In re Tuggle

• Decision Date: 06 June 1988
• Docket Number: Bankruptcy No. 87-10476-BSS,Adv. No. 88-1006-BSS.
• Citation: 86 BR 612
• Parties: In re Donald Wayne TUGGLE d/b/a Big Don's Wholesale Fireworks, Debtor. TOSCO CORPORATION, Plaintiff, v. Donald TUGGLE, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Missouri

86 B.R. 612 (1988)

In re Donald Wayne TUGGLE d/b/a Big Don's Wholesale Fireworks, Debtor TOSCO CORPORATION, Plaintiff, v. Donald TUGGLE, Defendant.

Bankruptcy No. 87-10476-BSS, Adv. No. 88-1006-BSS.

United States Bankruptcy Court, E.D. Missouri, Southeastern Division.

June 6, 1988.

John L. Oliver, Jr., Cape Girardeau, Mo., for plaintiff.

William H. Frye, Cape Girardeau, Mo., for debtor/defendant.

MEMORANDUM OPINION

BARRY S. SCHERMER, Bankruptcy Judge.

INTRODUCTION

On February 9, 1988, Tosco Corporation, Plaintiff, (hereinafter "Tosco") filed a Complaint against Donald Tuggle, Defendant, (hereinafter the "Debtor") seeking to declare his indebtedness in the amount of $229,677.46 nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). A trial was conducted May 3, 1988, and parties requested and were granted additional time to file post-trial briefs.

FACTS

Tosco distributes gasoline and diesel fuel through a terminal in Scott City, Missouri. In March, 1984, Tosco started selling petroleum products to Big Pop Enterprises, Inc., a Missouri corporation (hereinafter "Big Pop"). The Debtor is the sole shareholder and director of Big Pop as well as its President and Secretary. Initially, Tosco granted Big Pop a credit limit of $100,000.00.

In establishing its business relationship, with Big Pop, Tosco required the personal guarantee of the Debtor. Although the Debtor recalls signing a guarantee in favor of Tosco, Tosco did not introduce the guarantee into evidence. Tosco's manager of credit and collections during 1984, Mr. Joseph Bowerbank, testified that a search of the records at Tosco failed to produce the written guarantee of the Debtor.

Mr. Bowerbank further testified that it was the policy and practice of Tosco to contact the Debtor whenever the credit extended to Big Pop exceeded $100,000.00. Such contact would be in the form of an advice that additional sales to Big Pop could not be made until the credit balance was reduced below $100,000.00.

On approximately August 1, 1984, Big Pop was indebted to Tosco in an amount in excess of $100,000.00. Mr. Bowerbank spoke with the Debtor by telephone, advising him that further sales to Big Pop could not be made unless a payment was forthcoming. The Debtor promised to make a payment. On August 3, 1984, Tosco received the following checks drawn on the account of Big Pop:

                                                  Notation
                    Date           Amount         on Check
                July 31, 1984    $19,961.46   Payment of Invoice
                                                394321
                August 2, 1984   $14,730.89   Payment of Invoice
                                                395769
                

Tosco introduced a copy of Big Pop's monthly bank statement which disclosed that Big Pop had a checking account balance on July 31, 1984, of $9,175.27. Big Pop's August bank statement was not produced at trial. Although Plaintiff in its post-trial brief asserts that "Tuggle also admitted in the above-referenced deposition, that he actually knew there were not sufficient funds to cover the checks when they were written" (Plaintiff's brief at p. 4) a careful reading of the deposition (Plaintiff's trial Exhibit 13) does not support such a contention. On August 3, 1984, Tosco permitted Big Pop to continue to purchase product based upon receipt of the two checks drawn on the account of Big Pop's account.

Subsequent to August 3, 1984, Big Pop delivered the following checks to Tosco:

                                               Notation
                    Date          Amount       on Check
                August 2, 1984  $29,818.81   Payment of Invoice
                                               395770
                August 2, 1984  $25,166.07   Payment of Invoice
                                               395772
                August 6, 1984  $14,719.28   Payment of Invoice
                                               396693
                August 6, 1984  $12,452.25   Payment of Invoice
                                               397390
                August 7, 1984  $22,251.90   Payment of Invoice
                                               398104
                August 7, 1984  $ 7,321.96   Payment of Invoice
                                               398746
                

The Debtor placed a telephone call to Tosco on August 13, 1984, to advise it that all of the checks listed above would not be honored by First Security Bank because of insufficient funds. Tosco then sent the Debtor a notice in writing demanding payment within ten days pursuant to § 570.120 R.S.Mo. (1986). From August 3, 1984 through August 10, 1984, Tosco sold Big Pop petroleum products having a value of $229,677.46. It is this amount which Tosco claims is nondischargeable under § 523(a)(2)(A).

In support of its position, Tosco argues that the Debtor obtained property (sale of petroleum product to Big Pop) by fraud. Such fraud is demonstrated by the representation of the Debtor (to send funds to Tosco), when he knew the representation was false (knowledge of Big Pop's bank statement) with the intent to deceive Tosco and that Tosco relied upon the representation (by selling additional product to Big Pop) to its detriment (damages of $229,677.46).

JURISDICTION

This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334, 151 and 157 and Local Rule 29 of the United States District Court for the Eastern District of Missouri. This is a "core proceeding" which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(I).

DISCUSSION

Plaintiff proceeds under section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A). That section states:

A discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor 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.

This Court adopts the position of a number of jurisdictions which have applied the provisions of Article 3 of the Uniform Commercial Code and the United States Supreme Court decision of Williams v. United States, 458 U.S. 279 (1982) to hold that delivery of a check is not a representation as to whether the check would be honored upon presentment. See In re Burgstaler, 58 B.R. 508, 512 (Bkrtcy.D. Minn.1986) and the cases cited therein. Justice Blackmun wrote for the Supreme Court in Williams v. United States that:

"technically speaking, a check is not a factual assertion at all, and therefore cannot be characterized as `true\' or `false\'. Petitioner\'s bank checks served only to direct the drawee bank\'s to pay the face amounts to the bearer, while committing petitioner to make good the obligations if the banks dishonored the drafts. Each check did not, in terms, make any representation as to the state of petitioner\'s bank balance." Williams v. United States, at p. 284-5.

Accordingly, this Court adopts the position that delivery of an ultimately-dishonored check, without more¹ does not constitute an actionable representation under § 523(a)(2)(A).

Plaintiff relies upon the Debtor's guarantee which was not introduced into evidence because it was either misplaced or lost by Tosco. Contrary to the assertion of Tosco that "its existence has been adequately proven by the business records of Tosco" (see Plaintiff's brief at p. 5) the existence and terms of such a guarantee have not been proved.

Tosco argues that not only was a fraud perpetrated upon it but that fraud was perpetrated by the Debtor. Tosco's case rests upon the assertions that the Debtor made certain representations which he knew were false with the intent and purpose of deceiving Tosco who relied upon those representations to its damage. The frailty of such reasoning is apparent. There was no evidence that the Debtor in his dealings with Tosco was acting in any capacity other than as an agent of Big Pop. The insufficient funds checks which form the foundation of Tosco's allegations of fraud were issued on the account of Big Pop. Tosco believes that the Debtor's promise to Mr. Bowerbank in early August, 1984 "to send funds to Tosco, together with the concurrent sending of the checks, meets the requisite element of a representation" (Plaintiff's brief at p. 7). Tosco's position is misplaced. Its reliance upon In re Schmidt, 36 B.R. 459 (E.D.Mo.1983) is in error since that case merely states that the purchase of goods with a credit card is an implied representation that the buyer has the means and intention to pay for his purchases. In the case sub judice...