Opinion
Case No. 01-33929, Adv. Pro. No. 01-3271.
August 1, 2005
Stephen M. Pfarrer, Dayton, Ohio, Attorney for Plaintiff.
Arthur R. Hollencamp, Dayton, Ohio, Co-Counsel and Trial Attorney for Plaintiff.
William O. Cass, Jr., Dayton, Ohio, Attorney for Defendant.
Donald F. Harker, III, Trustee, Dayton, Ohio, United States Trustee.
DECISION AND ORDER DETERMINING DEBT TO BE NON-DISCHARGEABLE UNDER 11 U.S.C § 523(a)(2)
The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 (a) and 1334, and the standing General Order of Reference in this District. This proceeding constitutes a core proceeding pursuant to 28 U.S.C. § 157 (b)(2).
This matter is before the court on the Complaint to Determine Dischargeability of Debt filed by the Plaintiff, Kenneth Gevedon ("Gevedon") [Adv. Doc. # 1] and the Answer filed by Defendant-Debtor, George Glenn Ivey ("Ivey") [Adv. Doc. # 22]. Gevedon filed the Complaint to determine the dischargeability of a $30,000 loan obligation owed to him by Ivey (the "Loan"). Gevedon alleges that the Loan to Ivey is non-dischargeable because it was given based upon false representations made by Ivey.
Following a number of preliminary actions relative to the final resolution of this Adversary Proceeding, a hearing was held for the sole purpose of determining the dischargeability of the Loan. Two other loans owed to Gevedon have been discharged and are not the subject of this Adversary Proceeding.
FINDINGS OF FACT
Gevedon and Ivey had informal partnership relations in business ventures for a number of years before entering into the Loan. Ivey approached Gevedon with a proposal to help Ivey buy and renovate a fire-damaged house ("the Berwyck Property"). Although Ivey already owed Gevedon on two outstanding loans, Gevedon agreed to make the Loan for this venture secured by the Berwyck Property.
On April 17, 1998, Gevedon loaned Ivey $30,000. Ivey signed a hand-written note promising Gevedon that the Berwyck Property would be used to secure the Loan. The note was due to be paid in full on October 17, 1998. On May 4, 1998, Ivey bought the Berwyck Property for $10,250 plus a $2,500 finder's fee.
The year 1998 was a difficult year for Ivey financially; his financial condition worsened during the summer and early fall. Sometime in mid-October, Ivey sought and Gevedon agreed to a thirty-day extension of the Loan for an additional $1,700. The total due on the note was increased to $31,700. Nothing was said about altering the original promises contained in the April 17, 1998 note.
The extension agreement was oral and neither party has put into the record when it was discussed.
On October 30, 1998, thirteen days into the thirty-day extension, Ivey transferred the property by deed to Ronald Hotopp for $13,500. Ivey did not pay Gevedon any part of the proceeds from the sale of the property. He used the proceeds to pay other debts.
In February 1999, Gevedon won a default judgment in state court against Ivey for default on the three separate notes for a total of $88,700. Of the three loans, Gevedon, through counsel, asserts the $30,000 loan should be deemed non-dischargeable in this bankruptcy. Gevedon concedes that the other two loans are dischargeable.
CONCLUSIONS OF LAW
Gevedon contends that Ivey never intended to repay the Loan and fraudulently misrepresented his actual intentions at the time of the Loan in an effort to secure the Loan. Because Ivey never intended to repay the Loan, the representations made in securing the Loan were fraudulent and the debt is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
Section 523(a)(2)(A) provides an exception to discharge for debts obtained, "(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by: (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition[.]" 11 U.S.C. § 523(a)(2)(A).
To prove that a debt should be excepted from discharge on account of fraud under § 523 (a)(2)(A), the creditor bears the burden of proving four elements. These elements are:
(1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth;
(2) the debtor intended to deceive the creditor;
(3) the creditor justifiably relied on the false representation; and
(4) its reliance was the proximate cause of loss.
Rembert v. ATT Universal Card Services, Inc. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir. 1998); Stamm-Lingo v. Secrest (In re Secrest), 255 B.R. 16, 20 (Bankr. S.D. Ohio 2000). Gevedon carries the burden and must prove each of these elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 287-88 (1991).
"Of course, a fraudulent representation must be of an existing fact[,]" but the "mental attitude and the then intent of the one who makes the representation are existing facts." Dozier v. Keller, 56 N.E.2d 288, 288 (Ohio 1944).
In Dozier, the Defendant agreed to hold a check until "it should be learned whether the remaining money could be raised to purchase real estate," and if such remainder could be raised then the check would be returned to the Plaintiff. Id. When the Defendant instead took the check to the bank and cashed it the very next day, the court inferred fraud based upon the present intent not to fulfill a future obligation. See id.
