ANDERSON, Circuit Judge:
In this bankruptcy appeal, the appellant Ronald Cross, bankrupt and defendant below, comes before us seeking the proverbial "fresh start"; his creditor, the appellee Murphy & Robinson Investment Company, seeks to be paid. Cross began his search for a "fresh start" by filing voluntary bankruptcy petitions for himself personally and for his two wholly-owned and controlled corporations, Cross Enterprises, Ltd. and Cross-Wiggins Corp. Murphy & Robinson intervened by filing a Complaint to Determine Dischargeability of Debt in the individual bankruptcy proceedings of Cross, claiming that Cross owed certain obligations to them that could not be discharged in bankruptcy. After a hearing, the bankruptcy judge determined that the debt in question was not dischargeable under § 17(a)(4) of the Bankruptcy Act, formally codified at 11 U.S.C.A. § 35(a)(4) (West 1976) (repealed).
I. BACKGROUND: THE FACTS AND PROCEEDINGS BELOW
Cross, through his two corporations, for which he was the president and sole shareholder, was engaged in the business of constructing residential homes. Cross attempted to expand his general contracting business into the construction of commercial buildings. He entered into a contract with the appellee to construct a Post Office building that the appellee would lease to the United States government. Cross executed the contract on behalf of Cross Enterprises in his capacity as president.
Appellee contends that although the commingling of funds prevents exact tracing of the Murphy & Robinson draws, at least a portion of these draws were spent on obligations from other construction jobs, donations to charities, repayment of corporate loans personally guaranteed by Cross, a trip to Oklahoma (which appellee characterizes as personal in nature and appellant characterizes as business-related), and eyeglasses for Cross. Appellant claims that the account from which these expenditures were made also contained money deposited from other sources and that the failure to pay some of the bills from the Post Office job resulted from the job being taken at cost and from certain extra work that was required but for which appellant was not compensated.
The bankruptcy judge concluded that by commingling with other monies the draws given to Cross by the appellee and by using these funds for purposes other than the payment of obligations on the Post Office job, Cross committed a defalcation within the meaning of § 17(a)(4) of the Bankruptcy Act and thus his debt to appellee is nondischargeable. The district court affirmed, reasoning that the debt could not be discharged because "Ron Cross committed a defalcation by his failure to properly account for and to use the draws from Murphy & Robinson to pay those subcontractors, laborers and suppliers of the Post Office job." As the parties agreed, however, that the judgment was too high, the district court vacated the judgment and remanded to the bankruptcy court the issue of the proper amount of the debt.
Although neither party has raised the issue, this court must first consider whether it has jurisdiction to hear this appeal. Incumbent upon this court is the obligation to examine sua sponte the basis of our jurisdiction whenever a question arises as to its existence. Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 740,
The unusual posture in which this case came to the court of appeals creates such a question. Cross appeals from the district court's first opinion, which determined that the debt involved was nondischargeable, but also remanded the matter to the bankruptcy court for reevaluation of the amount of the debt. Ordinarily, this court is empowered to hear appeals in cases only after final judgment has been entered below.
Congress, however, has expressly authorized interlocutory appeals in certain types of bankruptcy cases. Bankruptcy Act, § 24(a), 11 U.S.C.A. § 47(a) (West 1976) (repealed).
