Paul B. Burton

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UNITED STATES BANKRUPTCY COURT
For The Northern District Of California

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GPO

Entered on Docket
June 06, 2006

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re Case No. 04-54151 ASW

PAUL B. BURTON, Chapter 13

Debtor.

MEMORANDUM DECISION
SUSTAINING DEBTOR'S OBJECTION
TO CLAIM OF LAURA AUGUSTA

Before the Court, in the above-captioned chapter 131 case, is
Paul B. Burton’s (“Debtor”) objection to the filed claim of Laura
Augusta (“Creditor”).

This matter was briefed and an evidentiary hearing was
conducted on December 5, 2005. At the close of the evidentiary

hearing the Court requested that the parties submit post-hearing

briefs and on December 16, 2005, this Court entered its Order

! Unless otherwise noted, all statutory references are to Title 11, United States Code (the

Bankruptcy Code), as it existed when Debtor filed his bankruptcy case.

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF LAURA AUGUSTA

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UNITED STATES BANKRUPTCY COURT

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Regarding Issue of Statute of Limitations, requiring the parties to
brief the issue of whether an applicable statute of limitations
limits the Debtor’s liability, if any, with regard to the debt
associated with certain of Creditor’s credit cards. The parties
filed their post-hearing briefs on or about January 6, 2006.

The only witnesses called during the evidentiary hearing were
Debtor and Creditor. Debtor is represented by Judson T. Farley,
Esq.; Creditor is represented by Alan J. Sternberg of the Law
Offices of Alan J. Sternberg.

At the time of the evidentiary hearing, the only issue for this
Court to determine was whether Debtor was responsible for
indemnifying Creditor for three outstanding credit card bills --
Chase, Bank of America and Exxon -- totaling, on June 1, 2001,
$11,228.94, which Creditor asserted Debtor had assumed pursuant to
the agreement for the sale and purchase of Creditor’s floral
business called L’ Daisy Patch (“L’ Daisy”) .?

During the evidentiary hearing, both parties stipulated to a
judgment stating that, to the extent Creditor is legally required
to pay Michael Cochrane (“Cochrane”) or Midwest of Canon Falls
(“Midwest”) for the debts associated with L’Daisy, Debtor must
indemnify and reimburse Creditor per the terms of the Indemnity and
Hold Harmless Agreement (“Indemnity Agreement”).

This Memorandum Decision constitutes the Court's findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal

Rules of Bankruptcy Procedure.

> At the time of the evidentiary hearing, L’ Daisy was no longer an operating business.
Debtor closed the business at the end of 2002.

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 2

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I.

STATEMENT OF FACTS

On July 1, 2004, Debtor filed a voluntary petition under
chapter 13 of the United States Bankruptcy Code. On October 25,
2004, Creditor filed a proof of claim against Debtor’s estate
asserting that Debtor owed her $189,203.26 associated with Debtor’s
purchase of L’Daisy from Creditor (“Claim”). On November 8, 2004,
Debtor filed an Objection to Claim of Laura Augusta and Notice
Thereof, objecting to the entirety of Creditor’s Claim. The
parties essentially resolved their dispute with regard to
everything except the debt associated with three credit cards --
Chase, Bank of America and Exxon.

In June 2001, Debtor and Creditor commenced negotiations for
Creditor to sell, and Debtor to purchase, L’Daisy. At the time of
the negotiations, L’Daisy had been operating for approximately 20
years and was losing money. The parties agreed that in exchange
for the business, Debtor would assume responsibility for some, if
not all, of L’Daisy’s business debts. Approximately half of the
total debt that Debtor was to assume consisted of general business
debts and the remaining debt consisted of a business loan from
Cochrane. The transaction between the parties did not result in
Debtor paying any money to Creditor.

The agreement between the parties was evidenced by: (1) Bill of
Sale; (2) Non-Negotiable Promissory Note (installment) (“Promissory
Note”); (3) Indemnity Agreement; (4) Buyer’s Closing Statement and
Closing Escrow Instructions (“Closing Statement”); (5) Allocation
of Purchase Price; and (6) Exhibit A (collectively, (1) - (6) may

hereinafter be referred to as the “Escrow Documents”).

