In January 1990 Dr. Anthony Byrd, a dentist, applied to the Bank of Mississippi for an unsecured…

In January 1990 Dr. Anthony Byrd, a dentist, applied to the Bank of Mississippi for an unsecured loan in the amount of $20,000. Prior to this time the bank had no relationship with Dr. Byrd. The bank requested and received from Dr. Byrd a 1988 individual income tax return along with a statement of his financial condition prepared by his accountant. The bank also obtained a credit report. After considering all the information, the bank granted the loan. The promissory note was renewed on a number of occasions, beginning in July 1990. On each occasion the bank requested, and was provided, a current financial statement. The financial statement dated June 30, 1989, showed Dr. Byrd having a net worth of approximately $649,000. Listed in the financial statements was an asset consisting of 60 acres of real property with a value of $30,000. In fact Dr. Byrd did not own the property, nor did he ever pay the property taxes on it. He later explained that he had listed it because he believed that it had passed to him on his father-in-law’s death. The property was farmed by his brother-inlaw. The statement also listed as an asset a residence in Covington County, Mississippi, with an appraised value of $49,800. At the time the financial statement was submitted, the property had been sold to his brother on a conditional sale contract with a purchase price of $39,000; it also was encumbered with a deed of trust securing a $39,000 note to the Bank of Simpson County. However, neither the conditional sales contract nor the note and deed of trust was mentioned in the financial statement. Dr. Byrd later explained that this was an “oversight.” The initial credit report obtained by the bank did not mention either of these elements, so the bank had no reason to disbelieve the assertion in the statement provided by Dr. Byrd. The initial financial statement also listed as an asset a note receivable for $103,000 from Southern Outdoors, Inc., a company which the statement noted was 92 percent owned by Dr. Byrd. A subsequent statement listed the note receivable as $184,000. The last statement he submitted omitted this loan; Dr. Byrd indicated that he had been told by his accountant that it should be considered as a capital contribution to Southern Outdoors rather than as an account receivable. Dr. Byrd filed for bankruptcy under Chapter 7. The Bank of Mississippi commenced an adversary proceeding to have its claim arising out of the $20,000 promissory note declared nondischargeable on the grounds that it had been obtained on the basis of a materially false statement in writing concerning the debtor’s financial statement which the bank had relied on in granting the loan. Should the Bankruptcy Court declare the debt owed by Dr. Byrd to the Bank of Mississippi to be nondischargeable on the grounds it had been obtained on the basis of a materially false financial statement?

 

 

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