Alam v. Swain

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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1Bankruptcy Code § 523(a)(2)(A) provides as follows:
A discharge under section 727 . . . of this title does not
discharge an individual debtor from any debt - (2) for money,
property, services, or an extension, renewal, or refinancing of
(continued...)
Decision
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	Case No. 05-48372 EDJ
Adv. No. 06-4043 AJ
RICHARD A. SWAIN,
Debtor. 	/
SARAH ALAM,
Plaintiff,
vs.
RICHARD A. SWAIN,
Defendant. /
DECISION
By this adversary proceeding, plaintiff Sarah Alam (“Alam”)
seeks to render a debt she is owed by Richard A. Swain, the above
debtor (“Swain”), nondischargeable pursuant to Bankruptcy Code
§ 523(a)(2)(A) 1 and (B). 2 The court will enter judgment in favor of
Signed: November 02, 2007

EDWARD D. JELLEN
U.S. Bankruptcy Judge

Entered on Docket
November 02, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 1 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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1(...continued)
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.
2At trial Alam abandoned her claim for relief under
Bankruptcy Code § 523(a)(2)(B) (obtaining credit by a false
statement in writing respecting the financial condition of the
debtor or an insider).
2	Decision
Swain.
A. 	Facts
The evidence Alam presented at trial was in large part
different than the allegations of her complaint. 	The complaint
alleges that Swain misrepresented himself to Alam as a different
person, Richard F. Swain, and used this false identity to induce her
to extend credit. 	The complaint also alleges that Swain was a
“consummate con artist” that preyed on young females by inducing
them to lend him money to payoff prior victims that had threatened
Swain with lawsuits. 	Alam, however, presented no admissible
evidence to support these allegations.
What the evidence did show was that, at the time of the acts
complained of, Swain was a licensed flooring contractor. 	He met
Alam in 2003. 	After the two of them dated for several months, Swain
moved in with Alam. 	Thereafter, Alam lent Swain substantial sums of
money, and essentially supported him by providing him with a rent-
free place to live, food, use of her credit card, and many gifts.
During the period Swain lived with Alam, Alam introduced Swain
to her sister, Jawadia Alam (“Jawadia”), who was in need of some
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 2 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3	Decision
remodeling work at her home. 	Swain attempted to do the work.
Unfortunately for Jawadia, who is not a party to this action, Swain
botched the job. 	Swain performed work that he was not licensed to
perform, and hired subcontractors that were not licensed. 	Many of
the materials that Swain purchased for the job were paid for by
Alam.
Alam was aware during the period that she was lending money to
Swain that Swain did not have the ability to repay any of the loans.
Alam testified that by December of 2003, she had no confidence that
Swain would ever be able to repay her anything. 	To induce Alam to
continue lending him money, Swain told her that Burton Milburn
(“Milburn”), who had initially recommended Swain to Alam, would
guaranty his debts to her. 	That month, Milburn came to Alam’s home
and signed a document he tore out of a legal form book headed
“Specific Guaranty.” 	In reliance on the Specific Guaranty, Alam
continued to lend money to Swain.
Alam testified at trial that she lent Swain some $49,000 over
the course of their relationship, and that she lent approximately
two-thirds of that amount after Milburn had provided her with the
Specific Guaranty.
Swain eventually moved out, owing Alam substantial sums. 	He
filed his voluntary chapter 7 petition on October 14, 2005. 	Alam
sued Milburn on the Specific Guaranty, and for reasons hereinafter
mentioned, settled her lawsuit against Milburn for the sum of
$15,000.
/////
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 3 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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4	Decision
B. 	Discussion
To prevail under Bankruptcy Code § 523(a)(2)(A), a creditor
must establish that: (1) the debtor made a representation, (2) with
knowledge of its falsity, (3) with the intention and purpose of
deceiving the creditor, (4) that the creditor justifiably relied on
the representation, and (5) that the creditor sustained damage as
the proximate result thereof. 	In re Kirsh, 973 F.2d 1454, 1457 (9th
Cir. 1992); In re Britton, 950 F.2d 602, 604 (9th Cir. 1991). 	The
creditor must establish each of these elements by a preponderance of
the evidence. 	Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654 (1991).
At trial, Alam presented two theories why Swain’s debt to her
should be nondischargeable under Bankruptcy Code § 523(a)(2)(A).
First, Alam contends that Swain defrauded her by providing her with
the Specific Guaranty knowing that it was invalid. 	Second, Alam
contends that she extended credit to Swain in reliance on his
misrepresentation or false pretense that he was a general
contractor. 	Both theories fail.