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF LAURA AUGUSTA 3

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A.) Creditor’s Testimony

Creditor asserted that when the parties began their
negotiations, she was initially going to remain a part owner of
L’Daisy, however, as negotiations progressed, her role within
L’Daisy was reduced to managing the business and then Debtor
advised her that her services would not be necessary. Creditor
asserted that the negotiations were extremely stressful and caused
her to suffer psychologically and, as a result, Creditor gave
possession of L’Daisy to Debtor in June 2001 and then left San
Jose.

Prior to giving Debtor possession of L’Daisy and leaving San
Jose, Creditor and Debtor’s bookkeeper -- Sharis -- reviewed
L’Daisy’s books and records to create a list of L’Daisy’s vendors
that needed to be paid. This list, dated June 6, 2001, was
entitled L’Daisy Patch Vendor Balance Detail (“Vendor Balance
Sheet”)3. Sharis then presented the Vendor Balance Sheet to Debtor
and she and Debtor discussed the Vendor Balance Sheet and
identified the vendors that had to be immediately paid to keep the
business operating. Debtor testified that prioritizing the debts
contained in the Vendor Balance Sheet was important because he
wanted to make sure that none of L’Daisy’s business debts were sent
to a collection agency because it would cause problems for
Creditor. The Vendor Balance Sheet reflected total general
business debts of $85,478.32 and included three credit card debts -

- Chase, Bank of America and Exxon -- with a combined balance of

3 The Vendor Balance Sheet was admitted into evidence as

Exhibit 1.

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF LAURA AUGUSTA 4

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$11,228.94. Creditor testified that the Vendor Balance Sheet
contained the debts that Debtor promised Creditor he would pay to
purchase Creditor’s business. Creditor asserted that she assumed
the Vendor Balance Sheet would be included in the Escrow Documents.
Creditor testified that the three credit cards were in her name and
not L’Daisy’s name, but that the cards were used solely for
business purposes.

Creditor explained that after she left town, she and Debtor did
not have any further communication with each other. Creditor
stated that she was unaware that any further negotiations were
necessary with regard to L’Daisy’s business debt because she
believed that the parties had agreed that Debtor would assume the
debts identified in the Vendor Balance Sheet. When the transaction
was finally closing, Creditor did not return to San Jose to execute
the Escrow Documents; instead, Creditor signed the Escrow Documents
and sent them back to the escrow company via facsimile. Creditor
testified that the escrow company sent her the Escrow Documents,
except for Exhibit A. No representative from the escrow company
testified during the evidentiary hearing.

Creditor testified that she reviewed the Closing Statement and
saw that Debtor was assuming $98,847.17 of L’Daisy’s general
business debt and noted that this figure was higher than the
$85,478.32 identified in the Vendor Balance Sheet. Creditor further
testified that she did not investigate or consult anyone about
Exhibit A when she saw it referenced in the Escrow Documents.
Creditor assumed that the $98,847.17 figure included all the debts
identified in the Vendor Balance Sheet plus additional items.

Creditor testified that she signed the Escrow Documents without

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 5

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inguiring into or confirming if Exhibit A included the three credit
card debts. In support of Creditor’s assumption that Exhibit A
contained the three credit card debts, Creditor cited to an email
that she received, on or about February 20, 2002 -- approximately
eight days prior to the close of escrow -- from Carla Griffith
(“Griffith”), the escrow agent, specifically stating that the
Chase, Bank of America and Exxon credit card balances remained
unpaid. The email did not mention, anywhere in its text, that
Debtor had assumed these obligations.

