Opinion
Nos. 77-884-T and 77-885-T
August 23, 1978
Debts Not Affected by Discharge — Undischargeable Torts — Willful and Malicious Conversion
A bankrupt's use of the proceeds from the sale of property of another did not constitute a willful and malicious conversion such as to make the debt nondischargeable under Section 17a(2) of the Bankruptcy Act. Not all conversions are willful and malicious. Only those acts of conversion showing design or willingness to inflict wrong constitute willful and malicious injury to the property of another. The bankrupt and the creditor had agreed that bankrupt would sell the creditor's automobile. Bankrupt sold the vehicle, but, instead of delivering the proceeds to the creditor, deposited them in his corporate checking account. Demand was made for the proceeds for several months, but bankrupt answered that the car had been sold and the proceeds would be delivered soon. Before this occurred, bankrupt filed a petition in bankruptcy.
The court found that in order to find willful and malicious conversion, there must be shown an intent by bankrupt to violate the rights of plaintiff at the time he deposited and used the proceeds, while promising the money would be forthcoming. Such an intent could be shown either by manifestations of bankrupt's subjective intent or by proof that he knew the corporation was insolvent and could not pay this debt. Because the requisite degree of proof of intent was lacking in this case, the court concluded that the conversion of the proceeds was not willful and malicious and therefore the debt was dischargeable under Section 17 of the Bankruptcy Act. See Sec. 17a(2) at [§ 523(a)(2) ] at ¶ 9228.
Debts Not Affected by Discharge — Undischargeable Torts — Willfull and Malicious Conversion
A bankrupt's withdrawal of funds for personal use from a checking account established by a creditor for the purpose of "floor planning" bankrupt's automobile business did not constitute a willful and malicious conversion for purposes of Section 17a(2) nondischargeability. Under the floor planning arrangement, the bankrupt was permitted to withdraw money to buy automobiles for resale. Prior to the filing of the petition in bankruptcy, the bankrupt withdrew $2000 from the account and bought an automobile but did not give the creditor title to the vehicle as is usually the case in a floor plan arrangement. The creditor alleged that this withdrawal constituted malicious conversion under Section 17a(2) and as such was a nondischargeable debt.
The court found that these facts indicated a loan from plaintiff to bankrupt. In a loan transaction, the money becomes the property of the debtor by consent of the lender. Therefore, the court held that since conversion is, by definition, the wrongful taking of the property of another for one's own use, a loan cannot be the subject of conversion and the amount was dischargeable under Section 17 of the Bankruptcy Act. See Sec. 17a(2) [§ 523(a)(2)] at ¶ 9228.