The apparent simplicity of this dichotomy dissolves in its application. The cases have referred to this area as a "terminalogical morass," In re Durensky, 519 F.2d 1024, 1028 (5th Cir. 1975), and the commentators have described it as "obscure," 2 W. Collier, Bankruptcy ¶ 24.12 (14th rev.ed. 1976), and "elusive," D. Cowens, Bankruptcy Law and Practice § 871 (2d ed. 1978). Although numerous definitions of these concepts have been attempted, applying in specific instances the distinction between "proceedings" and "controversies" has proved problematic. Probably no single definition of these terms adequately explains the results reached in the various cases. In a widely acclaimed approach, see, e.g., 9 J. Moore, Federal Practice, ¶ 110.19 (2d ed. 1980), however, the Second Circuit has announced perhaps the best and most workable definition of these terms. United Kingdom Mutual Steamship Assurance Association v. Liman (In re Sea Trade Corp.), 418 F.2d 9, 10 (2d Cir. 1969). As adopted by the Fifth Circuit, this distinction is:
According to this definition, the present matter, involving a dispute between the bankrupt and one of his creditors over whether the bankrupt is entitled to be discharged
The conclusion that the matter before us is a "proceeding" in bankruptcy does not automatically confer jurisdiction to hear this interlocutory appeal. Despite the unqualified language of § 24(a) of the Act, that provision has been construed to require that an interlocutory order must possess a "definitive operative finality" to be appealable as a matter of right to this court. In re Durensky, 519 F.2d 1024, 1028-29 (5th Cir. 1975); Fruehauf Corp. v. Revitz (In re Transystems, Inc.), 499 F.2d 416 (5th Cir. 1974); United States v. Brock (In re Wingreen Co.), 412 F.2d 1048, 1050 (5th Cir. 1969). This judicial gloss on the statute has been imposed to avoid the flood of appeals and the disruption of the "reasonably swift resolution of pressing economic difficulties" that would occur "if every word issuing from the bankruptcy judge's mouth or pen were to be a proper subject for review by the district court and by the court of appeals." In re Durensky, 519 F.2d at 1028.
In Durensky, the government challenged in the district court a ruling by the bankruptcy court that it had jurisdiction over a claim concerning the dischargeability of the bankrupt's tax liability. The district court remanded the case to the bankruptcy court for a decision on the merits after rejecting the jurisdictional challenge and concluding that the appeal to the district court was premature. An appeal to this court was dismissed because the district court's order lacked "definitive operative finality." We similarly dismissed the appeal in Transystems where the district court remanded the matter to the bankruptcy court with instructions to apply state, rather than federal, law in resolving a particular issue. In neither Transystems nor Durensky had the district court actually passed on the merits of any claim in the case; both involved a remand to the bankruptcy court for consideration of the merits following a decision by the district court on a procedural issue (i.e., jurisdiction, choice of law).
In contrast to Durensky and Transystems, the decision of the district court here definitively disposed of the merits of the entire issue now appealed to this court. The district court conclusively determined that the debt was nondischargeable. The district court was not likely to reexamine, nor did it in fact reexamine, this holding.
III. THE MERITS
As a general rule, a discharge in bankruptcy will release the bankrupt from all provable debts with the exception of a few narrowly defined types of obligations. One such exception exists for debts "created by ... misappropriation or defalcation while acting as an officer or in any fiduciary capacity." Bankruptcy Act, § 17(a)(4), 11 U.S.C.A. § 35(a)(4) (West 1976) (repealed). The bankruptcy and district courts focused on the question of whether the acts committed by Cross constituted a "defalcation" within the meaning of § 17(a)(4).
The overriding purpose of the bankruptcy laws is to provide the bankrupt with comprehensive, much needed relief from the burden of his indebtedness by releasing him from virtually all his debts. Perez v. Campbell, 402 U.S. 637, 648, 91 S.Ct. 1704, 1710, 29 L.Ed.2d 233 (1971); Hartman v. Utley (In re Schroeder & Co.), 335 F.2d 558, 560 (9th Cir. 1964); Hardie v. Swafford Brothers Dry Goods Co., 165 F. 588, 590-91 (5th Cir. 1908).
