STEPHEN MITCHELL, Bankruptcy Judge
This matter is before the Court on the motions of the debtor-defendants to dismiss the plaintiffs nondischargeability complaint. The Court has considered the pleadings, the memoranda of counsel, and the arguments made at the hearing on January 3, 1995, and concludes, for the reasons set forth in this opinion, that the motion of Mrs. Jacobs should be granted and the motion of Mr. Jacobs should be denied.
The debtors, who are husband and wife, have filed separate motions to dismiss. The wife's motion is based on the failure of the complaint to allege any fraudulent conduct on her part. The husband's motion is grounded on the creditor's lack of reasonable reliance. At oral argument on January 3, 1995, counsel addressed only the arguments raised by the husband's motion. However, the Court, having reviewed the wife's motion, believes that it can be decided based on the pleadings and the motion papers and that oral argument is unnecessary on the wife's motion.
While the motions to dismiss do not formally recite the rules under which they are brought, the Court construes both motions as motions to dismiss under F.R.Bankr.P. 7012(b) and Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. It is well-settled that in deciding such a motion, the well-pleaded allegations of the complaint must be accepted as true, all favorable inferences must be drawn in favor of the plaintiff, and the complaint should not be dismissed unless it plainly appears the plaintiff can prove no set of facts at trial that would entitle it to relief. Conley v. Gibson, 355 U.S. 41(1957).
As set forth in the complaint, the debtors, who filed a voluntary chapter 7 petition in this Court on August 3, 1992, were the principals of Jacobs Development, Inc., a Virginia corporation which was engaged in the construction and sale of single-family homes. In reliance on an August 1989 Indemnity Agreement executed by Mr. and Mrs. Jacobs, Stewart Title Guaranty Company issued a blanket title insurance commitment on the various properties being developed and sold by Jacobs Development. On July 12, 1990, one of those properties, identified as Lot 18, Wolf Run, Fairfax Station, Virginia, was sold to a purchaser. At the settlement, Mr. Jacobs, in his capacity as president of Jacobs Development, signed a printed "Waiver of Liens" form which, the plaintiff asserts, represented that there were no unpaid materialmen or laborers. In reliance on the Waiver of Liens form, Stewart Title issued title insurance policies to the purchasers and to the lender.
Stewart Title Guaranty Company and Stewart Title of Greater Washington, Inc., were not listed as creditors in the original schedules filed by the debtors in their case. After receiving their discharge, the debtors moved to reopen their case for the purpose of adding omitted creditors, including Stewart Title. The order reopening the case allowed the omitted creditors to file complaints to determine the dischargeability of the debts owed to them.
In fact, according to the complaint, two subcontractors, Coleman Floor Company and Benfield Electric Co., Inc., had not been paid and subsequently filed mechanic's liens against the property for work performed prior to the date of the settlement. The complaint alleges that the representations in the Waiver of Liens form were known at the time by the debtors to be false, that they were made with the intent to deceive, that Stewart Title reasonably relied on them, and that, had the form disclosed the two unpaid claims, Stewart Title would not have issued its policies of title insurance. Stewart Title made demand on the debtors under the Indemnity Agreement to bond off or pay the mechanic's liens, and, when the debtors failed to do so, "satisfied" the liens itself in fulfillment of its obligations under the title insurance policies. Stewart Title subsequently sued the debtors and Jacobs Development in state court and obtained a judgment in the principal amount of $19,319.03.
The plaintiff's complaint is brought under Section 523(a)(2)(A) of the Bankruptcy Code, which excepts from discharge
Technically, the complaint should be viewed as one grounded under Section 523(a)(3)(B), but since that subsection incorporates the exceptions under Section 523(a)(2), the analysis is the same in any event.
any debt * * * for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by * * * false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition * * *.