Creditor testified that she was unaware that the three credit
cards had not been paid in full until, in or about September 2003,
she was denied a small business loan because she had a poor credit
rating. Creditor explained that she immediately obtained and
reviewed her credit report’ and found that the Chase, Bank of
America and Exxon credit card debts had not been paid. The credit
report identified twelve separate individual credit lines, with
only two of those credit lines reflecting a “never late” status.
The Chase, Bank of America and Exxon credit cards had a status of
“Account Charged Off.” The remaining seven credit lines reflected
that they were or had been past due, were paid in settlement or
were in collections. The credit report reflected that the Chase,
Bank of America and Exxon credit cards had the following balances:
(1) $2,422; (2) $6,460; and (3) $4,420, respectively. Creditor
explained that she settled the outstanding balance on the Chase
credit card for $667. Despite believing that Debtor promised to

pay the Chase, Bank of America and Exxon credit card debts as part

* Creditor’s September 2003 credit report was admitted into evidence as Exhibit 9.

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 6

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of the sale and purchase of L’Daisy, Creditor testified that she
did not attempt to contact Debtor to investigate why Debtor had
failed to pay these debts in full.

Creditor testified that, at the time of evidentiary hearing,
she was unable to obtain a current credit report so that she could
identify the interest and late fees that had accrued on the Bank of
America and Exxon credit card debts because she did not have any
credit activity in the last several years. In addition, Creditor
testified that obtaining the balance on the Bank of America and
Exxon cards was impossible because the debts had been transferred,
possibly several times, to different companies and she did not know
the identities of the new companies. Creditor asserted that due to
Debtor’s failure to pay the three credit card balances, which
Creditor maintained Debtor promised to do, she continues to receive
constant telephone calls from collection agencies. Creditor
explained that she does not know who these agencies are because she
either hangs up the telephone or deletes her answering machine
messages without listening to them.

B.) Debtor’s Testimony

Debtor testified that in early June 2001, he began negotiating
with Creditor to purchase L’Daisy. Debtor confirmed that his
bookkeeper and Creditor created the Vendor Balance Sheet, but
disputed that it represented anything more than the initial list of
L’Daisy’s business debts. Instead, Debtor testified that the
Vendor Balance Sheet was just a starting point from which the
parties would further negotiate. Debtor explained that in the
midst of the negotiations, in June 2001, Creditor left town due to

her “mental state.” According to Debtor, Creditor’s departure

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occurred prior to the parties reaching an agreement with regard to
the business debt that Debtor was going to assume. Upon Creditor’s
departure, Debtor took possession of L’Daisy and continued to
operate the business as a going concern. Debtor testified that
from June 2001, until the transaction closed in February 2002, he
was trying to get a handle on L’Daisy’s business debts because
debts continued to filter into the business. Debtor explained that
due to Creditor’s absence, he continued negotiating the terms of
the sale and purchase with Cochrane and Griffin. Debtor stated
that he, Cochrane and Griffin had several meetings to narrow down
the business debts that Debtor was willing to assume. Debtor
testified that, with the assistance of Cochrane and Griffin, he
created Exhibit A° which consisted of all L’Daisy’s business debts
that he was willing to assume. Debtor explained that he thought
Cochrane, as Creditor’s former or current boyfriend, represented
Debtor in the continued negotiations, although Debtor admitted that
Cochrane never stated that he was speaking for Creditor. However,
Debtor testified that Cochrane advised him that Creditor was not
mentally available to finalize the transaction and therefore, in
addition to protecting Cochrane’s own interests in the transaction,
Cochrane was going to assist with closing escrow on the
transaction. Debtor testified that Cochrane was integral in
finalizing the contents of Exhibit A, which contained total debt of
$98,847.17 but did not include the three credit card debts. With
regard to Griffin, Debtor explained that Griffin acted as the

escrow agent. Cochrane did not testify at the evidentiary hearing.

> Exhibit A was admitted into evidence as Exhibit 6.

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fall

Debtor confirmed that he did not discuss Exhibit A with Creditor.
Debtor was unable to recall why the three credit card debts
were excluded from Exhibit A, but stated that other debts that were

originally on the Vendor Balance Sheet were also not included in
Exhibit A and explained that additional debts that were not
originally on the Vendor Balance Sheet were included in Exhibit A.
Debtor testified that he did not pay the three credit card debts
because they were not included in Exhibit A and therefore he did
not assume them.

