CITY NATIONAL BANK OF LAUDERHILL v. AMARAL.

No. 78-221-BK-SMA-W-1United States Bankruptcy Court, S.D. Florida
April 25, 1980

Former Bankruptcy Act — Discharge of Debts — Nondischargeable Tors — False Financial Statement
WEAVER, Bankruptcy Judge

A bankrupt was not entitled to a discharge of his debt by virtue of Section 17(a)(2) of the Bankruptcy Act since his financial statement was materially false in failing to list contingent liabilities, pending litigation, and assets that were pledged as collateral. Further, numerous requests for the financial statement to be submitted, their delivery to the creditor, the creditor’s loan committee notes and memoranda, led tothe conclusion that the creditor had relied on the statements. SeeSec. 17(a)(2) at ¶ 2146 and Sec. 523(a)(2) at ¶ 9228.

[Digest of Opinion]
This cause was heard upon the creditor’s complaint to determine that its debts was non-dischargeable under Section 17(a)(2) of the Bankruptcy Act.

The bankrupt was the president and majority shareholder of a corporation, who in securing a loan by the creditor, executed a promissory note, in his corporate and individual capacity, which was further secured by a personal guarantee by another party. In addition, the bankrupt individually executed a note in favor of the creditor for $7,000.

The evidence indicated that the financial statements submitted to the creditor failed to list certain existing and contingent liabilities owed to several banks. The addition of these existing and contingent liabilities would have significantly altered the creditor’s financial picture. Further, in addition to not listing these liabilities, the bankrupt greatly overstated his assets and net worth, and had ambigously listed the existence, and subsequent divestment of real property owned by him.

The court found that the bankrupt’s knowledge of the banking industry was sufficient to infer his actual knowledge of the falsity of the statements and his intent to deceived the creditor; Further, the financial statements submitted to the creditor failed to list pending or threatened litigation, failed to list assets that were pledged as collateral, misstated and overstated assets, and were therefore materially false. Consequently, the court concluded that the debt was nondischargeable.