The plaintiff appeals from that part of the judgment which awarded it $303.72 damages instead of the sum of $1,391.77, which it sought in damages against the defendant Charles Wellnitz. That part of the judgment which awarded it $1,391.77 against the defendant Avis Wellnitz, wife of Charles, is not appealed from.
On January 31, 1962, Mr. and Mrs. Wellnitz applied to the appellant loan company at Janesville, Wisconsin, for a loan, which was granted and was evidenced by their promissory note for $1,449 payable in 21 monthly instalments of $69 each.
At the time of obtaining this loan, the respondent was indebted to the appellant for a balance of $936 on a prior loan made in January, 1961, in the original amount of $1,728 payable in 24 monthly instalments of $72 each. This balance, adjusted for unearned charges, plus a net amount of fresh cash of $303.72 (which was paid to the respondent) was included in the note of January 31, 1962.
The trial court found that in obtaining the new loan the respondent and his wife made an intentional false statement in writing and that such statement was material and resulted in the appellant's granting the new loan.
It was also found that the respondent Charles Wellnitz was adjudicated a bankrupt in the United States district court for the Western district of Wisconsin on February 26, 1962, less than a month after obtaining the new loan. He received a discharge in bankruptcy of all his dischargeable debts on June 18, 1962, and the appellant was listed and received the usual notice to creditors in the bankruptcy proceeding. After the bankruptcy, the appellant sued the respondent and his wife for the unpaid balance of $1,391.77.
The respondent and his wife did not appear at the trial on January 21, 1963, and, accordingly, judgment was taken against them. However, on the basis of Household Finance Corp. v. Christian (1959), 8 Wis.2d 53, 98 N.W.2d 390, the trial court found that Charles Wellnitz had been discharged in bankruptcy to the extent of his prior existing obligation with the appellant, and, accordingly, gave judgment against Charles Wellnitz only to the extent of fresh cash advanced — $303.72.
Prior to July 12, 1960, sec. 17(a) of the Bankruptcy Act (11 U.S.C. § 35(a)(2)) read as follows:
"DEBTS NOT AFFECTED BY A DISCHARGE. (a) A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as . . . (2) are liabilities for obtaining money or property by false pretenses or false representations, or for willful and malicious injuries to the person or property of another, or for alimony due or to become due, or for maintenance or support of wife or child, or for seduction of an unmarried female, or for breach of promise of marriage accompanied by seduction, or for criminal conversation; . . ."
On July 12, 1960, it was amended to the following:
"DEBTS NOT AFFECTED BY A DISCHARGE. (a) A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as . . . (2) are liabilities for obtaining money or property by false pretenses or false representations, or for obtaining money or property on credit or obtaining an extension or renewal of credit in reliance upon a materially false statement in writing respecting his financial condition made or published or caused to be made or published in any manner whatsoever with intent to deceive, or for willful and malicious injuries to the person or property of another, or for alimony due or to become due, or for maintenance or support of wife or child, or for seduction of an unmarried female, or for breach of promise of marriage accompanied by seduction, or for criminal conversation; . . ." (Emphasis added.)
The respondent did not file a brief or participate in oral argument in this court.
GORDON, J.
The trial court, in reliance upon Household Finance Corp. v. Christian (1959), 8 Wis.2d 53, 98 N.W.2d 390, held that one who obtains an extension of credit by means of a materially false financial statement and who thereafter receives a discharge in bankruptcy remains legally responsible only for the new portion of the debt, i.e., that portion of the total debt which represented fresh cash received at the time of the extension. The Christian Case was decided before the amendment of sec. 17(a) of the Bankruptcy Act, recited above.
We must determine whether the amendment of sec. 17 (a) of the Bankruptcy Act has caused a change in the law of this state with reference to the effect of a discharge in bankruptcy.
It should be noted that absent the 1960 change in the Bankruptcy Act, Wisconsin was one of a minority of states which limited the creditor to judgment for the amount of fresh cash advanced. The majority of courts took the view that where there had been a prior existing obligation and a new loan was negotiated for an additional amount, the giving of a false financial statement at the time of the new loan permitted the creditor to recover the entire indebtedness. See Personal Finance Co. v. Bruns (1951), 16 N.J. Super. 133, 84 A.2d 32.