Debtor explained that because he did not have any direct
contact with Creditor after she left town in June 2001, he had the
Escrow Documents finalized, which included Exhibit A, through an
escrow company. Debtor asserted that Exhibit A was specifically
identified in the Closing Statement® and referenced again in the
Indemnity Agreement’. Debtor represented that at no time did
Creditor advise him that she did not receive a copy of Exhibit A or

that she wanted to discuss the business debt that he was assuming.

Il.

POST-HEARING BRIEFS

During the evidentiary hearing Debtor asserted that, even if he
were liable for the three credit card debts, more than four years
had elapsed since the credit card charges at issue were incurred
and therefore Creditor was no longer responsible for these debts

because the statute of limitations had run; as such Debtor cannot

° The Closing Statement was admitted into Evidence as Exhibit 3.

7 The Indemnity Agreement was admitted into evidence as Exhibit 5.

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be held liable for the credit card debts. Upon completion of the
evidentiary hearing, the Court, in its Order Regarding Issue of
Statute of Limitations, requested that the parties submit post-
hearing briefs related to Debtor’s argument that an applicable
statute of limitations eliminates Creditor’s liability, if any,
with regard to the three credit card debts and therefore Debtor
should not have any obligation to pay these debts.
A. Creditor’s Post-Hearing Brief

On or about January 20, 2006, Creditor filed Creditor Laura
Augusta’s Response To Order Regarding Statute of Limitations
arguing that despite the running of the statute of limitations on
the credit card companies’ rights to enforce the charges against
Creditor through a lawsuit, California law provides that Creditor
is still obligated on the debts and Creditor will therefore
continue to suffer harm to her credit because Debtor breached the
Indemnity Agreement which obligated him to indemnify Creditor for
loss and liability associated with L’Daisy’s business debts.

Under California Code of Civil Procedure (“CCP”) § 337, the
statute of limitations to collect on Creditor’s credit card debt is
four years. Creditor asserted that Debtor’s argument -- that if
the statute of limitations had run, then Creditor would have no
obligation to make any payments to the credit card companies
thereby eliminating Debtor’s duty to pay damages to Creditor -- is
incorrect because California law does not exonerate Creditor from
her obligations under her contracts with the credit card companies
despite the running of the statute of limitations. Creditor
asserted that the running of the statute of limitations merely

makes the obligation unenforceable through the courts, but

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Creditor’s non-payment of her debts will continue to be on her
credit report for up to seven years.

Creditor analogized the current situation to the obligations of
a surety and asserted that, notwithstanding the fact that the
statute of limitations ran on the obligations of a principal, a
surety’s obligations remain intact and therefore Debtor remains
obligated to Creditor for payment of the credit card debts. See

Gaffingan v. Lawton, 1 Cal.2d 722 (1934).

Creditor also asserted that in addition to the monetary damages
for the credit card debts, she suffered additional damages because
Debtor, by failing to pay the balances on the credit cards, damaged
her credit rating. According to Creditor, Debtor specifically
agreed, in the Indemnity Agreement, to defend, indemnify and hold
her harmless against any loss or liability arising from the
obligations that Debtor assumed. Creditor asserted that the
provision in the Indemnity Agreement is sufficiently broad to
obligate Debtor to pay Creditor for any loss or liability arising
out of the credit card debts. Creditor proposed that the Court
conduct a further hearing so that she could establish the nature
and extent of her damages.

B. Debtor’s Post-Hearing Brief

On or about February 6, 2006, Debtor filed his Memorandum of
Points and Authorities in Support of Objection to Claim of Laura
Augusta asserting that he is not liable for Creditor’s credit card
debt because he did not assume the debt and did not agree to
indemnify Creditor for the debt. Specifically, Debtor noted that
the Indemnity Agreement obligated Debtor to indemnify Creditor

against loss and liability arising from only those debts

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specifically identified in Exhibit A attached to the Indemnity
Agreement. Since the credit card debts were not part of Exhibit A,
Debtor argued that he is not obligated to pay Creditor for these
debts.

