Matter of Benedict

• Decision Date: 30 March 1981
• Docket Number: Bankruptcy No. 80-01349-3,80-01350-3,Adv. No. 80-0290-3.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri
• Parties: In the Matter of Skeeter Dale BENEDICT and Victoria Lee Benedict, Debtors. The MORRIS PLAN COMPANY OF IOWA, Plaintiff, v. Skeeter Dale BENEDICT and Victoria Lee Benedict, Defendants.

15 B.R. 671 (1981)

In the Matter of Skeeter Dale BENEDICT and Victoria Lee Benedict, Debtors.

The MORRIS PLAN COMPANY OF IOWA, Plaintiff, v. Skeeter Dale BENEDICT and Victoria Lee Benedict, Defendants.

Bankruptcy Nos. 80-01349-3, 80-01350-3, Adv. No. 80-0290-3.

United States Bankruptcy Court, W.D. Missouri, W.D.

March 30, 1981.

J. Michael Murphy, Liberty, Mo., for plaintiff.

F.A. White, Jr., Kansas City, Mo., for defendants.

FINAL JUDGMENT DECREEING INDEBTEDNESS OF SKEETER DALE BENEDICT TO THE PLAINTIFF TO BE NONDISCHARGEABLE IN BANKRUPTCY AND THAT, ACCORDINGLY, THE PLAINTIFF SHOULD HAVE AND RECOVER THE VALUE OF ITS SECURITY FROM THE DEFENDANT SKEETER DALE BENEDICT AND FINAL JUDGMENT OF DISMISSAL OF COMPLAINT AS TO THE DEFENDANT VICTORIA LEE BENEDICT

DENNIS J. STEWART, Bankruptcy Judge.

On October 20, 1980, this court entered its judgment declaring the defendants' indebtedness to the plaintiff to be dischargeable in bankruptcy over the objection of the plaintiff that the liability was created by fraud within the meaning of section 523(a)(2) of the Bankruptcy Code.

Thereafter, on December 11, 1980, the plaintiff filed a "motion to vacate judgment in part." In this motion and the suggestions filed in support thereof, the material point made was that the lien of the prior lienholder on the vehicle which was also the subject of the plaintiff's lien, which the defendants had claimed to be extinguished by full payment, had actually not been expunged. If this were true, then the basis for the former judgment of the court would be removed. For, in the findings supporting the challenged judgment of October 20, 1980, the court had found that the defendant Skeeter Dale Benedict had been the maker of a material misrepresentation to the plaintiff in the following manner:

"(T)o attempt to ensure that the plaintiff actually receive the benefit of this intended senior and paramount lien, the plaintiff\'s office manager, Mr. Kocher, asked Mr. Rice, on March 20, 1979, in the presence of Skeeter Dale Benedict (but not Victoria Lee Benedict) whether the $500 contemplated down payment (to Mr. Rice so as to avoid his taking a first lien) had actually been made. Mr. Rice\'s reply was in the affirmative.

"Both Mr. Rice and Mr. Benedict, however, knew the answer to be false, for the defendants and Mr. Rice had previously entered into an agreement whereby they promised to pay the sum of $500 to Rice on or before April 4, 1979. . . . After the consummation of the sale of the automobile on March 20, 1979, however, Mr. Rice had a new title certificate issued by the State of Iowa upon which he was noted to be the first lienholder and the plaintiff herein was listed as the second lienholder."

In the judgment of October 20, 1980, however, the court nevertheless held that plaintiff was not entitled to the decree of nondischargeability against defendant Skeeter Dale Benedict because:

"(t)he uncontradicted evidence also shows that, on or about April 19, 1979, and prior to the debtors\' filing their petition herein for relief (on May 6, 1980), Mr. Benedict satisfied Mr. Rice\'s lien on the automobile by paying $500 to Mr. Rice, principally from the proceeds of some casualty insurance benefits. . . . (T)o create a liability which is nondischargeable in bankruptcy, the misrepresentation must be material and must result in injury to the plaintiff. The evidence in this case does not sustain either element. Rather, it shows that the defendants\' actually making the $500 down payment, albeit not on March 20, 1979, but nevertheless within 30 days thereof, renders any meantime misrepresentation immaterial. And this is so even though Mr. Rice was thereby enabled to obtain a security interest superior to that of Morris Plan. For, as of April 19, 1979, that lien, according to the uncontradicted evidence herein adduced, was wholly satisfied and extinguished. And plaintiff then had, far in advance of any claim which might be made by the trustee herein in bankruptcy, its unlimited and paramount security interest in the automobile. It thus suffered no injury on account of the false pretense or misrepresentation of Mr. Benedict. For, as of April 19, 1979, in respect of the contract itself, Morris Plan had everything that it bargained for. Any injury suffered by it is due to the Benedicts\' later default in payment. But failure to make payment in accordance with the terms of the contract does not, either ordinarily or under these circumstances, constitute fraud."

After the filing of the plaintiff's motion to vacate the judgment of October 20, 1980, the court issued its order directing the defendants to show cause why their discharges in bankruptcy should not be denied for failure to have the lien of Mr. Rice expunged, stating that, "in order for the defendants to avail themselves of equitable relief in the form of a discharge in bankruptcy, it appears only fair that they should be required to do equity and accordingly undertake and accomplish the measures necessary to extinguishing the record of any first lien except that held by the plaintiff."

In their response to that order, the defendants and their counsel professed ignorance of the means by which the expunction of the first lien could be achieved. Whereupon the court, by the terms of its order entered herein on February 2, 1981, directed the defendants to attempt the expunction by written inquiry of the appropriate state agency in Iowa as to how the expunction might be achieved.

In response to that order, the defendants produced copies of letters which they had purportedly addressed to the Iowa vehicle licensing agency requesting to know how the lien might be expunged. But those letters did not contain any effective claim that the underlying debt had been paid off. For the letters purported to be from Victoria Lee Benedict, who did not profess to have personal knowledge, in the course of the prior trial, of the payment vel non of the $500.

In the meantime, on January 30, 1981, the plaintiff filed a document entitled "plaintiff's reply to defendants' response to order directing defendants to show cause," in which the plaintiff, for the first time in any of the post-judgment proceedings, raised with sufficient explicitness the contention that the defendant Skeeter Dale Benedict had in fact not paid the $500 to Steve Rice as Benedict had testified without contradiction in the trial of this action. Thus, in the "reply" of January 30, 1981, the plaintiff stated that:

"The Defendants deceive this Court. They portray the problem of extinguishing (Steve Rice\'s) first lien as one of `executing documents\' only. The truth is that, contrary to this court\'s holding, as is shown by the continued existence of said first lien ahead of plaintiff\'s, defendants have never paid to Steve Rice the $500.00 on the Note that Defendant Skeeter Benedict gave to Steve Rice in the fraud upon Plaintiff. That is the only reason why the first lien has never been cured." (Emphasis in original.)

Therefore, when the defendants' responses were less than satisfactory and indicated that they did not continue to make any unequivocal assertion of payment, the court entered its order on March 3, 1981, setting aside the decree and judgment of dischargeability entered in favor of Skeeter Dale Benedict and setting a new trial. In that order, this court found that the prospective testimony of Steve Rice constituted newly discovered material evidence which would warrant a new trial on the issue of whether payment was actually made.

On March 9, 1981, however, the plaintiff filed its "motion to vacate new trial hearing date and motion for resolution of this matter by the court on the...