Matter of Turner

• Decision Date: 10 July 1981
• Docket Number: Bankruptcy No. 79-0357A,Adv. No. 80-0138A.
• Citation: 7 BCD 1119,12 BR 497
• Parties: In the Matter of Maurice S. TURNER, Debtor. Margaret H. THOMAS, Plaintiff, v. Maurice S. TURNER, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

12 B.R. 497 (1981)

In the Matter of Maurice S. TURNER, Debtor Margaret H. THOMAS, Plaintiff, v. Maurice S. TURNER, Defendant.

Bankruptcy No. 79-0357A, Adv. No. 80-0138A.

United States Bankruptcy Court, N.D. Georgia.

July 10, 1981.

Peter J. Anderson, Atlanta, Ga., for plaintiff.

Robert W. Hassett, Atlanta, Ga., for defendant.

STATEMENT OF FACTS

WILLIAM L. NORTON, Jr., Bankruptcy Judge.

Debtor Maurice S. Turner (Defendant) filed a petition under Chapter 7 of the Bankruptcy Code on December 21, 1979. On February 28, 1980, Margaret H. Thomas (Plaintiff) filed an adversary proceeding objecting to the discharge of Defendant's debt to her. The Plaintiff alleges that the Defendant fraudulently promised to marry her and thereby induced her to lend $31,300.00 to a corporation in which the Defendant owned 100% of the stock. This indebtedness is evidenced by a note which the Defendant's corporation gave to the Plaintiff and which the Defendant personally guaranteed. At the time of the alleged promise the Plaintiff knew that the Defendant was married to another woman.

The Plaintiff maintains that the alleged promise amounts to "false pretenses, a false representation, or actual fraud" contemplated by § 523(a)(2)(A) of the Bankruptcy Code and that the debt is therefore nondischargeable. The Defendant argues that even if the court finds that he promised to marry the Plaintiff in order to induce her to lend him the money, the debt is dischargeable because it is based on an unenforceable promise upon which fraud cannot be predicated and because all of the elements of fraud, which the Plaintiff must prove, are not present. The Defendant has filed a motion for summary judgment.

QUESTION PRESENTED

The issue raised by the instant motion is whether the Defendant's alleged promise to marry the Plaintiff, when the Plaintiff knew he was already in fact married, in order to induce the Plaintiff to lend him more than $30,000.00, constitutes fraud as contemplated by § 523(a)(2)(A) of the Bankruptcy Code.

CONCLUSIONS OF LAW

The Defendant's argument for summary judgment is four-fold:

(1) a promise to marry when the promisor is already married is against public policy and unenforceable;

(2) the promisee may not reasonably rely on such an unenforceable promise and therefore there is no fraud;

(3) the Bankruptcy Code should be liberally construed in favor of giving the debtor a fresh start;

(4) fraud must be predicated on an existing fact.

In order to be successful on a motion for summary judgment, the movant must establish that no genuine issue as to any material fact exists and that he is entitled to a judgment as a matter of law. Fed.R. Civ.P. 56(c). Olympia Werke Aktiengesellschaft v. General Electric Co., 470 F.Supp. 966, 967 (W.D.Va.1979). In considering the motion, the court must view the facts of the case in a light most favorable to the party opposing the motion, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970), and must give that party the benefit of all reasonable inferences to be drawn from the underlying facts. Percival v. General Motors Corp., 400 F.Supp. 1322, 1323 (D.Mo.1975), aff'd 539 F.2d 1126, 1129 (8th Cir. 1976).

This controversy focuses on § 523(a)(2)(A) of the Bankruptcy Code 11 U.S.C. § 523(a)(2)(A):

(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt —

. . . . .

(2) for obtaining money, ... by —

(A) false pretenses, a false representation, or actual fraud, ...

Fraud has historically been a basis for nondischargeability of debts in bankruptcy. Section 523(a)(2)(A) of the current Bankruptcy Code is derived from § 17(a)(2) of the prior Bankruptcy Act.¹ "The phrase `false pretenses or false representations' ... has been a part of section 17 since the Bankruptcy Act of 1898 .... The section was derived from parallel provisions in the Bankruptcy Act of 1867 ... providing that debts created by fraud were not dischargeable." Wright v. Lubinko, 515 F.2d 260, 269 (9th Cir. 1975). The phrases "false pretenses" and "false representations" technically may have slightly different meanings.² However, courts have consistently held that in order for § 17(a)(2) or its predecessors to bar a discharge, the plaintiff must prove actual, or positive fraud.³See Abbott v. Regents of the University of California, 516 F.2d 830 (9th Cir. 1975); Wright v. Lubinko, supra; Neal v. Clark, 95 U.S. 704, 709, 24 L.Ed. 586 (1877). Therefore, the addition of the phrase "or actual fraud" as a basis for nondischargeability under the 1978 Code merely codifies prevailing prior case law applicable to the terms false pretenses and false representations.⁴

