NORTHERN DISTRICT OF CALIFORNIA
RALPH and MARY PEYTON, No. 98-14848
TUSTIN THRIFT & LOAN ASSN.,
v. A.P. No. 99-1070
RALPH and MARY PEYTON,
Memorandum of Decision
There are no real disputed issues of fact in this nondischargeability action brought pursuant to §
523(a)(2)(B) of the Bankruptcy Code; debtors and defendants Ralph and Mary Peyton readily concede
that the financial statement they signed was not truthful. The issue is whether their concessions justify a
finding that they had intent to deceive as required by § 523(a)(2)(B)(iv).
In 1993, they Peytons borrowed $15,000.00 from MGM Mortgage Company. The loan was an
FHA Title 1 home improvement loan, secured by a junior lien on their home. The record does not
reflect how they came to apply for a loan, but MGM was represented by a very aggressive agent clearly
intent on making the loan in order to earn a commission.
MGM obtained a credit report, which did not reflect a debt the Peytons owed secured by a
second residence which the Peytons rented to their son. The Peytons told the loan officer, Tyler
Paulson, about the loan. Paulson prepared the application for the Peytons to sign; it did not mention the
real estate loan. When they Peytons questioned Paulson about this, he told them that since the loan did
not show up on their credit report they did not need to include it in the application. He also told them
that it was a "push," in that the rental income they received from their son offset the debt. Relying on
these representations and believing them to be true, the Peytons signed the application.
A few days after the loan was made, MGM sold the Peyton note to plaintiff Tustin Thrift and
Loan Association. Some time later, the Peytons lost their home to foreclosure and Tustin became a
sold-out junior. It obtained a judgment against the Peytons in 1995. The Peytons made payments on
the judgment until April, 1998. They filed their Chapter 7 petition later that year. Tustin then
commenced this adversary proceeding to determine the dischargeability of its claim.
One of the representations that Paulson had made to the Peytons was false. He had told them
that the listing of the real estate loan was not important because it was offset by the rental income on
the property. However, that was not correct. The Peytons would not have been eligible for the loan if
they had disclosed the debt. The Peytons, however, did not know this and believed Paulson.
The above facts establish three of the four elements of nondischargeability pursuant to §
523(a)(2)(B). Tustin argues that they establish the fourth element, intent to deceive, as well. The court
Tustin primarily relies on the Appellate Panel decision in In re Maldonado
, 228 B.R. 735 (9th
Cir. BAP 1999). However, that case is clearly distinguishable. In that case, as here, false financial
statement was prepared by a creditor's agent who knew the truth. However, the agent in that case told
the debtors that the false statements were intended to deceive the creditor's internal auditors; the
debtors admitted intending to deceive these auditors, just not Tustin, who purchased the contract from
the original creditor. 228 B.R. at 737. On these facts, the Appellate Panel rightly found intent to
Unlike the debtors in Maldonado
, the Peytons appear as honest people who never intended to
deceive anyone. Not only did Paulson tell them that they did not have to list the undisclosed real estate
loan, he told them it was immaterial because they were not listing income from the property either. The
Peytons did not know, and had no way of knowing, that this was not the truth. Because they believed
these representations in good faith, there is no basis for the court to find that they had any intent to
deceive anyone. The law applicable to this situation is clearly stated at 4 Collier on Bankruptcy
Ed. Rev.), ¶ 523.08[e][ii], p. 523-51:
However, if a debtor is misled by the creditor's agent into signing the
statement - as when the creditor's agent fills it out and gives it to the
debtor to sign, perhaps even leaving certain blanks unfilled - the element
of intention is lacking, and discharge of the debt is not barred.
For the foregoing reasons, Tustin shall take nothing by its complaint, which shall be dismissed
with prejudice. Since Tustin proved three of the four elements of nondischargeability, the court will not
award the Peytons attorney's fees pursuant to § 523(d). However, the Peytons shall recover their other
costs of suit.
This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and
FRBP 7052. Counsel for the Peytons shall submit an appropriate form of judgment forthwith.
Dated: May 1, 2000 ___________________________