PHILLIPS EQUIPMENT CORPORATION v. MARTIN, (Bankr.W.D.Va. 1980)

HICKSON, Bankruptcy Judge

The intent to deceive is present if a bankrupt's misrepresentation of a material fact is made for the purpose of obtaining money or property from the creditor. Thus, a bankrupt who acted with reckless indifference to the actual facts, conscious that he was withholding information concerning the existence of liens on his trade of two tractors, which was vital to the decision confronting the creditor's salesman, was not entitled to a discharge of his debt under Section 17(a)(2) of the Bankruptcy Act. See Sec. 17(a)(2) at ¶ 2146 and Sec. 523(a)(2) at ¶ 9228.

In this case, two months preceding a trade/purchase transaction between the parties, the bankrupt executed a valid security agreement with Farmer's Home Administration to secure a loan upon his crops, livestock, farm machinery and equipment, including the tractors which were subsequently traded to the creditor. Thereafter, the transaction for the trade of the two used tractors was consummated. The executive officer of the creditor testified that he did not talk with the bankrupt, but understood at the time of the sale that there was a lien with Farmer's Home Administration; however, he was not informed of a lien with another credit association. Farmer's Home Administration made demand upon the creditor to subordinate its purchase money lien to the F.H.A. lien on the bankrupt's two tractors taken in the trade.

Hence, the issue presented to the court was whether the debt for $11,376.45 for money paid by the creditor to remove the liens from the bankrupt's farm tractors, which were traded for credit upon his purchase of a new tractor, constituted a liability for obtaining money or property by false pretenses or representations within the meaning of Section 17(a)(2) of the Bankruptcy Act.

The court noted, that an intent to deceive is present if the representation of material facts is made for obtaining money or property: "either with actual knowledge that it was incorrect, or with reckless indifference to the actual facts."

To escape responsibility, the bankrupt would hide behind his admission of the existence of the liens upon his tractors and the assertion he furnished no further information concerning such liens because he was not further questioned. However, this testimony, the court found, was in direct conflict with that of the creditor's salesman. If believed, it would constitute an admission of his conscious and deliberate intent to withhold information vital to the decision made by the creditor's salesman and would thereby accomplish the trade of the two tractors at false values and purchase of the new tractor by an effective deceit. Consequently, the evidence presented "was not in substantial equilibrium, as suggested by the bankrupt's counsel, since the testimony of the creditor upon the crucial fact of the existence of liens upon his tractors was not believed."

The debt was thus nondischargeable.