December 1, 1994; $4,000 -payable on December 1, 1995; and, $4,000 Payable on December 1, 1996.

5. Subsequent to Defendant\'s filing of his bankruptcy petition, and at or about the time of the execution of the Promissory Note, Debtor provided to Defendant an unrecorded, undated, and not fully executed deed purporting to release her marital lien on the Crosby Farm.

6. Defendant did not make payments according to the schedule set forth in the Promissory Note.

7. After executing the Promissory Note the defendant made the payments indicated in Paragraph II of the complaint, totaling $5,558.00, at approximately the times indicated in the complaint.

8. On April 1, 1994, Debtor filed a petition seeking relief under Chapter 7 of the Bankruptcy Code.

9. Plaintiff is the duly appointed, qualified and acting Trustee appointed in Debtor\'s bankruptcy case.

10. In her bankruptcy Schedule B, Debtor listed as an account receivable an "unsecured debt for sale of real estate property in 1990 from Richard Stangler in unpaid approximate amount of $15,000."

Pre-trial Stipulations, dated and filed June 7, 1995.

Trial was held on June 12, 1995. At conclusion of the evidence, and after oral argument, the Court made its findings and conclusions orally on the record; and, ordered judgment for the Plaintiff. An Order For Judgment and Judgment were thereafter entered on June 15, 1995. The Judgment adjudged that:

Defendant Richard J. Stangler shall turnover to the Trustee, funds due and owing on the Promissory note, pursuant to 11 U.S.C. § 542, which included sic $14,000, plus interest, costs and fees.

The decision in the case was expressly premised on these underlying findings and conclusions: 1) the allegation that the note represented a post-discharge reaffirmation of a discharged debt is an affirmative defense raised by Defendant in the proceeding; 2) Defendant had the burden of proof on the issue of reaffirmation; 3) whether a post-discharge agreement involving collateral, which once secured a discharged debt, is a reaffirmation of the discharged debt, is a question of fact; 4) Plaintiff established prima facie liability of Defendant on the note; and, 5) Defendant did not establish that the note was a post-discharge reaffirmation of a discharged debt.

On June 26, 1995, Defendant filed the present Motion For Amended Findings, Order, And Judgment And/Or New Trial. Defendant seeks a new trial, arguing that: the Court sue sponte decided the case on a legal theory that: was not presented by Plaintiff; and, that is contrary to established law of the district. Defendant cites In re Saeger, 119 B.R. 184 (Bankr.Minn.1990), in support of the assertion. He claims surprise, and seeks a new trial on grounds of fundamental fairness. Alternatively, Defendant seeks amended findings, claiming that the Court's recitation at conclusion of the trial was insufficient to support the Court's conclusions. Finally, Defendant seeks amendment of the Judgment, at least to remove language of an injunctive nature.

II.

NEW TRIAL.

The legal theory supporting the decision does not conflict with In re Saeger, 119 B.R. 184 (Bankr.Minn.1990); nor is it novel. The theory is consistent with Plaintiff's position, argued throughout the course of the litigation; and, it was the basis for denial of Defendant's motion for summary judgment early in the case. There is no basis for Defendant's claim of unfair surprise.

The Saeger court ruled that a reaffirmation agreement was not enforceable where the debtor failed to attend the discharge hearing. The Saeger court was not presented with the issue of whether the agreement in question was a reaffirmation of a discharged debt. The case involved an agreement titled "Agreement to Reaffirm" that was entered into by the debtor prior to the debtor's discharge. In re Saeger, 119 B.R. 184, 185 (Bankr.Minn.1990). Additionally, while the Saeger court observed in a footnote that the creditor had alleged in its pleadings that the agreement was a novation and not a reaffirmation agreement; the court noted that the creditor presented no evidence or supporting argument on the assertion; and, the Saeger court did not decide the issue. See: In re Saeger at 189, fn. 5.

Here, Defendant apparently assumed that because the post-discharge agreement between the parties involved collateral that once secured a discharged debt, the agreement was a reaffirmation agreement as a matter of law. This Court held, however, that a post-discharge agreement is not, as a matter of law, a reaffirmation of a discharged debt, just because it involves collateral that had secured a discharged debt; but, that such an agreement can constitute a novation, where a debtor purchases the creditor's lien interest at present value.

11 U.S.C. § 524(c) defines a reaffirmation agreement as:

An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title . . .

That a creditor's surviving lien on property of a debtor can have value independent of the discharged debt; and, that a debtor's post-discharge agreement to purchase that interest can constitute a novation; are not novel legal theories. See: Minster State Bank v. Heirholzer, 170 B.R. 938 (Bankr.N.D.Ohio 1994); Heape v. First Federal Savings And Loan Ass'n, 134 B.R. 20 (Kan.1991). The Minster court found that the debtor's post-discharge agreement with a homestead mortgage lender to avoid foreclosure, was a novation. In such cases, where: the transaction is ordinary course and at arm's length; and, where the amount to be paid by the debtor is the present value of the lien, ordinarily no part of the consideration is based on the discharged debt.² The entire consideration is based on the independent value of the lien interest purchased.

The holding, in this proceeding, squares with Plaintiff's underlying theory of the case, argued from the beginning. It does not conflict with any decision applicable to this jurisdiction, known to the Court. And, it was the basis for denial of Defendant's motion for summary judgment, brought early in the case. Defendant can hardly claim unfair surprise.

III.

AMENDED FINDINGS.

Defendant seeks amended findings, claiming that the Court's recitation on the record was insufficient to support the Court's conclusions. However, the stipulated facts filed with the Court pursuant to the trial order, established prima facie liability of Defendant on the note. Defendant offered no evidence in support of his theory that the obligation was a reaffirmation of a discharged debt.³

In reviewing the transcript of the findings and conclusions, the Court notes that on page 5, line 11, reference to the term "reaffirmation" was...