Sweet v. Ritter Finance Company
| Decision Date | 30 January 1967 |
| Docket Number | No. 66-C-13-R.,66-C-13-R. |
| Citation | 263 F. Supp. 540 |
| Parties | Elack SWEET v. RITTER FINANCE COMPANY, Covington, Virginia. |
| Court | U.S. District Court — Western District of Virginia |
A. B. Davies, Jr., Clifton Forge, Va., for petitioner.
Kurt Berggren, Hunton, Williams, Gay, Powell & Gibson, Richmond, Va., for respondent.
Jurisdiction having been assumed in order to protect and give effect to a former discharge in bankruptcy, as outlined in an earlier opinion in the above-styled case, an evidentiary hearing was held on August 29, 1966 and the parties were given the opportunity to argue their respective positions on the merits.
Elack Sweet, the petitioner, seeks injunctive relief to prevent Ritter Finance from enforcing a judgment it had obtained in a state court on a loan made to the petitioner. He contends that his discharge in bankruptcy, received May 6, 1964, relieves him of any further liability on all of his debts incurred prior to that date, including the debt concededly formerly owed to defendant Ritter Finance. This debt arose from the renewal of a note signed by petitioner and his wife on July 3, 1963 which, with interest, now amounts to approximately one thousand dollars. Ritter Finance submits that the debt was non-dischargeable because it falls within one of the exceptions set out in § 17(a) (2) of the Bankruptcy Act, 11 U.S.C. § 35(a) (2). Under this section a debt is non-dischargeable if it is obtained by "false pretenses or false representations". According to defendant's theory of the case, Elack Sweet obtained the loan in question by a false representation when he signed a financial statement that did not list, as required by the printed instructions, all of his creditors existing at that time. Circumstances surrounding the signing of this false financial statement constitute most of the relevant evidence presented to this court.
Elack Sweet and his wife, Charlotte, on July 3, 1963, discovered that they immediately needed a small amount of money. Mrs. Sweet called Ritter Finance and asked if the Sweets could borrow this money. Having received an affirmative reply, the Sweets went to the Ritter Finance office located in Covington, Virginia, arriving late that afternoon. Most of the loan papers were prepared by Ritter Finance when the Sweets arrived. It seems that the Sweets had been doing business with Ritter Finance for more than five years and had never been out of debt during that period. They had owed Ritter Finance an amount averaging between three hundred to six hundred dollars.
After the Sweets had gotten to the Ritter Finance office, an agent of the Company, Mr. Morris Smith, took the couple into a room where Charlotte Sweet signed, among other things, a financial statement and evidently filled in the space in which a borrower's outstanding debts were to be listed. Mr. Sweet signed the statement also. The entire business transaction was completed in "no more than two minutes," according to Mr. Sweet's undisputed testimony. It was uncontroverted that Elack Sweet could not read, nor could he write except to sign his name. He admits that he knew he had several debts outstanding on July 3, 1963 but he also says that Mr. Smith never asked him anything about these debts. When questioned on whether he knew what his wife was doing when she was filling in the financial statement, he said, "I know she wrote something but I don't know what she wrote." When asked if he recognized his wife's signature, Mr. Sweet said he did not. After signing this renewal note, which was for a principal of $600.00 with 30% interest due on the first three hundred dollars and 18% due on the remainder, the Sweets were given the grand total of $27.00 and some cents. The remainder of the $600.00 note went to pay off old debts owed to Ritter Finance.
Though he remembers talking to the Sweets, Mr. Smith does not remember any of the details of this transaction. He admits that he may not have questioned the Sweets at all concerning their outstanding debts. No other agent of Ritter Finance was involved.
This case is far from being an unusual one. Instead (unfortunately) it represents a rather typical situation which can and probably does occur every day. A couple like the Sweets with limited or no education walk into a small loan office and request a loan. The loan company, asking few questions, if any, gets the couple to sign "a few necessary papers" at an exhorbitant and often well disguised interest rate and hands them twenty-five dollars or so which the couple will spend in a few days only to return later and ask for a similar loan. Should the borrower receive a discharge in bankruptcy, the loan company will quickly step forward with the financial statement signed by the debtor during one of the previous loan transactions and claim that the company was misled into extending credit by a false financial statement. Whether the loan company should or should not be taking advantage of a borrower's ignorance in this manner is really a moral question not to be decided by a court of law. But the frequency with which this type transaction occurs is significant in another respect. It indicates that many small loan companies are well aware of the unsound financial positions many of their clients are in and are willing to lend money in spite of this cognizance— without further inquiry. This willingness to lend with an almost studied disregard for the truth undoubtedly created by the high interest charged is enough in many instances to preclude a later claim by the loan company that its reliance on a false financial statement was reasonable.
Ultimately, the issue that must be decided in the instant case is whether the debt owed Ritter Finance by Elack Sweet is non-dischargeable under § 17(a) (2) of the Bankruptcy Act, 11 U.S.C. 35(a) (2). The relevant part of that section provides:
Note that this section is to be distinguished from 11 U.S.C. § 32(c) (3) which is concerned with whether one is entitled to a discharge of any debts. See In Re Bell, 212 F.Supp. 300 (E.D.Va.1962).
Once a person has a valid discharge in bankruptcy, as Elack Sweet does, he has a prima facie defense against all debts and the...
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