Memorandum of Decision Re: Alleged Fraud of Contractor

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re EARL and JOAN HORNER,                                           No. 1-89-01297      Debtors. ___________________________/ HERBERT RESNER,      Plaintiff, v.                                                                                        A.P. No. 1-89-0211 EARL and JOAN HORNER,      Defendants. ______________________________/
Memorandum of Decision
     Defendant Earl Horner is a general contractor, operating as a sole proprietorship. In 1987, he contracted with plaintiff Herbert Resner to build a barn for a fixed price of $169,000.00. The written contract did not set forth a payment schedule.      Horner worked on the barn for several months, and then was removed from the job by Resner. At the time Resner terminated the contract, he had paid Horner about $62,000.00 more than Horner had actually paid out in materials and costs. He sued Horner in state court for breach of contract, fraud, and on a common count. The state court expressly found neither fraud nor breach of contract, but entered a judgment against Horner on the common count. Horner then filed his Chapter 7 bankruptcy; in this action Resner seeks a nondischargeable judgment pursuant to section 523(a)(2), alleging that Horner lied to him in order to induce him to make the progress payments.      The court has already ruled that the state court finding of no fraud is not res judicata. However, after hearing the evidence the court agrees completely with the state court that Horner perpetrated no fraud on Resner. There is no doubt in the court's mind that Horner at all times intended to produce the barn at the contract price, and would have done so if Resner had not removed him. The "lies" upon which Resner bases his allegations of fraud were representations that Horner told him he needed the progress payments in order to pay the expenses associated with the project. It is clear from the evidence that this boils down to a matter of semantics. Resner says the representations meant that the payments were to be only for actual expenses already incurred or to be incurred immediately. What Horner actually meant was that the money would be needed to pay for some materials, order others, and generally keep the job (and himself) going. There is no basis for interpreting the statements as Resner does; at the very least, the uncertainty mandates a defense verdict, especially where there is absolutely no other evidence of any sort of fraudulent conduct, or even the incentive for fraudulent conduct, on Horner's part.      Even where a general contractor fails to apply all progress payments to the job, that fact alone does not justify a nondischargeable judgment. In re Pedrazzini (9th Cir.1981) 644 F.2d 756. Horner's conduct was much less culpable than the debtor's conduct in that case, as Horner paid all materialmen and laborers so that no liens were placed against Resner's property. There is nothing in the record before the court which would support a nondischargeable judgment.      For the foregoing reasons, plaintiff will take nothing by his complaint and this adversary proceeding shall be dismissed, with prejudice. Defendants shall recover any costs of suit incurred in this adversary proceeding (but not any incurred in the state court litigation). Counsel for defendants shall submit an appropriate form of judgment.      This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052.
Dated: March 1, 1990                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy