In re Vissers

• Decision Date: 14 July 1982
• Docket Number: Adv. No. 81-0995.,Bankruptcy No. 81-02393
• Citation: 21 BR 638
• Parties: In re Joyce Margaret VISSERS, a/k/a Joyce Hein Vissers, Debtor. BUTLER MANUFACTURING COMPANY, INC., Plaintiff, v. Joyce Hein VISSERS, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

21 B.R. 638 (1982)

In re Joyce Margaret VISSERS, a/k/a Joyce Hein Vissers, Debtor BUTLER MANUFACTURING COMPANY, INC., Plaintiff, v. Joyce Hein VISSERS, Defendant.

Bankruptcy No. 81-02393, Adv. No. 81-0995.

United States Bankruptcy Court, E.D. Wisconsin.

July 14, 1982.

Paul Swanson, Oshkosh, for plaintiff.

Charles D. Koehler, Appleton, for defendant.

DECISION

JAMES E. SHAPIRO, Bankruptcy Judge.

Plaintiff, a manufacturer of "Jamesway" farm equipment, commenced this action to declare its claim against defendant nondischargeable pursuant to § 523(a)(2)(A) of the Code, which states:

"A discharge under Section 727 . . . of this title does not discharge an individual debtor from any debt . . .

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

(A) false pretenses, false representation or actual fraud . . . "

On November 8, 1978, defendant signed as a guarantor on behalf of her son, Douglas Hein ("Douglas") as consideration for plaintiff's selling its line of Jamesway products on open account to Douglas as a Jamesway dealer. Thereafter, Douglas filed a petition in bankruptcy on February 15, 1980. Before filing, however, Douglas had incurred an unpaid obligation to the plaintiff for merchandise sold. After the filing of Douglas' petition in bankruptcy, plaintiff commenced a state court action against the defendant, on the basis of the guaranty, for $18,727.75. This amount was disputed by defendant who claimed that the limit of her guaranty was $5,000.00. On the date scheduled for trial, July 10, 1981, (hereinafter referred to simply as "July 10"), the parties and their respective attorneys entered into an oral stipulation (later reduced to writing) wherein defendant agreed to pay to plaintiff the sum of $10,000.00 within 30 days from July 10, and, if she failed to do so, to consent to a default judgment against her in the sum of $18,200.00.

Thereafter, the following flurry of activity occurred:

1. On July 21, 1981, a $20,000.00 note with a balance of $18,000.00 due to defendant from Hein Construction and Supply, Inc.¹ was prepaid to defendant, at a discount, for $15,000.00.

2. On July 28, 1981, defendant signed an offer to purchase a home located at 2500 East College Avenue, Appleton, Wisconsin, for $59,900.00. $13,500.00 of the $15,000.00 which she had received from Hein Construction and Supply, Inc. in payment of the note was used as the downpayment on this home; the balance was to be paid in accordance with a land contract.

3. On July 31, 1981, the real estate closing for the purchase of the College Avenue residence took place, and the land contract was thereafter recorded on August 4, 1981.

4. On August 7, 1981, defendant filed a voluntary petition in bankruptcy.

Plaintiff commenced this action, alleging that the debt due to it in the sum of $21,080.72² is nondischargeable, based upon a fraudulent scheme perpetrated by the defendant upon plaintiff.

The elements of fraud required to be established by the plaintiff under § 523(a)(2)(A) have been well enunciated in many cases. In order to prevail, plaintiff must prove all of the following elements:

1. That the debtor made the representations;

2. That at the time made, debtor knew they were false;

3. That the representations were made with the intention and purpose of deceiving the creditor;

4. That the creditor relied on such representations; and

5. That the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.

In re Stewart, 10 B.R. 214 (C.D.Calif.1981); Matter of Nelson, 561 F.2d 1342 (9th Cir. 1977); In re Harlan, 7 B.R. 82 (Bkrtcy.D. Ariz.1980); In re Dolnik, 374 F.Supp. 84 (N.D.Ill.1974); Sweet v. Ritter, 263 F. Supp. 540 (W.D.Va.1967). The standard of proof required in order to establish fraud is clear and convincing evidence. 3 Collier on Bankruptcy, § 523.11 (15th Ed.); Ma v. Community Bank, 494 F.Supp. 252 (E.D. Wis.1980); In re Peterson, No. 76-621 (E.D. Wis. May 4, 1977); In re Gibson, No. 74-1565 (E.D.Wis., March 10, 1975). A companion to the application of the burden of clear and convincing proof is a well settled principle of bankruptcy courts that exceptions to discharge are to be construed strictly against a creditor's objection and liberally in favor of the debtor. Gleason v. Thaw, 236 U.S. 558, 35 S.Ct. 287, 59 L.Ed. 717 (1915).

