Memorandum of Decision Re: Fraud

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Decisions

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re GEORGE and DORIS DRITSAS,                                               No. 94-10759        Debtors. ___________________________/ JULIAN COHEN,        Plaintiff,      v.                                                                                              A.P. No. 95-1069 GEORGE and DORIS DRITSAS,        Defendants. _______________________________/
Memorandum of Decision
     Plaintiff Julian Cohen was a tenant in a commercial building in Marin County owned by debtors and defendants George and Doris Dritsas. In June, 1993, Cohen entered into a contract with George Dritsas to purchase the building. The agreement provided that Cohen would pay Dritsas $24,000.00 at that time, outside of escrow, as a down payment. Their agreement provided that if Cohen became entitled to refund of the deposit but Dritsas could not pay it, then Cohen would have the right to set off the deposit against the rent he was obligated to pay.      Cohen was unable to obtain financing to consummate the purchase. On August 16, Dritsas agreed to extend the contract in return for an additional $20,000.00 deposit, on essentially the same terms as before, except that Dritsas also agreed to take back a $50,000.00 second deed of trust to assist Cohen in obtaining financing.      Thereafter, Cohen did obtain financing but Dritsas was uncooperative in closing the sale. Dritsas never closed the sale, and he and his wife filed a Chapter 7 bankruptcy petition. Cohen set off $28,000.00 in rent as the parties agreed. By this adversary proceeding, Cohen seeks a nondischargeable judgment in the amount of about $130,000.00. The court finds no merit in his case.      There is no doubt that Dritsas breached his contract with Cohen. However, even an intentional breach of contract does not render a debt nondischargeable. In re Riso, 978 F.2d 1151 (9th Cir.1992). This action is a nothing but a breach of contract action dressed up as an action for fraud under section 523(a)(2) of the Bankruptcy Code. However, Cohen has proved no fraud.      The court begins by noting that among his other damages Cohen sought recovery of the full $44,000.00 he paid in earnest money even though he recovered most of it by setting it off against his rent. This disingenuous position did not help his case.      Cohen has no tenable argument whatsoever as to the initial $24,000.00 payment. Dritsas clearly wanted to sell, and conducted himself in good faith. The sale was not consummated pursuant to the original agreement only because Cohen was unable to obtain financing.      Cohen's argument as to the second payment of $20,000.00 is that Dritsas then agreed to take back a $50,000.00 second. It later became apparent that because of a judgment lien and property taxes against the property there would not be enough cash to close if Dritsas took back a $50,000.00 note. While it appears in hindsight that the escrow could not be closed without some modification to the agreement, Cohen has failed to prove that Dritsas acted with fraudulent intent. It is more likely that Dritsas thought that he could consummate the sale even taking back a second, either because he was not thinking about the liens or because he believed that a member of his family would help by purchasing the second. Dritsas agreed to take back the second to assist Cohen in making the purchase, not to defraud Cohen out of his money. In fact, Cohen had a ready method of recouping his payments under the contract.      Having failed to prove fraud, Cohen shall recover nothing by his complaint which shall be dismissed with prejudice. Dritsas shall recover his costs of suit.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for Dritsas shall submit an appropriate form of judgment forthwith.
Dated: February 28, 1996                                                _______________________                                                                                        Alan Jaroslovsky                                                                                        U.S. Bankruptcy