We consider that the amendment of sec. 17(a) necessitates our re-examining the result which we reached in the Christian Case. Although no appearance was made in this court by the respondent, we have determined not to apply our court rule, sec. 251.57, Stats., which would permit us to reverse the judgment as a matter of course. Instead, we have determined to address ourselves to the merits of the issue, since we are persuaded that the Christian Case has been superseded because of the change in the federal statutes.
Sec. 17(a) of the Bankruptcy Act must be read in conjunction with sec. 14(c) of the Bankruptcy Act, 11 U.S.C. § 32(c)(3), which was amended at the same time as sec. 17(a). The amendments to both sections on July 12, 1960, demonstrate that it was the intent of the Congress to eliminate the false financial statement as a ground for the denial of a complete discharge in bankruptcy (except for those engaged in business), while making it clear that debts incurred by means of such statements would not be discharged in bankruptcy.
Thus, prior to its amendment, sec. 14(c) read as follows:
"DISCHARGES, WHEN GRANTED.
". . .
"(c) The court shall grant the discharge unless satisfied that the bankrupt has . . . (3) obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a materially false statement in writing respecting his financial condition; . . ."
Sec. 14(c) as amended on July 12, 1960 (after our decision in the Christian Case) reads as follows:
"DISCHARGES, WHEN GRANTED.
". . .
"(c) The court shall grant the discharge unless satisfied that the bankrupt has . . . (3) while engaged in business as a sole proprietor, partnership, or as an executive of a corporation, obtained for such business money or property on credit or as an extension or renewal of credit by making or publishing or causing to be made or published in any manner whatsoever a materially false statement in writing respecting his financial condition or the financial condition of such partnership or corporation; . . ."
The legislative history of these sections supports the view that it was the will of the Congress to extend the scope of the exception where a materially false statement in writing was made. See Senate Report No. 1688, 86th Congress, 2d Session, June 24, 1960, reported in Vol. 2, 1960 U.S. Code Congressional and Administrative News, p. 2954. The report states (p. 2956):
"The purpose of this amendment is to assure that although the obtaining of money or property on credit through the issuance of a false financial statement is no longer to be ground for denial of a discharge to a nonbusiness bankrupt, any obligation incurred as a result of such a statement [is] to be nondischargeable under section 17. The addition of the elements of reliance by the creditor and intent to deceive by the debtor are merely enactments of existing case law."
In 1 Collier, Bankruptcy (14th ed.), p. 1577, sec. 17.01, the author commented on the amendments as follows:
"With the amendment of sec. 14(c)(3) removing the false financial statement as a ground for objecting to the discharge in bankruptcy of the nonbusiness bankrupt it became important to make certain that the obtaining of money, property or credit by use of such false statement resulted in a nondischargeable debt. Although case law had reached this conclusion prior to the amendment, the addition of the following clause in sec. 17(2) removed any doubt on the subject: `or for obtaining money or property on credit or obtaining an extension or renewal of credit in reliance upon a materially false statement in writing respecting his financial condition made or published or caused to be made or published in any manner whatsoever with intent to deceive. . . .'"
To the best of our knowledge, none of the states (including Wisconsin) constituting the minority view on this question has been called upon to pass upon the effect of the change in the Bankruptcy Act. However, several courts have cited the statutory change as removing any uncertainty which may have existed under the previous statute. See, e.g., M-A-C Loan Plan, Inc., v. Cooper (1961), 23 Conn. Sup. 184, 179 A.2d 313; Matter of Croston, Bankrupt, No. 46108, U.S. district court for the Western district of New York, decided February 8, 1962 (unreported case discussed in Brown, Full Amount of Bankrupt's Indebtedness to Lender Nondischargeable — Where Last Loan Obtained by False Financial Statement, 16 Personal Finance Law Quarterly Report (Spring, 1962), 41).
We conclude that in view of the change of the statutes the Christian Case is no longer operative, and the appellant was entitled to judgment for the sum of $1,391.77 instead of $303.72 against the respondent Charles Wellnitz.
By the Court. — Judgment modified to provide judgment against Charles Wellnitz in the sum of $1,391.77 and, as so modified, affirmed.
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