Opinion
No. 80-00920-BKCSMW
December 22, 1980
Bankruptcy Reform Act — Discharge of Debt — False Representations — Stock Purchase Agreement
A creditor who purchased a forty-nine percent stock interest in 2 corporations proved the debt was nondischargeable under Section 523(a)(2)(A) of the Bankruptcy Code since the debtor did not disclose that he had an unrecorded mortgage against the property and he conveyed corporate property without consideration or the authorization of the creditor. Further, the debtor did not fulfill the terms of the agreement. Thus, the debtor had obtained funds by false representations contrary to Section 523. See Sec. 523(a)(2)(A) at ¶ 9228.
[Digest of Opinion]
The creditor entered into a stock purchase agreement for the purchase of a 49% stock interest in corporations from the debtor. The agreement, introduced into evidence, provided for certain matters to be performed by the debtor, including the furnishing of a non-compete agreement, the furnishing of a security bond in the amount of $50,000.00, the furnishing of a balance sheet for the corporations, the issuance of corporate stock, and the furnishing of a list of purchasers.
In addition, the stock purchase agreement allowed for the transfer of certain lots to a new corporation to be formed by the debtor. Title to these lots was conveyed to a newly formed corporation, with one hundred percent of the stock owned by the debtor. However, there was no consideration for the transfer of these properties.
The stock purchase agreement further provided a statement, signed by the debtor, certifying that the property had an appraised value and mortgage which the court found to be an express representation as to the status of title. Despite this representation in writing, which was a material inducement to the creditor's deposit, the debtor had executed and delivered to himself a second mortgage on this property covering an indebtedness owed to him by the corporation in the approximate amount of $33,706.60. The existence of this mortgage was unknown to the creditor at the time he entered into the agreement and deposited the $73,500.00. Subsequently, through a closing of the sale of property, the debtor personally realized the sum of $15,000.00 as a partial satisfaction of the mortgage.
The court found pursuant to Section 523 of the Bankruptcy Code, that the debtor had made material false representations. The debtor had not disclosed that he had an unrecorded mortgage against the property, he conveyed the corporate real estate without consideration or the authorization of the creditor, and he did not fulfill the terms of the agreement.
The creditor also objected to the discharge of the debtor pursuant to Section 727(a)(3), alleging the unjustified loss or destruction of the debtor's books and records, and pursuant to Section 727(a)(4), alleging the making of a false oath or account by the debtor. Having adequately met his burden of proof in establishing the objection to dischargeability pursuant to Section 523, and the creditor having put no evidence to effectively rebut the evidence presented by the creditor, the court found it unnecessary to reach the issue of objection to discharge.