Debtor explained that CCP § 337 provides for a four year
statute of limitations on collection of the type of debt currently
in dispute. Debtor stated that the disputed debt is over four
years old and is therefore uncollectible. Although Debtor did not
admit that he assumed the debt, Debtor asserted that even if he
had, Creditor failed to meet her burden of showing actual damages
because she admitted that she did not pay anything on two of the
credit card debts and paid $677.00 to settle the balance on the
third credit card. Debtor assumed, because no evidence was
presented regarding the timing of the $677.00 payment, that
Creditor made the payment after the running of the statute of
limitations, which makes the payment voluntary, thereby stripping
her of any entitlement to indemnification because an obligation to
indemnify does not accrue if the law does not impose any obligation

on the indemnitee. See United States Fidelity etc. Co. v. More,

155 Cal. 415, 418 (1909); Southern Cal. Gas Co. v. Ventura etc.

Co., 150 Cal.App.2d 253, 257 (1957). Debtor argued that a
voluntary payment is not made on account of a legal obligation.
Debtor next asserted that if the other two credit card
companies sued Creditor to collect on the outstanding debt,
Creditor would have to raise the statute of limitations as a
defense or her right to indemnification would be waived. Easton v.

Boston Investment Co., 51 Cal.App. 246, 250 (1921); See Cal. Civ.

Code § 2778(7).

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Debtor then explained that, pursuant to the Indemnity
Agreement, he is an indemnitor, as to the debts listed on Exhibit
A, and not a surety as Creditor implied in her post-hearing brief.
Debtor stated that the California Civil Code contains separate and
distinct definitions of an “indemnitor” anda “surety.”
Specifically, a surety undertakes to protect his or her promisee
against loss or damage resulting from the failure of a third person
to carry out obligations owed to the promisee. See Cal. Civ. Code

§ 2787; Somers v. United States F.& G. Co., 191 Cal. 542, 547

(1923). An indemnitor undertakes to protect the promisee against
liability to a third person or loss resulting from the liability.
See Cal. Civ. Code § 2772; Somers. Therefore, as an indemnitor and
because the statute of limitations has run, Debtor argued that he
does not have any direct obligation to Creditor on the debts
currently in dispute.

Finally, Debtor asserted that Creditor was responsible for

mitigating her damages. Sackett v. Spindler, 248 Cal.App.2d 220,

238-239 (1967). According to Debtor, if he had assumed the
disputed credit card debt, Creditor could have avoided any damage
to her credit by simply paying the debt. Since she did not pay the
debt, Debtor cannot be held responsible for any damage to

Creditor’s credit rating.

Ill.
ANALYSIS
Pursuant to § 502(a), a proof of claim is deemed allowed unless
a party in interest objects to it. Rule 3001(f) of the Federal

Rule of Bankruptcy Procedure, provides that, “[a] proof of claim

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executed and filed in accordance with these rules shall constitute
prima facie evidence of the validity and amount of the claim.”
FRBP 3001(f). If there is an objection to a filed claim, the
objecting party “is then called upon to produce evidence and show
facts tending to defeat the claim by probative force equal to that
of the allegations of the proofs of claim themselves. But the
ultimate burden of persuasion is always on the claimant.” Wright

v. Holm, 931 F.2d 620, 623 (9'° Cir. 1991); In re Pugh, 157 B.R. 898

(9 Cir. BAP 1993).

In this case, Creditor filed her Claim asserting that Debtor
owed her $189,203.26 resulting from her sale and Debtor’s purchase
of L’Daisy. Debtor objected to the Creditor’s claim on the grounds
that: (1) he paid or settled a substantial portion of the debt that
Creditor was asserting was due and owing; (2) of the remaining
unpaid debt, Debtor asserted that the holders of those claims
obtained judgment liens against him and that, he and not Creditor,
is solely liable on those debts; and (3) he did not assume the debt
on Creditor’s three credit cards. As provided above, the parties
stipulated that the purpose of the evidentiary hearing was to
determine Debtor’s liability, if any, for the three credit card
debts with an aggregated balance, as of June 1, 2001, of
$11,228.94.

