Local Indus. Finance Co. v. McDougale
| Decision Date | 18 March 1966 |
| Citation | 404 S.W.2d 789 |
| Court | United States State Supreme Court — District of Kentucky |
| Parties | LOCAL INDUSTRIAL FINANCE COMPANY, Appellant, v. Buster McDOUGALE and Ida Mae McDougale, Appellees. |
Elmer Morgan, Mapother, Morgan & Stansbury, Louisville, for appellant.
Robert E. Fleming, Kunzman & Fleming, Louisville, for appellees.
R. C. TARTAR, Special Commissioner.
The plaintiff, Local Industrial Finance Company, filed an action against the defendants, Buster McDougale and Ida Mae McDougale, seeking judgment for the balance due on their promissory note, dated January 12, 1961, amounting to $1,840.00 and interest.
The plaintiff alleged that to induce the making of the loan the defendants made and delivered to plaintiff their financial statement in writing which showed that they owed $7,924.02 to various parties; that the financial statement was false and untrue and was made with knowledge of its falsity for the purpose of inducing plaintiff to make the loan or extension of credit and that it was relied on by the plaintiff to its damage in the sum sued for by plaintiff.
The defendants answered admitting their application for the loan but denying all other affirmative allegations in the complaint.
Thereafter, the plaintiff filed a motion for a summary judgment against the defendants on the pleadings, exhibits and depositions filed for the sum of $1,840.00 with interest. The Court below sustained the motion for judgment but fixed the amount of the judgment against the defendant Buster McDougale at $677.35, being the amount of new money (and charges therefor) obtained from the plaintiff on January 12, 1961. Recovery was denied as to the balance, being the amount due on McDougale's note of January 22, 1960, which had been renewed and incorporated in the note of January 12, 1961. The plaintiff's motion for an appeal has been sustained.
For the purpose of brevity hereafter the plaintiff, Local Industrial Finance Company, will be referred to as Local, and the defendant Buster McDougale will be referred to as McDougale.
The pleadings did not mention bankruptcy but it quickly developed that bankruptcy proceedings instituted by McDougale less than three months after obtaining the loan and extension of credit from Local and his discharge in bankruptcy would dominate this litigation. By common consent of the parties the issues have been centered on McDougale's discharge in bankruptcy and the effect thereof, under Section 17(a)(2) of the Bankruptcy Act, on the note in suit and McDougale's liability thereon. There is no claim that McDougale had not received value in full or that any part of the note is not a just obligation.
Our discussion can largely be confined to Section 17(a)(2) itself. It will not be profitable to trace in detail the developments of this and related sections of the Act, or to mark the legislative trail in all its efforts to bar the door of escape to the false and fraudulent. Section 17(a)(2) of the Bankruptcy Act as amended in 1960, 11 U.S.C.A. § 35(a)(2), provides in pertinent part as follows:
'(a) A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as * * * (2) are liabilities for obtaining money or property by false pretenses or false representations, or for obtaining money or property on credit or obtaining an extension or renewal of credit in reliance upon a materially false statement in writing respecting his financial condition made or published or caused to be made or published in any manner whatsoever with intent to deceive * * *.'
This is known as the Celler Amendment. The section so far as applicable here had previously granted a discharge except as to 'liabilities for obtaining money or property by false pretenses or false representations.'
The issue here is this: Whether the exception made by Section 17(a)(2) is limited to the new money (and charges therefor) obtained by McDougale from Local on January 12, 1961, as the trial court held, or embraces also the extension of and renewal of credit on the balance due on the original note, obtained by him at the same time and as a part of the same transaction.
As stated, the issue was disposed of by the trial court on Local's motion for a summary judgment. It is familiar law that summary judgment may be granted only where no genuine issue of material fact exists and the party is entitled to judgment on the law applicable to the facts as established on and by the motion. Gevedon v. Grigsby, Ky., 303 S.W.2d 282. This is such a case. The depositions both for Local and for McDougale leave no genuine issue of fact. The falsity of the financial statement made by McDougale and given by him to Local in connection with the January 12, 1961, loan and renewal and extension of credit is admitted by him. He concedes that he had failed to list thereon eight other creditors whom he owed nearly $5,000.00. In his own handwriting on the financial statement he had written 'we have no other debts'. McDougale frankly stated that 'I was hurting, and the guys was pushing me, and I had to have the money,' and that 'I will just make the statement that it was bearing on my mind at that time, that if I listed everybody, I couldn't get the money.' And it is perfectly clear that he knew that in addition to the new money he wanted and received, he was obtaining a renewal andextension of the balance due on the January 1960 note.
This balance was incorporated in the new note, and the old note was marked paid and returned to McDougale. Ida Mae McDougale, who also signed the financial statement, testified that she had no corrections or additions to make to her husband's deposition, and that she would make the same answers to the same questions.
The financial statement which is a part of the record contains the heading that it is made, 'For the specific purpose of obtaining a loan or extension of credit, either as principal, co-maker or guarantor from Local.' And after providing spaces for listing, 'The only persons or companies to whom I owe money' etc., co-maker and other relationships, and 'other liabilities or other indebtedness of any kind whatsoever' etc., it concludes with the statement that 'notwithstanding any previous dealings I may have had with Local I understand that in extending credit to me, it is relying on my financial condition as shown in this statement' etc.
This is the statement that McDougale admits that he falsified. He also admits that there was no question in his mind that Local was relying on him to give the information sought by the statement. The depositions of the employees of Local leave no doubt as to Local's reliance on the statement regardless of any past dealings with McDougale. They show that McDougale received and knew that he was receiving not only new cash and insurance certificates, but also an extension of his liability for the balance of the old note, all incorporated in the new note, with a service charge and precomputed interest. And they show that the new transaction was made by Local on the basis of McDougale's financial statement. None of this is...
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