FOR THE NORTHERN DISTRICT OF CALIFORNIA
DAVID and MARY LENARDO, No. 1-89-02136
ERNEST F. MENDES & SONS,
v. A.P. No. 1-90-0034
DAVID and MARY LENARDO,
Memorandum of Decision
Debtors David and Mary Lenardo are dairy farmers. In May of 1988, they agreed to purchase
108 cows from plaintiff Ernest F. Mendes & Sons for $150,000.00. The terms of the sale were
$15,000.00 down and the balance in the form of a promissory note secured by the cows. The
security agreement provided that the cows were not to be moved from the debtors' farm or sold
without the consent of the plaintiff. In violation of the security agreement, David Lenardo sold
58 of the cows at auction and used the proceeds to keep his farm going. Plaintiff seeks to have
its claim against the Lenardos declared nondischargeable under section 523(a)(6) of the
Bankruptcy Code as a willful and malicious injury to its collateral. It also seeks to have the debt
declared nondischargeable under section 523(a)(2)(B) on account of a false financial statement in
writing, although no such writing was produced.
There was some evidence presented that David Lenardo may have at one time provided
plaintiff with a writing containing false information, although this is denied by Lenardo. However,
without seeing the writing itself it is impossible for the court to determine whether reliance on such
a document was reasonable. The oral descriptions of the alleged writing were nowhere near
detailed enough to establish liability under section 523(a)(2)(B). Accordingly, the court denies
relief under this section due to insufficientevidence.
Not every conversion of collateral gives rise to a nondischargeable debt. In re Littleton
B.R. 632 (9th Cir. BAP 1989). However, Lenardo admitted that he knew that selling the cows
was a breach of his agreement with plaintiff, and nonetheless proceeded to do so. Plaintiff had in
no way acquiesced in the sales. Accordingly, the requisite intent for nondischargeability has been
established. In re MacNeil
, 102 B.R. 766 (9th Cir. BAP 1989). Lenardo's need for the funds to
keep his dairy going is not an excuse for his acts.
Plaintiff argues that it is entitled to have the entire amount of its debt declared
nondischargeable, or at the least have judgment for the cows on the basis of what producing cows
are worth, as it alleges that through mismanagement the value of the cows was diminished.
However, the proper measure of damages for conversion of collateral is what the secured creditor
could have recovered if it had been allowed to take possession and dispose of the collateral. In
, supra, at 635. There is no evidence that this is anything other than what Lenardo sold
the cows for.
Accordingly, plaintiff shall have a nondischargeable judgment against defendant David Lenardo
in the sum of $40,489.26, plus costs of suit. There being no evidence presented as to any
wrongdoing by Mary Lenardo, the complaint will be dismissed as to her.
This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and
Bankruptcy Rule 7052. Counsel for plaintiff shall submit an appropriate form of judgment.
Dated: October 12, 1990 _______________________