In Re Liming
Clark McKeever of McKeever, Glasser, Conrad, Herlihy & McKeever, Enid, Okl., for plaintiff-appellee/cross-appellant.
Before LOGAN and BREITENSTEIN*, Circuit Judges, and O‘CONNOR**, District Judge.
LOGAN, Circuit Judge.
I
Harold Gregg Liming, an Oklahoma farmer, obtained a $15,000 loan from the Central National Bank of Enid, Oklahoma, in April 1980. Liming‘s loan application stated that he had a net worth of $183,000 and total debts of $88,000. He pledged a John Deere tractor worth $30,000 as collateral.
Seventy-six days later, in June 1980, Liming gave Central National a revised financial statement. The impetus for the new statement is unclear, but it listed a net worth of only $33,000 and total debts of $264,000. Instead of calling its loan, Central National accepted a $3,000 payment on the existing debt and a renewal note on the balance at a lower rate of interest. Less than eight months later, in February 1981, Liming declared bankruptcy.
Central National‘s complaint asked that Liming‘s debt be held nondischargeable under
The federal Bankruptcy Code provides that:
“(a) A discharge under section 727 ... does not discharge an individual debtor from any debt--
....
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by--
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor‘s ... financial condition; or
(B) use of a statement in writing--
(i) that is materially false;
(ii) respecting the debtor‘s ... financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; ...”
Liming argues that the figures he provided only estimated his financial condition; therefore they were neither “materially false” nor made with an “intent to deceive.” But a statement need only be made with reckless disregard for the truth to make the underlying debt nondischargeable under
In holding Liming‘s debt nondischargeable under
Liming contends that because Central National took a security interest in a tractor worth twice the amount of its loan, it cannot fairly be said to have relied on the figures he provided. See
Liming asserts that, even if Central National relied on the financial statement when it issued the loan, it did not rely on the statement when it issued the renewal note--when it knew Liming‘s correct finances. He also argues that, because Central National passed up its opportunity to call the loan, it is now either estopped or has waived its right to object to the false statement.
We reject these arguments as well. The renewal only maintained Liming‘s initial debt, which was incurred in reliance on Liming‘s initial false statement. It did not represent a new debt incurred without regard to the initial false statement. Cf. In re Ojeda, 51 B.R. 91, 92 (Bankr.D.N.M.1985) (debtor receives “fresh cash” based on second, false financial statement, after obtaining loan under initial correct statement; nondischarge granted for added debt because the creditor relied on second statement); In re Gadberry, 37 B.R. 752, 753 (Bankr.C.D.Ill.1984) (same). But see In re Archangeli, 6 B.R. at 52-53 (debtor obtains renewal after false statement but creditor found not to have relied on statement; creditor not allowed nondischarge). Neither estoppel nor waiver applies because there was no reason to think that the renewal note represented either a statement that Central National would not have nondischargeability rights if bankruptcy arose or that Central National had promised not to assert such rights. Cf. Fielder v. McKea Corp., 605 F.2d 542, 545-46 (10th Cir.1979) (decision of contractor to continue performance after discovering fraud is not waiver of right to sue for fraud absent express intention to do so). If anything, the issuance of the renewal note showed Central National‘s great concern over Liming‘s false financial statement. It represents its attempt to make the best of a bad situation. We will not hold that the bank should have called the loan when it discovered the falsity of the financial statement in order to maintain its right to rely on the falsehood. Central National should not be penalized for accepting part payment and extending the date by which the loan must be repaid in an apparent effort to keep Liming afloat. A different ruling would frustrate the purposes of the bankruptcy law.
We therefore affirm the ruling that Liming‘s debt to Central National was nondischargeable under
II
As the bankruptcy court correctly noted, a debtor may bring an action to avoid a lien under
“(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-money security interest in any--
* * *(B) implements, professional books, or tools, of the trade of the debtor....”
The first issue is whether the lien on Liming‘s tractor impaired “an exemption to which the debtor would have been entitled.” The Bankruptcy Code provides a list of federal exemptions from the claims of unsecured creditors.
The pertinent federal exemption provides that a debtor may exempt an “aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor....”
