No. 78-01923United States Bankruptcy Court, D. Oregon
May 8, 1980
Former Bankruptcy Act — Discharge of Debts — Nondischargeable Torts — Disbursement of Funds
LUCKEY, Bankruptcy Judge
A bankrupt who deposited two-party checks in his name alone, thereafter, disbursing the funds for his own use, did not have the intent to willfully and maliciously convert property under Section 17a(2) of the Bankruptcy Act since no money was owing the obligor at the time of the deposit, and there was no evidence of reliance upon the assignment as a means for future advances. See Sec. 17a(2) at ¶ 2146 and Sec.523(a)(2) at ¶ 9228.
Former Bankruptcy Act — Discharge of Debts — NondischargeableTorts — Financing Agreement
A bankrupt was not entitled to a discharge of a debt owed the creditor-bank since being fully aware that the checks he received were unconditionally assigned to the financor, he negotiated them and used the proceeds for his own purpose. See Sec. 17a(2) at ¶ 2146 and Sec.523(a)(2) at ¶ 9228.
[Digest of Opinion]
The bankrupt, as a roofing contractor, entered into an assignment which provided for the payment of all sums owing to the supplier of materials. In satisfaction, a party to the assignment made out checks to the bankrupt and the supplier as joint payees in the amount of $17,420. On August 21, 1978 the bankrupt filed his voluntary petition in bankruptcy, and the supplier made a demand upon the creditorbank for the money it was due as a joint payee on the checks. The bankrupt had deposited the checks in his own account, with only his endorsement, and had thereafter disbursed the funds with checks drawn on his own account. The creditorbank paid the supplier the full amount of the joint-payee checks.
Thus, the creditor-bank sought a determination that the obligations claimed due from the bankrupt were nondischargeable under the provisions of Section 17a(2) of the Bankruptcy Act.
The bankrupt offered undisputed testimony that on March 11, 1977, when the last of the controverted two party checks were deposited in his account, he owed the supplier nothing. In fact the on-going account with the supplier had been paid in full on February 22, 1977 by a credit. However, at trial, an officer of the supplier contended that when the funds were demanded from the creditor-bank, a greater sum than alleged was owing which represented future obligations. The court found, that if the assignment was considered a security agreement, it lacked any mention of advances related to an construction outside the intended shopping center.
In its second demand, the creditor sought a ruling that an obligation be determined to be nondischargeable in the amount of $4,041.
The bankrupt was receiving financing. As security for the advances, the financor received an assignment of all the “right, title and interest” in all goods and proceeds owing from the creditor-bank. The creditor thereafter issued checks payable to the bankrupt for $1425 and $2,616. These checks were negotiated by the bankrupt. Since the creditor had notice of the assignment, and had made the checks payable to the assignor-bankrupt, it made payment to the financor.
The defenses raised by the bankrupt are consent of the assignee, and negligence by the creditor-bank in disregarding the assignment. The first defense was not supported by any evidence. As to the second defense, the court found, that having made a complete assignment, he converted the funds to his own use. Thus, the bank’s negligence in ignoring the assignment resulted in loss, but that negligence did not entitle the bankrupt to knowingly and intentionally convert the funds.