IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
LAWRENCE and MONIKA DRAUT, No. 96-10288
v. A.P. No. 96-1164
LAWRENCE and MONIKA DRAUT,
Memorandum of Decision
Plaintiff Draco Technology is a computer component supplier. Prior to his Chapter 7
bankruptcy filing, defendant Lawrence Draut operated a computer business. During the three
years or so prior to the bankruptcy, Draut ordered some $3 million in computer components from
Draco. At the time of the filing, Draut had an unpaid balance with Draco of about $200,000.00.
This adversary proceeding is Draco's largely meritless attempt to turn this unpaid account into
a nondischargeable debt.
Draco and Draut did business together from 1993 through early 1996. At the beginning of
their relationship, Draco declined to extend formal credit to Draut but expressly agreed thatits
goodswould be sent C.O.D., that Draut could pay with an ordinary check, and that Draco would
hold the checks for deposit until Draut saidthat there were funds in the account and the checks
could be deposited. Despite Draco's admission and overwhelming, uncontested evidence that this
arrangement was mutually agreeable, and continued for a considerable time, Draco argues that
the checks which it ended up holding represent fraudulently incurred debt.
The evidence established that the parties reached a business arrangement which was in essence
a form of credit transaction. See In re Morken
, 182 B.R, 1007, 1015-16 (Bkrtcy.D.Minn.1995),
and cases cited therein. The checks Draut gave Draco were nothing more than promissory notes,
and both sides understood them as such. It borders on bad faith for Draco to now argue that it
was stuck with bad checks fraudulently passed by Draut. The evidence established that Draut
operated in good faith and in accordance with mutually-agreed terms, and never had any intent
to defraud Draco.
In the fall of 1995, when Draut was experiencing severe financial problems which were
known to Draco,1
Draco asked Draut to sign a note for the balance he owed and Draut agreed.
Draco now argues that the signing of this note was somehow more fraud. To the extent the
argument is that Draut never intended to pay on the note, there is no evidence of this.2
as it alleges that his financial condition made payment impossible, there was no written financial
statement involved so this argument is meritless. Draco attempts to use dicta from consumer
credit card cases where new purchases or cash advances were made to justify its position, but
ignores holdings from other cases that even where new purchases are made actual fraud must be
shown and not just unreasonable hope. The hopeless state of a debtor's finances is never a
substitute for ________
1. Among other things, several of Draut's checks to Draco had bounced even though Draut
had said it was OK to deposit them, and Drauts's bank had closed his account.
2. Additionally, the court notes a complete lack of evidence regarding any sort of detrimental
reliance by Draco on the note.
an actual finding of fraudulent intent. In re Anastas
, 94 F.3d 1280, 1286 (9th Cir.1996). The
evidence in this case established no fraudulent intent on Draut's part.
As to one incident only does the court agree that a nondischargeable debt resulted. In late
1995, Draco told Draut that any further business would be on a C.O.D. basis paid with a cashier's
check, not a personal check. Late in December, Draut ordered $14,358.00 in goods from Draco
with this understanding. The shipments arrived in early January with only three of the numerous
boxes marked C.O.D. Draut knew that the C.O.D. terms applied to all of the boxes, but returned
the three marked boxes and accepted the rest without paying for them. While Draut was
struggling to keep his failing business afloat at that point, this was no excuse for his actions. The
debt for the $13,505.00 in merchandise kept and not paid for is therefore nondischargeable
pursuant to section 523(a)(6) of the Bankruptcy Code.
In conclusion, the court finds most of Draco's case both meritless and disingenuous in light
of the payment arrangements to which both parties agreed. Draut never had any intent to defraud
Draco, and there can accordingly be no nondischargeable debt pursuant to section 523(a)(2) of
the Code. However, Draut converted $13,505.00 worth of Draco's goods when he accepted them
without paying cash for them while knowing that they had been sent on a true C.O.D. basis.
Accordingly, a nondischargeable judgment in that amount shall be entered in favor of Draco,
which shall also recover its costs of suit. As to any allegations not specifically addressed in this
memorandum, the court finds insufficient evidence to justify a finding of nondischargeability.
This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a)
and FRBP 7052. Counsel for plaintiff shall submit an appropriate form of judgment forthwith.
Dated: December 13, 1996 _______________________