Opinion
No. 78 B 1214
December 11, 1978
Bankrupts — Debts Not Affected by Discharge — False Representations
The Bankruptcy Court is not bound by a state court judgment establishing a bankrupt's liability to a creditor based on false representations. To determine whether such liability is founded upon conduct proscribed under Section 17a(2) of the Bankruptcy Act for purposes of dischargeability, the Bankruptcy Court must look beyond the judgment and inquire into the circumstances attending the bankrupt's liability.
The complaint in the state court action charged that the bankrupt had induced the plaintiff to invest $50,000 in the bankrupt's corporation by materially false representations which were intended to deceive and defraud the plaintiff. The state court established the bankrupt's liability to the plaintiff on this ground in its judgment against the bankrupt. The only question before the Bankruptcy Court was whether this liability was founded upon conduct proscribed under Section 17a(2). The Court considered extrinsic evidence to ascertain that the bankrupt's liability under the judgment was based on false pretenses and fraudulent misrepresentations imputed to him within the meaning of Section 17a(2) and therefore nondischargeable. See Sec. 17a(2) [§ 523(a)(2)] at ¶ 9228.