- Case No. 15-8011 (6th Cir. BAP 2016)
- Creditor could not prevail in adversary to except debt from discharge based on fraud where evidence indicated that statements made by debtor either were statements of opinion or were statements that were true when made. Debtor could not be charged with fraudulent conduct of third party relating to construction of new condominium where creditor contracted directly with the construction company and debtor had no role in construction of unit or in alleged fraudulent receipt by construction company of construction draw payments.
- Procedural context:
- Creditors brought adversary against debtor under Section 523(a)(2). After trial, Bankruptcy Court entered judgment in favor of debtors. Creditor appealed and BAP affirmed.
- Debtor was the developer of a planned condominium project. Creditor purchased land from debtor on which to build a condo unit. Although debtor offered to also act as contractor for construction, creditors opted to contract directly with contractor. With that agreement, debtor sold property to creditor and creditor paid the full purchase price of the land to debtor. Thereafter, creditor entered into construction contract with contractor. Contractor submitted falsified draw requests to construction lender and obtained construction draws without completing work. Eventually, contractor stopped work entirely. Debtor then filed for relief under Chapter 7, and creditor brought action to except debt from discharge. Court held that only two statements made by debtor that related to construction of unit were that (a) principals of debtor resided on property and were confident that everything will be done to creditor's complete satisfaction; and that debtor had the best designer and meticulous builder who would build unit. First statement was true as debtor did live at property when contract was signed, and balance of statements were mere opinions. There was no evidence that any of the statements were false or were known by debtor to be false when made. Although construction company was clearly guilty of wrongdoing, debtor had no connection to contract between creditor and contractor and had no agency relationship with contractor that would allow imputation of contractor's conduct on debtor.
- Harrison, Humphrey and Preston
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