For a debt to be nondischargeable under this section, the creditor must be among this protected class; an officer's unfaithfulness to or mismanagement of his corporation will not give rise to nondischargeable liability directly to individual creditors of the corporation. A contrary rule would be unduly burdensome on the bankrupt and inconsistent with the basic policies underlying the Act. Where an officer breaches a fiduciary duty owed to his corporation, but the claimant under § 17(a)(4) is a corporate creditor, the amount sought to be declared nondischargeable may have little or no relation to the amount of the defalcation. In the present matter, the debt declared nondischargeable exceeded $7,700, but there was little proof on the amount of the defalcation by Cross. In an analogous context, the Second Circuit has held that, in accordance with the strict construction given to exceptions to discharge, only that portion of the debt affected by the wrongdoing would be rendered nondischargeable. Danns v. Household Finance Corp., 558 F.2d 114, 116 (2d Cir. 1977) (under § 17(a)(2) [money obtained by false representations], "a creditor should be entitled to bar discharge only of that portion of his loan as was obtained fraudulently."). See also In re Vickers, 577 F.2d 683 (10th Cir. 1978); In re Knight, 421 F.Supp. 1387 (M.D.La.1976), aff'd without opinion, 551 F.2d 862 (5th Cir. 1977). Moreover, permitting a single corporate creditor to have his debt declared nondischargeable in the officer's individual bankruptcy could possibly interfere with the recovery sought by the corporation itself against the delinquent officer, and thus would be unfair to the corporation and other corporate creditors. The preferable approach would be to allow the corporation (or its trustee in bankruptcy) to assert a claim based on the defalcation that would inure to the benefit of all the corporation's creditors. See In re Whitlock, 449 F.Supp. 1383, 1388-89 (W.D.Mo.1978); Kelley v. Conwed Corp., 429 F.Supp. 969, 971-73 (E.D.Va.1977).
Our conclusion about the dischargeability of this debt is supported by this court's
Similarly, Cross (and his companies) owed no fiduciary duty to the appellee that existed prior to and independent of his alleged misconduct. Counsel for appellee conceded at oral argument that Cross was under no obligation to maintain a segregated account for the draws received from appellee. Appellee, despite bearing the burden of proof as plaintiff below, did not introduce into evidence the contract for the construction of the Post Office, nor any other documents that would establish a fiduciary relationship.
Thus, Cross, like Angelle, cannot be considered a fiduciary for the benefit of this
Our conclusion that § 17(a)(4) does not bar the discharge of this debt finds support in the decisions of courts from other circuits. In re Whitlock, 449 F.Supp. 1383 (W.D.Mo.1978); Kelley v. Conwed Corp., 429 F.Supp. 969 (E.D.Va.1977). Both these cases held, on facts very similar to the instant matter, that creditors of the corporation could not assert corporate debts as nondischargeable in the officer's individual bankruptcy.
In sum, we have jurisdiction to entertain this interlocutory appeal from an order in a proceeding in bankruptcy. That order possesses sufficient definitive operative finality to be appealable. The district court and bankruptcy court erred in determining that the debts owed to the corporate creditor were nondischargeable in the individual bankruptcy of the appellant. Section 17(a)(4) of the former Bankruptcy Act is inapplicable in this case because the bankrupt did not owe the claimant any fiduciary duty. The judgment of the district court is reversed and the case remanded for further proceedings not inconsistent with this opinion.
REVERSED AND REMANDED.
Ga.Code Ann. § 26-1808.1 (1978), which makes misapplying with intent to defraud money advanced for real property improvements a crime, does not create a trust relationship for the purposes of § 17(a)(4). The argument that a similar Louisiana criminal statute did so render the bankrupt a fiduciary was rejected by In re Angelle, 610 F.2d at 1339-41. Such criminal laws, if they can be said to give rise to any trust responsibilities at all, do so at the time of and by virtue of the bankrupt's misconduct. Thus, no technical trust existing prior to without reference to the misconduct, as required by Angelle, Chapman and Davis, is created by these criminal laws.
For the same reasons, the Georgia lien law, Ga.Code Ann. § 67-2001 et seq. (Supp.1981), which has been cited by neither party, does not give rise to the sort of fiduciary obligations contemplated by Angelle and § 17(a)(4). The Georgia statute is very similar in structure and operation to the Louisiana lien law, La.Rev.Stat.Ann. 9:4801 (West Supp.1981), that Angelle deemed insufficient to establish the necessary trust obligations. 610 F.2d at 1338 n.5, 1341 n.15. Both of these statutes permit subcontractors, materialmen, laborers, and others who are not paid by the general contractor to secure a lien against the property that has been improved by their efforts. The owner of the improved property may be held personally liable to these unpaid laborers and suppliers. Neither of these laws, in contrast to the Oklahoma Lien Trust Statutes, provides that monies received by the general contractor from the property owner "`shall ... be held as trust funds for the payment of all lienable claims due and owing or to become due and owing ... by reason of such building or remodeling contract.'" Carey Lumber Co. v. Bell, 615 F.2d at 373 n.2. See also Id. at 373-75.