The evidence presented clearly established that the transaction
between the parties was unusual -- Creditor gave Debtor possession
of L’Daisy before the parties had any sort of written agreement;
Creditor admitted to suffering psychologically and therefore needed
to leave town; and after Creditor left town, the parties had no

further communications with each other.

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 14

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This Court’s analysis begins with the issue of when the parties
reached an agreement for the purchase and sale of L’Daisy. The
parties dispute the timing of the agreement. Creditor asserted
that immediately before leaving town, the parties had reached an
agreement for the sale and purchase of L’Daisy. However, Debtor
asserted that when Creditor left town, the parties still had not
agreed on the debt that Debtor was going to assume. The only
written evidence presented regarding the sale and purchase of
L’ Daisy was the Escrow Documents.

Although Creditor testified that the Vendor Balance Sheet,
which she prepared with Debtor’s bookkeeper, evidenced the debts
that Debtor agreed to assume, Creditor did not present any other
corroborating evidence supporting this agreement. Debtor disputed
that an agreement was reached based on the Vendor Balance Sheet and
explained that the delay in closing the transaction, approximately
8 months, was because new debts continued to filter into the
business and he was having difficulty ascertaining the entirety of
L’Daisy’s business debts. Debtor pointed out that the debt
contained in the Vendor Balance Sheet was only $85,478.32, while
the total debt that he agreed to assume in the Escrow Documents was
$98,847.17 -- an increase of $13,368.85. Neither Creditor nor
Debtor testified that the parties agreed that Debtor would assume
all the debts contained in the Vendor Balance Sheet plus any
additional debts that arose prior to the closing of the
transaction. Instead, Debtor credibly explained that he was
identifying L’Daisy’s business debts from the date Creditor left
town until the Escrow Documents were finalized.

Based on the evidence presented, this Court accepts the Escrow

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF LAURA AUGUSTA 15

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Documents as the accurate reflection of the agreement between the
parties. If the parties had reached an agreement in June 2001,
when Creditor left town, it is unlikely that Debtor would continue
to identify additional debts to assume and include in the Escrow
Documents. In addition, Creditor’s own testimony that she found
the negotiations overwhelmingly stressful and caused her to leave
town, indicates that at the time of Creditor’s departure, the
parties had not reached a final agreement. Creditor did not
testify that she left town after selling L’Daisy to Debtor.

The Court finds Creditor’s testimony that Debtor initially
agreed to pay the subject credit card bills to be generally
credible, however, significant events transpired after Creditor
left town and essentially abandoned and abdicated her role in the
negotiations with Debtor.® After Creditor left town, Debtor was
left with only Cochrane and Griffith, two individuals that did not
have any real knowledge of the business, to assist with identifying
the debts that Debtor would assume. Ultimately, it was Creditor’s
responsibility to accept or not accept the terms of the transaction
-- by closing or not closing the sale. Creditor had -- or
certainly could have obtained -- access to Exhibit A if she wished
to examine the debts that Debtor was assuming as part of the
purchase of L’Daisy. It was not reasonable for Creditor simply to
sign the Escrow Documents without first reviewing the content of
each and every document. The fact that Debtor assumed $98,847.17 -
- over $13,000 more than the original $85,478.32 figure contained

in the Vendor Balance Sheet -- convinces the Court that the Vendor

* The Court accepts Creditor’s explanation that for personal and psychological/medical
reasons, it was necessary for her to terminate all contact with Debtor and L’ Daisy.

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 16

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Balance Sheet was not the parties’ final agreement as to the
specific debts that Debtor would assume.

Despite finding that the Escrow Documents represented the
entirety of the agreement between the parties and that the Vendor
Balance Sheet did not represent the final agreement as to debts
Debtor would assume, the Court next considers Creditor’s argument
that the Vendor Balance Sheet, and not Exhibit A, is the actual
attachment to the Indemnity Agreement and the Closing Statement.

