FOR THE NORTHERN DISTRICT OF CALIFORNIA
WILLIAM and MARIA DAVIS, No. 92-12308
SONOMA NATIONAL BANK,
v. A.P. No. 93-1022
WILLIAM R. DAVIS,
Memorandum of Decision
Debtor and defendant William R. Davis was, before he filed his Chapter 7 petition, a
principal in a closely-held corporation which operated a car dealership. In June, 1991, the
corporation borrowed $170,000.00 from plaintiff Sonoma National Bank. Davis and the other
principals guaranteed the loan.
As part of the loan application package, Davis had submitted his personal financial
statement. In it, he stated that he was not a guarantor on any debt. This statement was not
correct; Davis had guaranteed $1.5 million in corporate debt to Mercedes-Benz Credit
Corporation used to floor the corporation's inventory. Based on this false statement, the Bank
seeks to have the deficiency on the loan of $67,895.61 declared a nondischargeable debt
pursuant to section 523(a)(2)(B) of the Bankruptcy Code.
The court is satisfied from the evidence that, despite Davis' claims to the contrary, he knew
that he had guaranteed the Mercedes-Benz obligation and that he did not disclose this in his
financial statement because he was afraid that if he did the Bank would require a deed of trust
to his home as additional security. This is sufficient intent to render the debt nondischargeable.
The financial statement was materially false. While the Bank probably would have made the
loan anyway, it would have required additional security had it known about the Mercedes-Benz
guarantee. Thus, it relied on the misrepresentation, and that reliance was reasonable.
As it turned out, the corporate property taken as security by the Bank was more than
sufficient to cover all of the debt, but the Bank was forced to settle for less when the perfection
of its security interest was questioned in the bankruptcy proceedings of the corporation. In
addition, the bank foreclosed nonjudicially on real property owned by another principal. Davis
argues that the effect of both of these circumstances was to exonerate him on his guarantee.
However, it appears that Davis waived the effect of these happenings as to his guarantee and
that the waivers are enforceable.
For the foregoing reasons, a nondischargeable judgment will be entered in favor of the Bank
in the amount of $67,895.61. The Bank shall also recover its costs of suit.
This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a)
and FRBP 7052. Counsel for the Bank shall submit an appropriate form of judgment forthwith.
Dated: November 1, 1993 _______________________