Source: https://www.law.cornell.edu/supremecourt/text/516/59
Timestamp: 2015-09-01 20:50:01
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Matched Legal Cases: ['§ 523', '§ 523', '§ 523', '§ 523', '§ 17', '§ 17', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 537', '§ 540', '§ 540', '§ 545', '§ 541', '§ 10', '§ 108', '§ 108', '§ 108', '§ 7', '§ 7', '§ 523']

William FIELD and Norinne Field, Petitioners, v. Philip W. MANS. | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews William FIELD and Norinne Field, Petitioners, v. Philip W. MANS.
516 U.S. 59116 S.Ct. 437133 L.Ed.2d 351 (516 U.S. 59116 S.Ct. 437133 L.Ed.2d 351, 516 U.S. 59116 S.Ct. 437133 L.Ed.2d 351)
William FIELD and Norinne Field, Petitioners, v. Philip W. MANS.
Decided: Nov. 28, 1995.
The Bankruptcy Code's provisions for discharge stop short of certain debts resulting from ''false pretenses, a false representation, or actual fraud.'' 11 U.S.C. 523(a)(2)(A). In this case we consider the level of a creditor's reliance on a fraudulent misrepresentation necessary to place a debt thus beyond release. While the Court of Appeals followed a rule requiring reasonable reliance on the statement, we hold the standard to be the less demanding one of justifiable reliance and accordingly vacate and remand.
The ensuing years brought a precipitous drop in real estate prices, and on December 10, 1990, Mans petitioned the United States Bankruptcy Court for the District of New Hampshir e for relief under Chapter 11 of the Bankruptcy Code. On the following February 6, the Fields learned of the October 1987 conveyance, which their lawyer had discovered at the registry of deeds. In their subsequent complaint in the bankruptcy proceeding, they argued that some $150,000 had become due upon the 1987 conveyance for which Mans had become liable as guarantor, and that his obligation should be excepted from discharge under § 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. 523(a)(2)(A), as a debt resulting from fraud.
The Bankruptcy Court found that Mans's letters constituted false representations on which petitioners had relied to their detriment in extending credit.
The court followed Circuit precedent, however, see In re Burgess, 955 F.2d 134 (C.A.1 1992), in requiring the Fields to make a further showing of reasonable reliance, defined as ''what would be reasonable for a prudent man to do under those circumstances.'' App. 43-44. The court held that a reasonable person would have checked for any conveyance after the exchange of letters, and that the Fields had unreasonably ignored further reason to investigate in 1988, when Mr. Field's boss told him of a third party claiming to be the owner of the property.
We granted certiorari, 514 U.S. ----, 115 S.Ct. 1821, 131 L.Ed.2d 743 (1995), to resolve a conflict among the Circuits over the level of reliance that § 523(a)(2)(A) requires a creditor to demonstrate.
The provisions for discharge of a bankrupt's debts, 11 U.S.C. 727, 1141, 1228, and 1328(b), are subject to exception under 11 U.S.C. 523(a), which carries 16 subsections setting out categories of nondischargeable debts. Two of these are debts traceable to falsity or fraud or to a materially false financial statement, as set out in § 523(a)(2):
''(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt 
''(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by 
''(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition; or
''(B) use of a statement in writing 
These provisions were not innovations in their most recent codification, the Bankruptcy Reform Act of 1978 (Act), Pub.L. 95-598, 92 Stat. 2590, but had obvious antecedents in the Bankruptcy Act of 1898 (1898 Act), as amended, 30 Stat. 544. The precursor to § 523(a)(2)(A) was created when § 17(a)(2) of the 1898 Act was modified by an amendment in 1903, which provided that debts that were ''liabilities for obtaining property by false pretenses or false representations'' would not be affected by any discharge granted to a bankrupt, who would still be required to pay them. Act of Feb. 5, 1903, ch. 487, 32 Stat. 798. This language inserted in § 17(a)(2) was changed only slightly between 1903 and 1978,
at which time the section was recodified as § 523(a)(2)(A) and amended to read as quoted above. Thus, since 1903 the statutory language at issue here merely progressed from ''false pretenses or false representations'' to ''false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.''
Section 523(a)(2)(B), however, is the product of more active evolution. The germ of its presently relevant language was also inserted into the 1898 Act by a 1903 amendment, which barred any discharge by a bankrupt who obtained property by use of a materially false statement in writing made for the purpose of obtaining the credit. Act of Feb. 5, 1903, ch. 487, 32 Stat. 797-798. The provision did not explicitly require an intent to deceive or set any level of reliance, but Congress modified its language in 1960 by adding the requirements that the debtor intend to deceive the creditor and that the creditor rely on the false statement, and by limiting its application to false financial statements. Act of July 12, 1960, Pub.L. 86-621, 74 Stat. 409.
In 1978, Congress rewrote the provision as set out above and recodified it as § 523(a)(2)(B). Though the forms of the 1960 and 1978 provisions are quite different, the only distinction relevant here is that the 1978 version added a new element of reasonable reliance.
The argument relies on the apparent negative pregnant, under the rule of construction that an express statutory requirement here, contrasted with statutory silence there, shows an intent to confine the requirement to the specified instance. See Gozlon-Peretz v. United States, 498 U.S. 395, 404, 111 S.Ct. 840, 846-847, 112 L.Ed.2d 919 (1991) ('' 'Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion' '') (quoting Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 300, 78 L.Ed.2d 17 (1983)). Thus the failure of § 523(a)(2)(A) to require the reasonableness of reliance demanded by § 523(a)(2)(B) shows that (A) lacks such a requirement. Without more, the inference might be a helpful one. But there is more here, showing why the negative pregnant argument should not be elevated to the level of interpretive trump card.
