In re Warner, Bankruptcy No. B-78-00046
| Decision Date | 07 August 1980 |
| Docket Number | Bankruptcy No. B-78-00046,79-01597,Civ. Proceeding No. 80-0024. |
| Citation | 5 BR 434,6 BCD 788 |
| Parties | In re Wilbur Delmar WARNER, Bankrupt. Wilbur Delmar WARNER, Plaintiff, v. Donna WARNER, Defendant. In re Harvey Lynn LONG, Bankrupt. Connie Rae LONG, Plaintiff, v. Harvey Lynn LONG, Defendant. |
| Court | U.S. Bankruptcy Court — District of Utah |
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Rulon R. Price, Salt Lake City, Utah, for plaintiff, Wilbur Delmar Warner.
Brian M. Barnard, Salt Lake City, Utah, for defendant, Donna Warner, in No. 79-00046.
James R. Brown, Salt Lake City, Utah, for plaintiff, Connie Rae Long.
George H. Searle, Salt Lake City, Utah, for defendant, Harvey Lynn Long, in No. 80-0024.
The case of Warner v. Warner, governed by the former Bankruptcy Act, comes before the Court on a motion to dismiss brought by the defendant, Donna Warner, the former spouse of the bankrupt. The diverse issues raised in support of Donna Warner's motion to dismiss include issues common to the case of Long v. Long which arises under the present Bankruptcy Code. In the interest of justice and of judicial economy, the parties in Long were given opportunity to brief these common issues and these proceedings were consolidated. The issues of mutual concern are: First, the contractual or collateral estoppel effect a divorce decree and attendant proceedings should be given in determining whether a debt sued upon is "alimony, maintenance or support" under section 17a(7) of the Bankruptcy Act, former 11 U.S.C. § 35a(7), and under 11 U.S.C. § 523(a)(5) of the Bankruptcy Code. In other words, to what extent should this Court entertain extrinsic evidence of the nature of a debt fixed by a decree of divorce? Second, the date to which the Court should refer in determining whether the debt sued upon is "alimony, maintenance or support." In other words, should the Court consider evidence of the parties' relative financial circumstances since the entry of the decree of divorce?
Other significant issues, relevant only to the Warner proceeding, are also resolved in this memorandum decision.
The relevant facts of the Long case are simple. On June 7, 1978, a decree of divorce was entered dissolving the marriage of Harvey and Connie Long. By terms of the divorce decree, the debtor, Harvey Long, was required to pay all of the obligations incurred by the parties prior to the divorce, excluding only the first mortgage payments on the house, and to hold Connie Long harmless from those debts. Harvey Long has since failed to pay several of these obligations, including amounts due on a second mortgage on the couple's home, incurred by him to help meet the obligations imposed by the divorce decree. Plaintiff, Connie Long, has paid some of these overdue obligations and seeks a determination that the debts imposed on Harvey Long in the divorce decree are nondischargeable as alimony, maintenance, and support under 11 U.S.C. § 523(a)(5). She desires, as well, a setoff of the debts she has paid against the equity awarded to the debtor in their home.
The facts of the Warner case are more complex. The complaint was filed by the bankrupt, Wilbur Warner, in accordance with section 17(c)(1) of the Bankruptcy Act, former 11 U.S.C. § 35(c)(1), for a determination of the dischargeability of specific debts imposed on the bankrupt by a state court as the result of a divorce decree. The defendant, Donna Warner, then filed a motion to dismiss for failure to state a claim upon which relief could be granted.
The facts of this case show that during 1977, Donna Warner commenced an action in the District Court of Salt Lake County, Utah, to obtain a divorce from the plaintiff, Wilbur Warner. On January 17, 1978, Wilbur Warner filed with this Court a voluntary petition in bankruptcy. Donna Warner was aware of the petition and chose not to file jointly with her husband. Wilbur Warner was discharged in bankruptcy on May 1, 1978.
In furtherance of the divorce action, on March 30, 1978, both parties met in the Utah district court in a pre-trial settlement hearing. The parties stipulated in pertinent part that Donna Warner waived any and all rights she may have to receive alimony from her husband. Moreover, Wilbur Warner was to pay all of the marital debts with the exception of a furniture bill.
On May 19, 1978, following Wilbur Warner's discharge in bankruptcy, the state court approved the stipulations of the pre-trial hearing and allowed Wilbur Warner to withdraw his answer to the amended divorce complaint. The court then entered a default judgment for Donna Warner.
The marital debts which Wilbur Warner agreed to pay were listed on his schedule of creditors and discharged by this Court. At issue is whether Wilbur Warner is legally liable for debts imposed by a divorce decree in state court when such debts have been previously discharged in this Court.