In this case, Gevedon asserts that Ivey obtained the Loan without ever intending to repay it. The court finds no evidence that Ivey, by admission or deed, had the requisite intent to defraud Gevedon at the time the Loan was made. Based on the evidence, it is just as plausible that Ivey obtained the Loan with the intent to fulfill his promise, and later circumstances made it impossible for him to do so. Thus, Gevedon has not met his burden of proof concerning the original Loan and the court finds no evidence of fraud at the inception of the Loan.
Ivey testified in court that he did not intend to default on the Loan at the time of the original transaction.
The court does, however, find evidence of fraud in the extension of the due date of the original Loan. The original Loan was due on October 17, 1998. In mid-October Ivey obtained an extension for thirty days by agreeing to pay an additional $1,700. The total due then became $31,700 on November 16, 1998. On October 30, 1998, Ivey transferred the Berwyck Property by deed to Hotopp for $13,500. Ivey paid nothing to Gevedon from the sale proceeds.
Like the defendant in Dozier, Ivey's outward actions concerning the extension of the Loan and the subsequent sale of the property indicate fraudulent intent at the time of the extension. Ivey acknowledges that in September his financial difficulties became serious. He then sought and obtained the Loan extension and sold the property within thirteen days.
The court finds it reasonable to infer that Ivey was contemplating the sale at the time of the request for the extension. Thus, the court finds Ivey's actions at the time of the Loan extension permit a reasonable inference of intent to deceive. His actions also show that Ivey knew, at the time he requested the extension, which he intended to sell the property to Hotopp and keep the proceeds for himself. He needed the extension to obtain enough time to complete the sale of the property to Hotopp. At the time, he was financially unable to and had no prospect of paying the $31,700 due to Gevedon within thirty days.
Based on the evidence before the court, the elements of fraud existed in this case when Ivey secured the extension. First, Ivey obtained an extension of the due date of the Loan, maintaining the original agreement, and not disclosing his intention to sell the property. At the time of the Loan extension, the facts show that Ivey intended to sell the property and retain the proceeds for his own purposes, which he did.
See Reiter Dairy, Inc. v. Ohio Department of Health, 2002 WL 977294 (Ohio App. 10 Dist.) ("Whether the parties agreed to change or abandon a contact is a question of fact for the trier of fact to determine."); Mooney v. Green, 446 N.E. 2d 1135, 1139 (Ohio App. 12th Dist. 1982) (abandonment is a question of fact for the fact finder); 18 Ohio Jur. 3d Contracts § 241. Even if merely extending the time for performance creates a new contract, it is for the fact finder to determine the terms of the contract based on the evidence. See Kugler v. Wiseman, 20 Ohio 361, 369 (Ohio 1951) (explaining that the abandonment of a written contract, and the terms of the parol contract are findings of fact for the jurors to make by examining the evidence, and giving effect, by their verdict, to any contract, which the parties might have made.)
Second, Ivey's intent to deceive Gevedon is found in the timing of the transfer of the property. Ivey pursued an extension on the original Loan merely thirteen days before selling the property to Hotopp. The court finds the requisite intent to deceive in Ivey's failure to disclose his intentions when he obtained the extension. The court finds confirmation of the deceit when Ivey then completed the property sale to Hotopp.
Third, Gevedon relied on Ivey's representations when he agreed to the extension with no changes in the Loan terms and conditions. Gevedon agreed to extend the Loan for thirty days with no change in the terms and for an additional $1,700 consideration. He justifiably relied upon Ivey to fulfill his obligations. And, Gevedon agreed to the Loan extension, at least in part, because he trusted Ivey and believed the Berwyck Property secured the Loan. The explicit agreement was that if the property were sold then Gevedon would be paid from the proceeds. Therefore, Gevedon agreed to the extension based on Ivey's intentional misrepresentation and failure to disclose facts material to the transaction.
Finally, Gevedon justifiably relied on Ivey's misrepresentation as to the Berwyck Property being security for the Loan and Ivey's actions were the proximate cause of Gevedon's loss. If the Berwyck Property had secured the Loan, as promised, Gevedon would have received the $13,500 from the proceeds of the sale. But, instead Ivey used the money for his own purposes causing a substantial loss to Gevedon.
The court finds that all the requisite elements are met concerning the terms and timing of the extension. Under 11 U.S.C. § 523(a)(2)(A), Ivey's debt in the amount of $31,500 is non-dischargeable. By counsel Gevedon has acknowledged that the other two loans owed by Ivey were discharged in Ivey's bankruptcy.
CONCLUSION
The Plaintiff, Kenneth Gevedon, has proven by a preponderance of the evidence the necessary elements of fraud under 11 U.S.C. § 523(a)(2)(A). The court orders the $31,700 debt Ivey owed to Gevedon is non-dischargeable in this bankruptcy.