FOR THE NORTHERN DISTRICT OF CALIFORNIA
ROLAND A. MIRELES, No. 1-89-00054
SUMMIT DEVELOPMENT INC.,
v. A.P. No. 1-89-0098
ROLAND A. MIRELES,
Memorandum of Decision
Debtor Roland Mireles was an officer of plaintiff Summit Development Inc. During 1986 and
1987, he had sole control of the corporation's bank account. Summit alleges that Mireles drew
out $22,000.00 more than he was authorized to draw, and that this amount should be declared
a nondischargeable debt pursuant to section 523(a)(4) of the Bankruptcy Code. In addition,
Summit alleges that Mireles should be denied his discharge because he failed to schedule his
possible right to receive certain funds.
Mireles had a right to draw $25,000.00 from corporate funds for himself. Summit argues that
Mireles actually drew $47,967.99, and that the excess over the authorized amount should be
declared nondischargeable as embezzlement or defalcation in a fiduciary capacity. The argument
fails on both factual and legal grounds.
Factually, Summit has not established that Mireles' personal draws totalled anything near the
$47,000.00 claimed. Summit reached this total by adding Mireles' admitted draws of about
$27,000.00 to items which were claimed to be personal but were ascribed by Mireles to
corporate business. Of these disputed matters, many were clearly legitimate corporate expenses
and others were at least arguably corporate expenses. For the reasons stated below, the court
does not need to determine the legitimacy of each item.
All of the checks Mireles wrote were marked in detail on their face to describe their purpose.
Mireles made no attempt to hide the checks from the other two principals of the corporation, one
of whom kept the corporate books. In fact, checks for at least $5,000.00 in alleged overdraws
were prepared by one of the other principals, who was Summit's main witness. These checks
were prepared and given to Mireles at the end
of the period during which Summit alleges Mireles
overdrew. The principal, herself a lawyer, had full access to the books and records and could
have easily audited Mireles' accounts.
Because everything Mireles did was above board and at least arguably proper, there is no
evidence of theft or embezzlement. The only remaining issue is whether Mireles is liable for
defalcation in a fiduciary capacity for overdrawing his account. The court determines that there
is no such liability, because there was no trust.
The mere existence of a fiduciary relationship under state corporate law does not render every
debt owed by an officer to his corporation nondischargeable. In re Hultquist
(9th Cir.BAP 1989)
101 B.R. 180, 185. There must be an express trust, created by agreement or statute. In re Short
(9th Cir.1987) 818 F.2d 693. As to partnerships, there is a specific California statute which
makes partners trustees for all partnership funds. See Ragsdale v. Haller
(9th Cir.1986) 780 F.2d
794, 796. However, there is no analogous statute creating a trust for corporate funds. Under
California law, the relationship between a principal and his corporation is one of agency, not
trust. Bainbridge v. Stoner
(1940) 16 Cal.2d 423, 428. Accordingly, a corporate officer is not
liable to his corporation for defalcation in a fiduciary capacity merely for drawing out funds in
excess of his contractual rights.
II. Denial of Discharge
The evidence before the court established that Mireles excluded from his schedules potential
contractual rights and the existence of his claim to a share of $55,000.00 held in escrow,
although the litigation over the latter was disclosed in his statement of affairs. However, it
appears that the omissions were due to the neglect and erroneous advice of counsel and were not
made with the intent to defraud. The court cannot infer fraudulent intent from the circumstances,
as the omitted matters were clearly within the knowledge of creditors, making intentional
omission pointless. Moreover, there was no evidence that the omitted claims actually had any
There is neither a legal nor a factual basis for declaring Mireles' debt to Summit
nondischargeable. The facts surrounding the omission of certain assets from the schedules do
not support a finding of fraudulent intent. Accordingly, Summit will take nothing by its
complaint and this adversary proceeding shall be dismissed, with prejudice. Each side shall bear
its own costs.
Counsel for Mireles shall submit an appropriate form of judgment forthwith. This
memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule
Dated: November 17, 1989 _______________________