C.I.T. Financial Services, Inc. v. Posta (In re Posta)

In 1983, Gregory and Mary Posta (debtors) purchased a travel trailer and financed $23,631 of the purchase price through C.I.T. Financial Services, Inc. (CIT) (creditor). The Postas’ security agreement with CIT granted CIT a security interest in the trailer and provided that the Postas could not sell, rent, or transfer the trailer without CIT’s written consent. The Postas had little business experience and did not read the security agreement before signing it. Shortly after purchasing the trailer, the Postas began having trouble making their trailer payments and listed the trailer for sale in the newspaper. In October 1984, the Postas agreed to sell the trailer to Ronald Swartz. Swartz paid the Postas $962.65 in cash and gave the Postas a $22,245 promissory note secured by a deed of trust on a condominium. That amount represented the Postas’ outstanding balance on the CIT loan, and the Postas intended to use the sale proceeds to repay CIT. However, Swartz subsequently disappeared with the trailer and defaulted on the promissory-note payments, and the Postas discovered that Swartz had no interest in the condominium property subject to the deed of trust. The Postas reported the incident to the authorities and CIT. The Postas subsequently defaulted on their loan payments to CIT and filed for bankruptcy. CIT commenced an adversary proceeding against the Postas in the bankruptcy case, arguing that the Postas’ debt to CIT was not dischargeable because the Postas had willfully and maliciously converted the trailer by selling it in violation of the security agreement. The bankruptcy court found that the Postas had not acted maliciously and dismissed CIT’s adversary complaint. The district court affirmed, and CIT appealed.