The Specific Guaranty
Alam bases her contention concerning the Specific Guaranty on
the facts that the word “Witness,” appears below Milburn’s signature
on the Specific Guaranty, and that after she sued Milburn, Milburn
claimed that he did not sign the Specific Guaranty as a guarantor,
but only as a witness.
This argument fails for numerous reasons. 	First, the argument
assumes that the Specific Guaranty was not effective as Milburn’s
guaranty, even thought this assumption is not necessarily a correct
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 4 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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5	Decision
one. 	The Specific Guaranty reads, in relevant part:
[A]s an inducement for Sarah Alam . . . Creditor) to
extend credit to Richard Swain . . . (Borrower); the
undersigned jointly, severally and unconditionally
guarantee to Creditor the prompt and full payment of the
following obligation: Any money borrowed by Richard Swain.
. . . In the event of default, the Creditor may seek
payment directly from the undersigned without need to
proceed first against the Borrower, and the undersigned
waive all suretyship defenses. . . .
The Specific Guaranty was signed by Alam, Swain, and Milburn. 	The
printed word “Creditor” appears below Alam’s signature; the printed
word “Borrower” appears below Swain’s signature; the printed word
“Witness” appears below Milburn’s signature. 	There is no signature
line on the form bearing the printed word “Guarantor.”
But who, other than Milburn, could have been the “undersigned”
against whom Alam could “seek payment directly without need to
proceed first against the Borrower”? 	The answer, clearly, is no
one: the Specific Guaranty makes no sense and could have no purpose
unless it is Milburn’s guaranty of Swain’s debt to Alam. 	And this
is so notwithstanding the printed word “Witness” below Milburn’s
name.
The court before which Alam’s lawsuit againt Milburn was
pending made no finding as to effectiveness of the Specific Guaranty
because, as previously mentioned, Alam elected to settle.
If the Specific Guaranty had been found to have been valid,
however, it would follow that Swain made no misrepresentation to
Alam concerning its legal effect.
But even if the Specific Guaranty might have been found to have
been invalid, Alam would still not prevail herein as to this claim.
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 5 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3The court hearing Alam’s suit against Milburn had ruled
that parole evidence would not be admissible to construe the
Specific Guaranty. 	Based exclusively on the “four corners” of
the Specific Guaranty, and for the reasons mentioned above, if
the issue as to the enforceability of the Specific Guaranty had
been before this court, this court would have ruled that,
notwithstanding Milburn’s disclaimer of liability, the Specific
Guaranty was an enforceable guaranty by Milburn of Swain’s debt
to Alam.
6	Decision
Alam presented absolutely no evidence to this court that would
suggest that Swain had any knowledge as to the invalidity of the
Specific Guaranty. 	Nor did Alam present any evidence showing that
Swain had any knowledge at the time Milburn signed the Specific
Guaranty that Milburn would later disclaim liability thereunder.
Morever, the Specific Guaranty was taken from a legal form
book, and thus was not a document that Swain designed for purpose of
deceiving Alam. 	In addition, Swain has had no legal training, and
received no legal opinion in advance of the signing of the Specific
Guaranty as to its validity or lack thereof. 	Therefore, Swain could
not have known that the Specific Guaranty was not valid when, at
best from Alam’s point of view in the present litigation, its legal
effect was unclear. 3
For the same reasons, Alam, knowing that Swain had no legal
training, could not have justifiably relied on any views Swain may
have expressed as to the legal enforceability of the Specific
Guaranty.
The court holds that Alam’s claim regarding the Specific
Guaranty is without merit.
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 6 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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7	Decision
2. 	General Contractor
Alam contends that Swain misrepresented to her that he was a
general contractor, when in fact, he was licensed only as a flooring
contractor, and that she would not have extended credit to Swain had
she known the actual facts. 	This argument is not well grounded.
First, Alam admitted at trial that Swain never once
misrepresented to her that he was a general contractor. 	Rather, he
told her, truthfully, that he was a contractor. 	The weight of the
evidence showed that Alam assumed Swain was a general contractor
because of the general contractor type work he was doing at
Jawadia’s home.
Secondly, Alam failed to establish that she extended Swain any
credit in justifiable reliance on any misrepresentations by Swain
concerning his professional license. 	Even if Swain had falsely
represented to Alam that he was licensed as a general contractor,
Alam failed to explain why Swain being a general contractor, rather
than just a contractor, would have been a material factor in her
decision to extend credit. 	This is especially true because Alam
knew at all times during the period she was lending money to Swain
that he was, in fact, unable to repay her anything.
Moreover, Alam admitted that by December 9, 2003, when Milburn
signed the Specific Guaranty, she had given up all hope of being
repaid by Swain, and that she was extending Swain credit in
exclusive reliance on the Specific Guaranty.
In short, the weight of the evidence showed that Alam extended
credit to Swain, initially, based on their close personal
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 7 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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8	Decision
relationship, and after December 9, 2003, based on the Specific
Guaranty. 	The court therefore holds that Alam did not extend any
credit to Swain in justifiable reliance on any misrepresentations by
Swain.
C. 	Conclusion
For the foregoing reasons, the court will enter judgment in
favor of Swain.
END OF ORDER
Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 8 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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9	Decision
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Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 9 of 9