There is, however, a more fundamental objection to depending on a negative pregnant argument here, for in the present circumstances there is reason to reject its soundness even as far as it goes. Quite simply, if it proves anything here, it proves too much. If the negative pregnant is the reason that § 523(a)(2)(A) has no reasonableness requirement, then the same reasoning will strip (A) of any requirement to establish a causal connection between the misrepresentation and the transfer of value or extension of credit, and it will eliminate scienter from the very notion of fraud. Section 523(a)(2)(B) expressly requires not only reasonable reliance but also reliance itself; and not only a representation but also one that is material; and not only one that is material but also one that is meant to deceive. Section 523(a)(2)(A) speaks in the language neither of reliance nor of materiality nor of intentionality. If the contrast is enough to preclude a reasonableness requirement, it will do as well to show that the debtor need not have misrepresented intentionally, the statement need not have been material, and the creditor need not have relied. But common sense would balk.
If Congress really had wished to bar discharge to a debtor who made unintentional and who lly immaterial misrepresentations having no effect on a creditor's decision, it could have provided that. It would, however, take a very clear provision to convince anyone of anything so odd, and nothing so odd has ever been apparent to the courts that have previously construed this statute, routinely requiring intent, reliance, and materiality before applying § 523(a)(2)(A). See, e.g., In re Phillips, 804 F.2d 930 (C.A.6 1986); In re Martin, 963 F.2d 809 (C.A.5 1992); In re Menna, 16 F.3d 7 (C.A.1 1994).
''It is ... well established that 'where Congress uses terms that have accumulated settled meaning under ... the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.' '' Community for Creative Non-Violence v. Reid, 490 U.S. 730, 739, 109 S.Ct. 2166, 2172, 104 L.Ed.2d 811 (1989) (quoting NLRB v. Amax Coal Co., 453 U.S. 322, 329, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672 (1981)); see also Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322, 112 S.Ct. 1344, 1347, 117 L.Ed.2d 581 (1992). In this case, neither the structure of § 523(a)(2) nor any explicit statement in § 523(a)(2)(A) reveals, let alone dictates, the particular level of reliance required by § 523(a)(2)(A), and there is no reason to doubt Congress's intent to adopt a common-law understanding of the terms it used.
Since the District Court treated Mans's conduct as amounting to fraud, we will look to the concept of ''actual fraud'' as it was understood in 1978 when that language was added to § 523(a)(2)(A).
Then, as now, the most widely accepted distillation of the common law of torts
was the Restatement (Second) of Torts (1976), published shortly before Congress passed the Act. The section on point dealing with fraudulent misrepresentation states that both actual and ''justifiable'' reliance are required. Id., § 537. The Restatement expounds upon justifiable reliance by explaining that a person is justified in relying on a representation of fact ''although he might have ascertained the falsity of the representation had he made an investigation.'' Id., § 540. Significantly for our purposes, the illustration is given of a seller of land who says it is free of encumbrances; according to the Restatement, a buyer's reliance on this factual representation is justifiable, even if he could have ''walked across the street to the office of the register of deeds in the courthouse'' and easily have learned of an unsatisfied mortgage. Id., § 540, Illustration 1. The point is otherwise made in a later section noting that contributory negligence is no bar to recovery because fraudulent misrepresentation is an intentional tort. Here a contrast between a justifiable and reasonable reliance is clear: ''Although the plaintiff's reliance on the misrepresentation must be justifiable ... this does not mean that his conduct must conform to the standard of the reasonable man. Justification is a matter of the qualities and characteristics of the particular plaintiff, and the circumstances of the particular case, rather than of the application of a community standard of conduct to all cases.'' Id., § 545A, Comment b. Justifiability is not without some limits, however. As a comment to § 541 explains, a person is
Similarly, the edition of Prosser's Law of Torts available in 1978 (as well as its current successor) states that justifiable reliance is the standard applicable to a victim's conduct in cases of alleged misrepresentation and that ''it is only where, under the circumstances, the facts should be apparent to one of his knowledge and intelligence from a cursory glance, or he has discovered something which should serve as a warning that he is being deceived, that he is required to make an investigation of his own.'' W. Prosser, Law of Torts § 10 8, p. 718 (4th ed.1971); accord, W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 108, p. 752 (5th ed. 1984) (Prosser & Keeton). Prosser represents common-law authority as rejecting the reasonable person standard here, stating that ''the matter seems to turn upon an individual standard of the plaintiff's own capacity and the knowledge which he has, or which may fairly be charged against him from the facts within his observation in the light of his individual case.'' Prosser, supra, § 108, at 717; accord, Prosser & Keeton, supra, § 108, at 751; see also 1 F. Harper & F. James, Law of Torts § 7.12, pp. 581-583 (1956) (rejecting reasonableness standard in misrepresentation cases in favor of justifiability and stating that ''by the distinct tendency of modern cases, the plaintiff is entitled to rely upon representations of fact of such a character as to require some kind of investigation or examination on his part to discover their falsity, and a defendant who has been guilty of conscious misrepresentation can not offer as a defense the plaintiff's failure to make the investigation or examination to verify the same'') (footnote omitted); accord, 2 F. Harper, F. James, & O. Gray, Law of Torts § 7.12, pp. 455-458 (2d ed.1986).
and 36 required an intermediate level of reliance, most frequently referred to as justifiable reliance.12 Following our established practice of finding Congress's meaning in the generally shared common law when common-law terms are used without further specification, we hold that § 523(a)(2)(A) requires justifiable, but not reasonable, reliance. See In re Vann, 67 F.3d 277 (C.A.11 1995); In re Kirsh, 973 F.2d 1454 (C.A.9 1992).