“A. Except as otherwise provided in this title and notwithstanding subsection B of this section, the following property shall be reserved to every person residing in the state, exempt from attachment or execution of every other species of forced sales for the payment of debts, except as herein provided:
* * *
5. Implements of husbandry necessary to farm the homestead;”
The Oklahoma courts have held that a farm tractor is “an implement of husbandry” within the Oklahoma exemption. Davis v. Wright, 194 Okla. 451, 152 P.2d 921, 922 (1944) (construing prior version of the statute with virtually identical language). Central National tries to distinguish Davis by noting that it involved an attempted forced sale of a tractor passing through probate, which was needed to pay off estate debts. The tractor was the only means a widow would have had to work her probate homestead. But we see no significant distinction. As a federal court construing Oklahoma law, we must follow Davis and find that Liming‘s tractor was an exempt item under
Central National, however, contends that Liming‘s tractor was not a protected “implement” under
The federal bankruptcy cases are divided over whether the avoiding authority for “implements” in
Before the Bankruptcy Reform Act of 1978 took effect, state law determined which properties were exempt from unsecured creditors. See
In the spirit of allowing a fresh start, undoing the consequences of adhesion contracts, and countering creditors’ practices of using threats to repossess debtors household goods to obtain payment, Congress enacted
“In addition, the bill gives the debtor certain rights not available under current law with respect to exempt property. The debtor may void any judicial lien on exempt property, and any nonpurchase money security interest in certain exempt property such as household goods. The first right allows the debtor to undo the actions of creditors that bring legal action against the debtor shortly before bankruptcy. Bankruptcy exists to provide relief for an overburdened debtor. If a creditor beats the debtor into court, the debtor is nevertheless entitled to his exemptions. The second right will be of more significance for the average consumer debtor. Frequently, creditors lending money to a consumer debtor take a security interest in all of the debtor‘s belongings, and obtain a waiver by the debtor of his exemptions. In most of these cases, the debtor is unaware of the consequences of the forms he signs. The creditor‘s experience provides him with a substantial advantage. If the debtor encounters financial difficulty, creditors often use threats of repossession of all of the debtor‘s household goods as a means of obtaining payment.
In fact, were the creditor to carry through on his threat and foreclose on the property, he would receive little, for household goods have little resale value. They are far more valuable to the creditor in the debtor‘s hands, for they provide a credible basis for the threat, because the replacement costs of the goods are generally high. Thus, creditors rarely repossess, and debtors, ignorant of the creditors’ true intentions, are coerced into payments they simply cannot afford to make.
The exemption provision allows the debtor, after bankruptcy has been filed, and creditor collection techniques have been stayed, to undo the consequences of a contract of adhesion, signed in ignorance, by permitting the invalidation of nonpurchase money security interests in household goods. Such security interests have too often been used by over-reaching creditors. The bill eliminates any unfair advantage creditors have.”
Id. at 126-27, 1978 U.S.Code Cong. & Ad.News at 6087-88 (footnotes omitted); see also United States v. Security Industrial Bank, 459 U.S. 70, 83-84 (1982), 103 S.Ct. 407, 415-16, 74 L.Ed.2d 235 (1982) (Blackmun, J., concurring).
Those courts that have interpreted the scope of the avoidance provisions of
We do not accept that limitation, in part because the legislative history exhibits a partially pro-debtor stance, but principally because it would require us to read into the statute provisions contrary to its plain words. Section 522(f) permits the debtor, “notwithstanding any waiver of exemption,” to avoid any lien that impairs “an exemption to which the debtor would have been entitled under subsection (b)” on “implements” of the debtor‘s trade. Id.
Under different circumstances, we have refused to read the avoidance provisions of
Some courts have reasoned that a nonrestrictive reading of this avoidance section hurts debtors: If security interests in valuable implements like tractors are avoidable, lenders will refuse to make loans they otherwise might make. See In re O‘Neal, 20 B.R. at 16-17; In re Sweeney, 7 B.R. at 819 n. 4. That may be so, but arguably farmers are more often already in debt to the lender and, like the average consumer debtor, are subject to threats, pressures, and disadvantages similar to those mentioned in the legislative history. This policy decision is for Congress, not the courts.
Central National argued finally that Liming‘s tractor was not used in Liming‘s “trade,” as also required for avoidance under
Whether an implement is used in a bankrupt‘s “trade” is a fact question based on an individual‘s particular circumstances. See 3 Collier p 522.15, at 522-44 to -45. A temporary abatement of work in a trade is not fatal to a claim for an exemption for tools or implements of that trade. Flick, 47 B.R. at 442-43; In re LaFond, 45 B.R. 195, 199-200 (Bankr.D.Minn.1984). Further, the statutory definition of “farmer” in
AFFIRMED.