It is at this point appropriate for this Court to apply these legal principles to the facts before it. The purported fraudulent conduct on the part of the defendant consisted of entering into a settlement with the plaintiff on July 10, followed shortly thereafter by a series of events initiated by the defendant and which culminated in the filing of a petition in bankruptcy by her on August 7, 1981. This Court is asked to determine if the defendant really intended to make a good faith effort to pay the $10,000.00 within the thirty day period from July 10 or if she merely entered into the mechanics of an agreement as a "stall tactic" in order to buy time to enable her to convert a nonexempt asset into an exempt homestead and thereafter file bankruptcy. Plaintiff asserts that it was the latter of the two alternatives which was in the defendant's mind when she entered into the settlement and that the debt arising out of the defendant's guaranty is therefore not dischargeable, based upon fraud.

The fraud necessary to make a debt nondischargeable must exist at the inception of the debt. 2 Collier Bankruptcy Manual (3rd Ed.) § 523.03. This Court construes the words "inception of the debt", when applied to the facts before it, as occurring either on November 8, 1978, when the defendant signed the guaranty on behalf of her son Douglas, or during the period of time the plaintiff sold merchandise to Douglas and for which payment was never received.³ Regardless of which time may apply, there is no evidence in the record which suggests that the defendant had any fraudulent intent during any of these particular times. The earliest point in time in which there is any indication of a fraudulent intent on the part of the defendant was July 10, 1981. Of necessity, in order for the plaintiff to prevail, there must be a finding that the "inception of the debt" was July 10, 1981. This Court has difficulty in accepting the concept that the debt ripened on July 10 because by this time the defendant was already obligated to the plaintiff. The July 10 settlement simply provided a method of payment of a preexisting obligation and offered the defendant a substantial discount if she paid in cash within thirty days. No new consideration was provided by the plaintiff on July 10, other than a possible forebearance on its part from obtaining and then executing on a default judgment for a period of thirty days.

Even if plaintiff is correct in maintaining that the debt came into existence on July 10, because of this forebearance, the establishment of a fraudulent intent on the part of the defendant still is unclear on the basis of the testimony presented. All evidence presented was circumstantial in this regard. Without question, the key witness on this issue was the defendant herself. Her business background was limited. Her first husband had been in the business of selling farm equipment which he ran with the assistance of the Hein children. After his death approximately seven years ago, the children continued to operate the business. Defendant's role in this operation was confined to occasionally driving a truck and answering business telephone calls. She also worked as a school bus driver and later as a cook at Lawrence University. Other than that, she was a housewife raising a family.

Defendant admitted that she had thought about bankruptcy prior to July 10 and had discussed this possibility with her first attorney. However, she steadfastly denied that on July 10 she was "specifically contemplating bankruptcy" and stated "that day, bankruptcy did not cross my mind. I was more interested in what was going to happen in that hearing." She stated that her ultimate decision to file for bankruptcy was finally made in the first week in August, 1981. She stated that if she had the $10,000.00 with her on July 10, she would have paid it; but when she ultimately did receive the proceeds eleven days later, her decision not to pay was made "upon advice of my attorney." She denied that, on July 10, she had any scheme or plan to trick plaintiff.

After assessing the credibility of the defendant, this Court believes that she was a truthful witness who mistakenly believed she had signed a guaranty on behalf of her son Douglas limited to $5,000.00. After Douglas filed for bankruptcy and suit was commenced against her, at the time of trial on July 10 she entered into a stipulation with the intention at that particular point in time to comply. Thereafter — precisely when is not known, but at some point subsequent to July 10 — she changed her mind and upon legal advice, put into motion the previously described sequence of events.

This Court has analyzed Stoner v. Walsh, 24 Cal.App.3d 938, 101 Cal.Rptr. 485 (1972), a case relied upon by plaintiff in support of its position. To some degree there is a similarity of facts to those in the instant case. Stoner involved a stipulated judgment and an agreement by the defendant to make fixed payments over a fixed period of time, with the execution of judgment being stayed pending payment of the agreed upon installments. Thirteen days after entering into this agreement, the defendant, without making any payments to the plaintiff, filed a petition in bankruptcy. The court held that the debtor's fraud barred the discharge of the debt in bankruptcy. The Court also stated that by making this false promise, the defendant not only obtained a valuable property right (consisting of relinquishment by the plaintiff of a right to attachment against debtor's real estate) but also an extension of credit through the...