Matter of Archer
| Decision Date | 15 November 1985 |
| Docket Number | Adv. No. 84-5028.,Bankruptcy No. 83-51311-Mac |
| Citation | 55 BR 174 |
| Parties | In the Matter of Herman B. ARCHER and Mary A. Archer, Debtors. MASSEY-FERGUSON CREDIT CORPORATION, Plaintiff, v. Herman ARCHER, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Georgia |
Ward Stone, Jr. and James P. Smith, of Arnall Golden & Gregory, Macon, Ga., for plaintiff.
Sharon R. Jones, Milledgeville, Ga., for defendant.
On December 9, 1983, B. Herman Archer and Mary A. Archer, Debtors, filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. On March 27, 1984, Massey-Ferguson Credit Corporation, Plaintiff, filed an "Objection to Dischargeability of Debt" against Herman Archer, Defendant. The complaint alleges that Defendant made certain false representations to Plaintiff upon which Plaintiff relied. The complaint also alleges that, with the intent to deceive Plaintiff, Defendant delivered to Plaintiff certain applications containing materially false statements which Plaintiff relied upon in extending credit to Defendant. Plaintiff contends that the debt owed to Plaintiff, which arose out of these transactions, is nondischargeable under section 523(a)(2) of the Bankruptcy Code. 11 U.S.C.A. § 523(a)(2) (West 1979).
Plaintiff's complaint came on for trial on August 6, 1984. On September 6, 1985, Debtors' case was converted to a Chapter 7 proceeding under the United States Bankruptcy Code. The Court, having considered the evidence presented at trial and the arguments and briefs of counsel, now publishes its findings of fact and conclusions of law.
For the past twenty years, Defendant has farmed in Washington County, Georgia, and conducted business with Welborn Davis, who did business under the name of Davis Tractor Company. Defendant purchased and financed farming equipment through Davis Tractor Company. During this period, Defendant had no actual knowledge of Mr. Davis' financial affairs or of his actual relationship with Plaintiff.
On June 16, 1980, Defendant purchased a combine from Davis Tractor Company. In order for him to obtain financing, Defendant submitted an Application for Credit and a Retail Installment Contract and Security Agreement. He signed both without reading them and while they were blank. The Retail Installment Contract and Security Agreement contained the following provision above the signature line in bold print: 1 It is apparent from the evidence that it was a fairly common practice for farmers in the Washington County area to sign such documents in blank when they were purchasing farm equipment from Davis Tractor Company. After signing the Application for Credit in blank, Defendant left the application with Mr. Davis who told Defendant that, because Davis Tractor Company's secretary was not available, Mr. Davis would fill out the application later.
When Mr. Davis subsequently filled out Defendant's Application for Credit, he filled it out with false information. The June 16, 1980, Application for Credit incorrectly showed that Defendant owned 500 acres of land, owned two automobiles and four trucks valued at $40,000, and had 1,300 acres of land under cultivation. The June 16, 1980, Retail Installment Contract and Security Agreement incorrectly showed that Defendant had traded in a John Deere 55 combine when in fact he traded in a 175 Massey-Ferguson tractor. The terms of the Retail Installment Contract and Security Agreement also show that Defendant was to make four installment payments of $8,620.92, while it is Defendant's testimony that he understood he was to make only three payments.
Mr. Davis assigned the Retail Installment Contract and Security Agreement to Plaintiff. Plaintiff performed its standard credit check procedure on the application. Pursuant to this procedure, employees of Plaintiff checked the accuracy of the application and reviewed its credit terms. Credit bureau reports, Plaintiff's previous experience with Defendant, previous credit investigations of Defendant, and the nature of the present transaction were reviewed. Ms. Kuhling, a regional collector with Plaintiff, testified that Plaintiff relied on the information contained in this application in extending credit to Defendant.