Creditor testified that when she received the Escrow Documents,
she did not receive Exhibit A and therefore did not agree to its
contents. Creditor further testified that she did not contact
either the escrow company or Debtor to obtain a copy of Exhibit A.
Creditor explained that when she reviewed the Escrow Documents, she
saw that an Exhibit A was referenced and noted that Debtor was
assuming $98,847.17 in general business debt. Creditor testified
that she assumed that the $98,847.17 represented the debts
identified in the Vendor Balance Sheet plus additional business
debts. Creditor explained that she signed the Escrow Documents
based on her assumption.

Both parties testified that after Creditor left town they never
communicated directly with each other. Debtor testified that he
did his best to identify all of L’Daisy’s business debts without
Creditor’s assistance. Debtor explained that he used an escrow
company to finalize the transaction so that the escrow company
would properly handle arranging for all the Escrow Documents to be
approved and signed. Debtor asserted that Exhibit A was part of
the Escrow Documents.

The Closing Statement and the Indemnity Agreement clearly

MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 17

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reference Exhibit A.

Creditor admitted to seeing the references to

Exhibit A, but instead of contacting either the escrow agent or

Debtor to obtain a copy of Exhibit A,

Documents based on an inaccurate assumption.

established, in the absence of fraud,

she simply signed the Escrow

“Tt is well

overreaching or excusable

neglect, that one who signs an instrument may not avoid the impact

of its terms on the ground that he failed to read the instrument

before signing it.” Randas v.

YMCA of Metropolitan Los

Angeles, 17

Cal.App.4th 158, 163 (1993),

quoting Hulsey v.

Elsinore Parachute

Center, 168 Cal.App.3d 333, 339

Foundation Hospitals, 17 Cal.3d 699,

Country Club, 186 Cal.App.3d 1309,

not assert fraud -- she did not assert
Exhibit A was the Vendor Balance Sheet

that anyone prevented her from calling

(1985);
710
1318-1319

see also Madden v. Kaiser

(1976); Izzi v. Mesguite

(1986). Creditor did
that anyone told her that
-- and she did not testify

either the escrow agent or

Debtor to obtain a copy of Exhibit A. The fact that Creditor
decided not to review Exhibit A does not cause Debtor to be liable
for debts that were not specifically identified in Exhibit A.
Although Creditor did not sign or initial Exhibit A, she signed the
balance of the Escrow Documents to finalize the transaction and
some of those documents referenced Exhibit A.

Based on the foregoing, the Court finds that Creditor failed to
meet her burden of proving that Debtor is liable for the three
credit card debts identified in the Claim. Since Debtor is not
liable for the three credit card debts, the issue of whether the
applicable statute of limitations precludes Debtor’s liability for

these debts is moot, because Debtor has no obligation to indemnify

MEMORANDUM DECISION SUSTAINING DEBTOR’S
OBJECTION TO CLAIM OF LAURA AUGUSTA 18

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1 |} Creditor for any debts not listed in Exhibit A.

IV.

CONCLUSION

a Ww N

For the reasons stated above Debtor's objection to Creditor's
Claim is sustained and such Claim is disallowed in its entirety.

Counsel for Debtor shall submit a form of order so providing,
after review by Creditor as to form. The Order shall also include

the parties’ stipulation that to the extent Creditor is legally

\O oO ~ nN ws

required to pay Cochrane or Midwest for the debts associated with
10} L’ Daisy, Debtor must indemnify and reimburse Creditor per the terms
11} of the Indemnity Agreement.

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. Ahh, 2. alii

ARTHUR S. WEISSBRODT
18 UNITED STATES BANKRUPTCY JUDGE

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MEMORANDUM DECISION SUSTAINING DEBTOR'S
OBJECTION TO CLAIM OF LAURA AUGUSTA 19

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Court Service List

Paul B. Burton
21731 Chona Court
San Jose, CA 95120

Judson Farley, Esq.
830 Bay Ave. #B
Capitola, CA 95010-2173

Alan J. Sternberg, Esq.

Law Offices of AlanJ.Sternberg
1646 N.California Blvd., Suite 550
Walnut Creek, CA 94596

Devin Derham-Burk
P.O. Box 50013
San Jose, CA 95150-0013

Office of the U.S. Trustee
U.S. Federal Bldg.
280 S Ist St. #268
San Jose, CA 95113-3004

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