With regard to Mrs. Jacobs, although paragraph 21 of the complaint asserts in general terms that the Waiver of Liens was "published" by the "debtors" and that "they" did so with the intent to deceive Stewart Title, paragraph 11 clearly alleges that it was Mr. Jacobs who signed the Waiver of Liens, and the form itself, which is attached to the complaint as Exhibit D, clearly shows it to have been signed only by Mr. Jacobs. While Mrs. Jacobs is alleged to have been a "principal" in Jacobs Development and to have signed the earlier Indemnity Agreement, there are no factual allegations setting forth any direct involvement by her with respect to the execution of the Waiver of Liens form. She is not alleged to have been present at the settlement or to have participated in the preparation or execution of the form. The mere fact that she was a principal of the corporation on whose behalf her husband signed the form and was contractually liable to Stewart Title for its breach does not, without more, render her liability to Stewart Title nondischargeable even if, as asserted, the representations made by her husband on the Waiver of Liens were knowingly false.
With respect to Mr. Jacobs, it is argued that Stewart Title could not have "reasonably" relied on the Waiver of Liens form, since it was incomplete on its face. The form in question consists of two pages. The first page of the printed form is entitled "Part I — Waiver of Liens" and consists of language waiving, in favor of "each and every party making a loan" on the described real estate and in favor of "the title company insuring the title" any right to file a mechanic's lien. In addition, each of the parties warrants that all laborers have been paid. The form contains blank spaces in which to insert the date of execution and blank signature lines for the general contractor and each of the usual building suppliers and trades (brick, bricklaying, carpentry, concrete work, etc.). The printed instructions on the next page state,
This instrument will not be satisfactory or accepted unless ALL of the signature blocks in Part 1 are filled in by signatures of proper parties or if no such material or labor
has been furnished, such fact is shown by the word "none" inserted in the blank.
(emphasis in original). The form submitted to Stewart Title hasno date inserted in the blanks of Part I, no signatures on any of the signature lines provided in Part I, and no signature lines annotated with "none" as required by the instructions. In short, the first page of the form, Part I, is totally incomplete except for the typed name of the owner and short legal description of the property.
The second page of the form consists of two affidavits and a set of instructions. The first affidavit, entitled "Part II — Affidavit," is signed by Mr. Jacobs for Jacobs Development, Inc. as general contractor. In it, Jacobs Development, Inc. represents under oath
[t]hat the persons, firms and corporations who have executed the waiver of liens on the reverse side hereof are all of the persons, firms and corporations who have furnished services, labor or materials in the construction or repair of improvements on the real estate described in said waiver * * *.
The second affidavit, entitled "Part III-Affidavit," is signed by Mr. Jacobs, "President", as owner. In it, he represents under oath
[t]hat the persons, firms and corporations who have executed the waiver of liens on the reverse side hereof include all of the persons, firms and corporations with whom I have contracted for services, labor or materials in the construction or repair of improvements on the real estate described in said waiver; that, as of the date of this affidavit, such work has been fully completed and accepted by me;
that the general contractor, if any, and all other parties with whom I have contracted have been paid in full;
that at the time of paying said parties in full, I had no notice of any claim of any subcontractor, laborer or materialman; and that I do not now have notice of any claim of any subcontractor, laborer or materialman.
(emphasis added).
While the complete omission of signatures (or the word "none") in Part I of the form clearly violates the express language of the printed instructions and may be a basis for concluding, at trial, that Stewart Title's reliance on the form in issuing title insurance to the purchasers and their lender was not reasonable, it is also true that the language of the affidavits, viewed in the context of the failure to list any names on the front of the form, could be plausibly read as an assertion that there were no names required to be listed because all subcontractors and materialmen had been paid; and, indeed, the third clause in the Part III Affidavit explicitly asserts that everyone with whom the owner (in this case also the general contractor) had contracted had been "paid in full." The reasonableness of Stewart Title's reliance on the form, in short, is an issue of fact that can only be resolved in the context of all the evidence, including evidence of custom and practice in the industry. For that reason, the Court cannot conclude, solely from examination of the pleadings, that Stewart Title will be unable to prove at trial that it suffered a loss as a result of reasonably relying on a knowingly false representation by Mr. Jacobs that all subcontractors had been paid.See, Lawyers Title Ins. Corp. v. Pitt, 157 B.R. 585 (E.D.Va. 1991).
For the foregoing reasons, the motion of Sharon Lynn Jacobs to dismiss the complaint as to her will be granted, and the motion of Jerald Edward Jacobs to dismiss the complaint as to him will be denied.