On July 24, 1980, Defendant purchased a KMC Roto Tiller and a Bush Hog Rotary Cutter from Davis Tractor Company. Once again, Defendant signed a blank Application for Credit and a blank Retail Installment Contract and Security Agreement without reading them. After the transaction, Mr. Davis or his bookkeeper filled in the documents. Instead of listing Defendant's assets and liabilities, a reference was made on the Application for Credit, which stated that the information was "in file." The application did specifically state that Defendant owned 500 acres of land when Defendant owned no land.
Mr. Davis assigned the Retail Installment Contract and Security Agreement to Plaintiff, and Plaintiff performed its standard credit check. The testimony establishes that Plaintiff relied on the Application for Credit submitted with the Retail Installment Contract and Security Agreement and extended the requested credit to Defendant.
Defendant purchased a No Till Ripper and KMC Planters from Davis Tractor Company on May 15, 1981. Defendant once again signed a blank Application for Credit and a blank Retail Installment Contract and Security Agreement without reading them. Mr. Davis subsequently filled in the blanks with false information. The application contained the false information that Defendant owned 500 acres of land, owned two automobiles and four trucks valued at $60,000, owned land and a home valued at $200,000, and had 1,300 acres of land under cultivation. The Retail Installment Contract and Security Agreement incorrectly stated that one of the machines purchased had dual wheels instead of single wheels.
Mr. Davis also assigned this Retail Installment Contract and Security Agreement to Plaintiff. Because Defendant then owed Plaintiff in excess of $50,000, Plaintiff analyzed more closely Defendant's outstanding credit with Plaintiff and reviewed Defendant's assets and liabilities that were listed on the Application for Credit.2 On May 20, 1981, Plaintiff contacted the Farmers Home Administration because it was listed as a creditor of Defendant in the amount of $60,000. The Farmers Home Administration reported that Defendant owed them approximately $66,000 on various loans. The testimony establishes that Plaintiff relied on the Application for Credit in extending credit to Defendant. The testimony also establishes that if the application had been accurate and had shown that Defendant did not own 500 acres of land, Defendant would not have received financing.
The June 16, 1980, the July 24, 1980, and the May 15, 1981, Retail Installment Contract and Security Agreements all contained statements to the effect that installments were payable to Plaintiff at its Atlanta, Georgia, office. Defendant, however, was in the habit of making his installment payments to Plaintiff at Davis Tractor Company. Defendant was under the impression that Mr. Davis was Plaintiff's agent and could properly collect payments. The farmers in the Washington County area also thought that Mr. Davis "was Massey-Ferguson" because he had the Massey-Ferguson logo on his truck and his clothing; he sold Massey-Ferguson equipment; and he collected their payments.
From 1978 onward, Plaintiff maintained an office at Davis Tractor Company for Plaintiff's collection representative and kept a telephone there in its name. Plaintiff's collection representative knew that farmers were submitting payments directly to Mr. Davis even though such actions were in violation of Plaintiff's and Mr. Davis' financing agreement. Plaintiff's collection representative actively sought Mr. Davis' help in collecting payments and turned over accounts to Mr. Davis even after Mr. Davis was notified that such activity violated their financing agreement.
Sometime after the three transactions involved in this adversary proceeding occurred, Plaintiff discovered that Mr. Davis had overfinanced numerous contracts which had been assigned to Plaintiff. It is apparent from the evidence that Mr. Davis was engaged in a number of questionable transactions which adversely affected Plaintiff. Massey-Ferguson, Inc.3 terminated Mr. Davis' dealership agreement in August of 1982. Plaintiff never formally terminated its relationship with Mr. Davis, but Mr. Davis' actions violated his financing agreement with Plaintiff.
When Defendant filed his petition for bankruptcy, he owed Plaintiff approximately $75,000 because of the transactions involved in this adversary proceeding. Defendant voluntarily abandoned to Plaintiff the farming equipment securing this debt. This equipment had not been liquidated at the time of trial, but testimony presented at trial revealed that it would not cover the entire debt owed Plaintiff.
The issue before the Court is whether Defendant's debt to Plaintiff is excepted from discharge under section 523(a)(2)(A) or (B) of the Bankruptcy Code. These provisions provide:
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