IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA In re DEAN and SUSAN NOWACKI,                                                 No. 93-10807        Debtors. ___________________________/ WILLIAM and DALE GATES,        Plaintiffs,    v.                                                                                                   A.P. No. 93-1172 DEAN and SUSAN NOWACKI,        Defendants. ______________________________/ Memorandum of Decision      In January, 1990, debtors and defendants Dean and Susan Nowacki prepared and gave to a business broker a financial statement pursuant to their attempt to purchase a hardware store. No agreement was reached with that seller, but two months later the Nowackis agreed through the same broker to purchase a small manufacturing business from plaintiffs William and Dale Gates for $178,000.00, of which $70,000.00 was paid in cash and the balance in the form of a note. The Nowackis asked the broker if he needed an updated financial statement, and he told them no. The Nowackis have since filed a Chapter 7 petition, and the Gates now allege that the debt owed to them is nondischargeable pursuant to section 523(a)(2)(B) based on the financial statement, which is alleged to be false. For the reasons set forth below, the court finds the Gates' case utterly without merit.      The court begins by noting that there was not one shred of evidence that anything in the financial statement was false. The debtors admit that (with the broker's counseling) they listed the value of one piece of real property as they estimated it would be worth with pending repairs completed. However, for all the court knows that estimated value was well below the actual value even without the improvements; plaintiffs offered no proof as to actual values.      Moreover, William Gates himself testified that he considered the values placed on the real property to be irrelevant, and that he looked only to the Nowacki's liquid assets in reviewing the financial statement. Thus, there was no reliance on the real estate value figures.      The escrow closed about six months after the financial statement had been prepared. By that time, most of the $120,000.00 in cash described in the statement was gone; $70,000.00 to the Gates themselves, and the rest for property improvements and living expenses. At no time did the Gates ask for an updated statement, or indicate to the Nowackis that their having a large amount of cash after the close of the sale was in any way important.      Even though the financial statement was clearly dated, the Gates argue, based on First National Bank v. Niles, 35 B.R. 409 (D.C.1983) that the subsequent changes amount to fraud. However, in that case there was an express representation that the information was continuing to be true. Here, the Nowackis offered to update their financial statement and were told that it was not necessary.      Even if the Nowackis had updated their fiancial statement, it would have revealed nothing which would have caused the Gates to back out of the sale. The court does not believe Gates' testimony that the amount of cash the Nowackis had was important beyond their ability to pay the $70,000.00 down payment. There was no credible testimony that the Gates would not have completed the sale if they had seen an updated financial report.      Moreover, the alleged false information in the financial statement amounts to only two or three percent of the total assets. In addition, the Nowackis forgot to list an asset worth $32,000.00. Thus, the actual misrepresentation, even if the court were to find it (which it does not), only amounts to a net of about one percent. This is nowhere near material.      To summarize, the Gates proved no false statement at all. The alleged false statements are not material, and the Gates did not rely, reasonably or otherwise, on them. There was no evidence at all of intent to deceive, and in fact all of the evidence (including full disclosure to the broker and failure to list a valuable asset) negated any fraudulent intent. The Gates accordingly did not prove a single element of an action under section 523(a)(2)(B). They shall accordingly take nothing by their complaint, which shall be dismissed with prejudice. The Nowackis shall recover their costs of suit.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for the Nowackis shall submit an appropriate form of judgment forthwith.
Dated: February 23, 1994                                                                                                   _______________________                                                                                                                                                    Alan Jaroslovsky                                                                                                                                                    U.S. Bankruptcy