Memorandum of Decision Re: Alleged Breach of Fiduciary Duty

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re JOHN DAVID TUBRIDY,                                           No. 1-86-01056 Debtor. _____________________/ WILLIAM DENDAS,      Plaintiff,    v.                                                                                  A.P. No. 1-86-0176 JOHN DAVID TUBRIDY,      Defendant. _____________________/
Memorandum of Decision
     In early 1985, plaintiff William Dendas obtained an incipient small real property development project by deed in lieu of foreclosure. A friend referred him to Seaport Financial Group about going forward with the development. Defendant John Tubridy was a principal of Seaport.       After some discussions with one of the other principals of Seaport, Lee Levig, Dendas agreed to sell the project to Seaport for development rather than try to complete the project himself. He agreed to sell to Seaport for a $75,000.00 note secured by the property, and further agreed to subordinate his security interest to a deed of trust securing a construction loan.      Levig prepared the contract between Dendas and Seaport. Dendas took it to his attorney, who suggested several changes. Dendas took the changes back to Seaport, and a few days later received a phone call from "one of the ladies" at Seaport telling him that the revised agreement was ready for his signature. Dendas claims that the lady told him that all of the suggested changes had been incorporated into the revised document, which Dendas apparently signed without reading or taking back to his counsel for review. Tubridy denies authorizing anyone to tell Dendas that all of the suggested changes had been made, and states that he objected to a term requiring a performance bond. The ageement as signed contained no such requirement.       After the sale, Seaport obtained a $76,000.00 draw on the senior construction loan. Much of these funds were used to obtain permits and to clear, grade, compact and excavate the project. However, about $23,000.00 was loaned to Seaport and Levig and not returned, and Tubridy took $15,000.00 as salary. The project foundered, the construction lender foreclosed, and Tubridy filed his bankruptcy petition. Dendas now seeks to have the debt declared nondischargeable on the theory that he was induced to sell the property by the fraudulent misrepresentation that the performance bond term was in the contract and on the theory that Tubridy wrongfully diverted the construction funds. Neither theory has merit.      There is no evidence that Tubridy ever told Dendas that the performance bond term was in the revised contract. Even if the court were inclined to find that someone at Seaport made such a misrepresentation, there is no evidence that it was made intentionally and at the direction of Tubridy. Additionally, reasonable reliance can hardly be shown on the part of Dendas where he had the opportunity to take the document back to his attorney or at least read it and failed to do either.      The court does not find nondischargeable conduct based on the alleged diversion of some of the construction funds. Breach of contract does not give rise to a nondischargeable debt, nor does the phrase "in a fiduciary capacity" in section 523(a)(4) of the Bankruptcy Code apply to trusts which are merely implied by law from contracts. 3 Collier on Bankruptcy (15th ed.), p. 523-95.      For the above reasons, Dendas will take nothing by his complaint and this proceeding shall be dismissed. Tubridy shall recover his costs of suit, if any.      This memorandum and the statements made on the record at the conclusion of evidence shall constitute findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052. Counsel for Tubridy shall submit an appropriate form of judgment.
Dated: November 2, 1987                                                                                  _______________________                                                                                                                            ALAN JAROSLOVSKY                                                                                                                            U.S. BANKRUPTCY