"Actual fraud" is any deceit, artifice, trick or design ... the intention and successful employment of any cunning, deception, or artifice used to circumvent or cheat another. It is something said, done, or omitted by a person with the design of perpetrating what he knows to be a cheat or deception."⁵

The Defendant argues that fraud may not be based on a promise to marry when the promisor is already married because such a promise is unenforceable at law and, therefore, the promisee could not have reasonably relied upon it. The Court notes at the outset that the Plaintiff does not contest the Defendant's contention that the promise is unenforceable. The Plaintiff does not seek to enforce the promise by this adversary proceeding. Rather, she maintains that the Defendant's alleged promise amounts to false pretenses, false representations or actual fraud contemplated by § 523(a)(2)(A).⁶ Thus, her action is in tort, not contract; it depends not upon the agreement between the parties but rather upon an alleged deliberate misrepresentation of fact. Channel Master Corp. v. Aluminum Limited Sales, Inc., 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958). The Supreme Court in National Bank & Loan Co. of Watertown v. Petrie, 189 U.S. 423, 425, 23 S.Ct. 512, 513, 47 L.Ed. 879 (1903) stated that

The right not to be led by fraud to change one\'s situation is anterior to and independent of the contract .... The fraud is a tort. Its usual consequence is that, as between the parties, the one who is defrauded has a right, if possible, to be restored to his former position.

Although there are cases holding otherwise, the prevailing view is that "one who fraudulently misrepresents himself as intending to perform an agreement is subject to liability in tort whether the agreement is enforceable or not." Channel Master, supra, quoting Prosser on Torts 565 (4th ed. 1971). The action for misrepresentation is maintainable because

The policy which invalidates the promise is not directed at cases of dishonesty in making it, and ... the promise may still be reasonably relied on even where it cannot be enforced.... The tendency is clearly to treat the misrepresentation action as a separate matter from the contract. Id.

The tort action was maintainable where the contract was within the Statute of Frauds, Pao Chen Lee v. Gregorian, 50 Cal.2d 502, 326 P.2d 135 (1958); Channel Master, supra; where the promise was without consideration, Lampesis v. Comolli, 101 N.H. 279, 140 A.2d 561 (1958), and where enforcement was barred by the Statute of Limitations, Fidelity-Philadelphia Trust Co. v. Simpson, 293 Pa. 577, 143 A. 202 (1928); and where the promise falls within the parol evidence rule, Kett v. Graeser, 241 Cal. App.2d 571, 50 Cal.Rptr. 727 (1966).

In Kidder v. Evans, 111 Ga.App. 484, 142 S.E.2d 269 (1965) an investment broker sued a competitor and a customer for fraudulent conspiracy to misrepresent the customer's financial position and to induce the broker to accept the customer's worthless checks. The defendants argued that violation of Regulation T of the Federal Reserve Board was conduct expressly declared to be against the public policy of the United States, and that therefore, as a matter of law, the plaintiff had no right to recover. Rejecting the defendant's argument, the court said:

A defendant in a fraud action cannot assert as a defense that the transaction induced by fraud was illegal or against public policy. The doctrine barring recovery for fraud where the parties are in pari delicto is based on the principle that to give the plaintiff relief would contravene public morals and impair the good of society. Hence, it should not be applied in a case in which, to withhold relief would, to a greater extent, offend public morals. 142 S.E.2d at 273.

The Defendant has cited Gay v. Grace, 433 F.2d 14 (5th Cir. 1970) and Adamson v. Maddox, 111 Ga.App. 533, 142 S.E.2d 313 (1965), for the proposition that there is no fraud because, the promisee may not reasonably rely on an unenforceable promise. These cases are factually distinguishable from the case at bar. In Gay, the promise was unenforceable because essential terms were not agreed upon. In Adamson, the court held that fraudulent misrepresentation could not be found where the contract was unenforceable because of the plaintiff's lack of authority to execute the contract, due to the expiration of his agency. Both of these cases deal with the enforcement of void promises, while the case sub judice does not.

A Georgia case which is more to the point is Symmes v. Rollins, 39 Ga.App. 53, 146 S.E. 42 (1928). That case contained a fact situation somewhat similar to the instant case. There the defendant obtained various sums of money from the plaintiff pending an engagement to marry. The plaintiff testified that these sums were advanced to the defendant because of the engagement to marry and because of her belief in his express purpose and intent to marry her. Upon discovering that he did not intend to marry her, the plaintiff accepted his note for the amount of money he had obtained from her. In holding that the debt was not discharged by bankruptcy, the court stated:

Where a contract is induced by the actual, moral fraud of one of the parties, his

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