Matter of Graham
| Decision Date | 19 June 1980 |
| Docket Number | 80-0010.,79-00468 and 80-00020,Adv. No. 80-0007,Bankruptcy No. 79-00469 |
| Citation | 7 BR 5 |
| Parties | In the Matter of Elmer Lawrence GRAHAM, Jr. and Zelma Louise Graham, Debtors, Graham & Blonigan, Inc., a Nevada Corporation, dba Bates & Bell T.V. & Appliances, Debtor, Richard John Blonigan, Debtor. GENERAL ELECTRIC CREDIT CORPORATION, a corporation, Plaintiff, v. Elmer Lawrence GRAHAM, Jr.; Zelma Louise Graham; and Graham & Blonigan, Inc., dba Bates & Bell T.V. & Appliances, Defendants. GENERAL ELECTRIC CREDIT CORPORATION, a corporation, Plaintiff, v. Richard John BLONIGAN, Defendant. |
| Court | U.S. Bankruptcy Court — District of Nevada |
Harold A. Swafford, Reno, Nev., for debtors, Grahams and Graham & Blonigan.
Sylvia J. Thompson, Reno, Nev., for debtor, Blonigan.
H. Dale Murphy, Reno, Nev., for plaintiff.
These consolidated adversary cases were filed by General Electric Credit Corporation (GECC) to have a collateral deficiency in its flooring inventory declared nondischargeable in the personal bankruptcies of Mr. and Mrs. Elmer Graham (Grahams) and Richard Blonigan (Blonigan) who were the chief stockholders, officers and directors of Graham & Blonigan, Inc. doing business as Bates & Bell T.V. & Appliances (B&B).
On March 2, 1979, B&B signed a security agreement with GECC which provided that all inventory would be subject to a security interest. The established method of business was that each item of inventory would be listed by GECC and B&B was to pay the cost promptly (usually on a weekly basis). From time-to-time GECC inspected the inventory at the Reno store of B&B to be certain that all inventoried items were present or, if not, there would be a collateral deficiency immediately due and payable.
News of B&B's bankruptcy alerted GECC to inspect the inventory in October 1979 about the time of filing herein. It was discovered that $14,682 had been "sold out of trust" and was not in the store.
At the time of execution of the security agreement by B&B in its corporate capacity, each of the principals, Grahams and Blonigan, signed personal agreements that they "guarantee the punctual payment and prompt performance of any and all indebtedness or obligation of any kind which the Dealer may now owe or which it may at any time hereafter owe to GECC."1
The security agreement provided that B&B upon the sale of any inventory would "hold all proceeds of the sale of such unit in trust".
No trust deposit or special account was set up or requested by GECC and none was maintained by B&B which had two commercial accounts, essentially one for payroll and another for general expenses.
There was no evidence as to what happened to the inventory which was unaccounted for. Each sale as made required a sales slip, but there was no proof that there were sales slips for the missing items. Many of the items were large appliances which could not be easily removed from the premises. Smaller items, such as portable radios, could have been shoplifted.
GECC's complaints charge that debtors converted the collateral to their own use.
Former Section 17(a)(2) of the old Bankruptcy Act excepted from discharge debts "for willful and malicious conversion of the property of another". The new Code, which applies to this case, does not specifically include a debt for conversion of property among the enumerated debts that are not dischargeable. It is, however, the settled interpretation that Section 523(a)(6) includes willful and malicious conversion.2
Hence, a conversion under the Code must be willful and malicious. Mere negligence is insufficient. There was no proof here that the Grahams or Blonigan actually removed inventory. True, the inventory has disappeared and although no sales slips were produced, it is probably true as testified by Blonigan that the inventory was sold, the money deposited in the general account and used by B&B for general operation expenses. That is not willful and malicious, the meaning of which is defined in Para. 523.161 of 3 Collier on Bankruptcy (15th ed. 1979) at p. 523-116, as follows:
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