Donna Warner argues first that Wilbur Warner is legally obligated to pay the debts because she was not listed as a creditor on his schedules and, therefore, the obligation of her former husband to her is not discharged. Second, Donna Warner argues that Wilbur Warner's express acceptance of the stipulations of the pre-trial hearing and of the divorce decree in state court were new promises by him to pay the discharged debts. Finally, Donna Warner contends that these debts assigned to Wilbur Warner by the district court were in the form of support and therefore under Section 17a(7) of the Bankruptcy Act, former 11 U.S.C. § 35a(7), the debts were nondischargeable. As only this third contention involves common legal issues with the Long proceeding, and as resolution of this contention is not logically required in the Warner case until after resolution of Donna Warner's other two grounds for dismissal, the Court addresses first the issues peculiar to Warner.
It is an accepted principle of bankruptcy law that the claims of all creditors should be listed by the debtor, even those debts that are disputed, contingent, or unliquidated. See 1 Collier Bankruptcy Manual ¶ 7.04 (1978). Section 17a(3), former 11 U.S.C. § 35a(3), states, however, that even though a creditor's claim is not duly scheduled, it will be discharged if the creditor had "notice or actual knowledge" of the proceeding in bankruptcy.
At the time Wilbur Warner filed his petition in bankruptcy, Donna Warner had already commenced a divorce action against him in state court. The record before this Court does not disclose the extent of Donna Warner's claim in her original complaint for divorce. That Donna Warner may have been a creditor with a disputed or unliquidated claim is, however, not pertinent to this action. The statements in the uncontroverted affidavit of the bankrupt's attorney show that Donna Warner did have knowledge of the petition. Therefore, her claim that her debt was not discharged because Wilbur Warner failed to list it on his schedules is without substance.
Generally, under state law applicable to the former Bankruptcy Act, a promise made by a bankrupt, after discharge in bankruptcy, to pay his creditors a balance left unpaid by the distribution of assets in the bankruptcy proceedings is an enforceable promise. Zavelo v. Reeves, 227 U.S. 625, 33 S.Ct. 365, 57 L.Ed. 676 (1913). Corbin on Contracts ¶ 222 (1963). This Court agrees with Donna Warner's contention that the stipulation by Wilbur Warner to pay certain marital debts did in fact constitute a promise by the plaintiff to the defendant to pay the debts. This Court cannot agree, however, that this promise to the bankrupt's spouse revived the obligations in question.
The debts at issue are specific debts that Donna and Wilbur Warner incurred jointly. As to those debts, Donna Warner was a co-debtor with Wilbur Warner, not his creditor. Hence, Wilbur Warner's promise to pay the debts was not made to the creditors but to the co-principal on the debts. Under applicable state law, a promise made by a bankrupt to his co-debtor creates a different legal effect from a promise made by a bankrupt to his creditor.
Concerning a promise made by a discharged bankrupt, the Restatement (Second) of Contracts § 92 (1973) says: "The new promise referred to in Section 86-89 is not binding unless it is made to the person who is an obligee of the antecedent duty."
The standard adopted in the Restatement (Second) of Contracts reflects changes in contract doctrine that have occurred since the adoption of the original Restatement, and this present interpretation is supported by a similar statement in 9 Am.Jur.2d Bankruptcy § 287 (1968):
Originally the new promise will have been made to the creditor himself but it may be effective to revive a debt discharged in bankruptcy if made to the creditor\'s attorney or other agent. A statement to a third person having no interest or agency is generally held insufficient for such purpose, as being a mere declaration of intention.
Moreover a similar statement is made in 86 C.J.S. Bankruptcy § 583, at 179 (1963):
Liability on a debt discharged in bankruptcy is not revived or a new enforceable obligation to pay the debts created unless there is an express promise or undertaking to pay the specific debt made to the creditor or his agent.
Thus, in accordance with applicable authority under the Bankruptcy Act, Wilbur Warner is not legally obligated to pay creditors by virtue of his promise to Donna Warner in the divorce decree. He may, however, be legally obligated to hold his former wife harmless on these debts, presumably by paying the creditors, if payment of the debts constitutes "alimony, maintenance or support."
The issues involved in determining what is alimony, maintenance or support for purposes of dischargeability in bankruptcy are of common concern to both the Warner and Long proceedings. Under section 17a(7) of the Bankruptcy Act, ...
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In re Hart
...A duty that is sufficiently like the support duty has been found for federal dischargeability purposes. See ž 27.58. In re Warner, 6 BCD 788, 5 BR 434 (BC D Utah, 1980). 5 See ž 27.59. Citing, In re Adams, 25 F.2d 640 (2d Cir.1928), where Judge Hand propounded the rule that the underlying d......
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