ROBERT D. MARTIN, Bankruptcy Judge.
On December 10, 1979, debtors John and Julie Ries entered into a purchase-money security agreement with Wisconsin Finance Corporation (WFC). The security agreement covered personal property including a piano. WFC perfected the security interest by filing a financing statement with the Dane County Register of Deeds on December 12, 1979. Mr. and Mrs. Ries are in default under this agreement.
Mr. and Mrs. Ries filed a chapter 7 bankruptcy petition on September 4, 1981. At the 11 U.S.C. § 341 meeting on September 28, 1981 the Rieses testified that they had sold the piano to an unnamed third party for $450.00. They further testified that the sale was made without notice to WFC and without WFC's consent. WFC was not paid any proceeds from the sale of the piano.
In this adversary proceeding, filed October 2, 1981, WFC submitted claims for reclamation of the collateral and an order determining that the debt owed by the Rieses to WFC is not dischargeable under 11 U.S.C. § 523(a)(6), or in the alternative that none of the Rieses' debts are dischargeable by virtue of 11 U.S.C. § 727(a)(2). The
The first issue to address is whether the sale of collateral, at some undetermined time, without the consent or knowledge of the secured party and without turning over the proceeds to the secured party, constitutes a ground for denying discharge under 11 U.S.C. § 727(a)(2)(A). This section provides:
The party objecting to discharge has the burden of proof. In Re Crane, 13 B.R. 445, 7 B.C.D. 36 (Bkrtcy.N.D.Ala.1980). Thus, in order for a debtor to be denied his discharge under 11 U.S.C. § 727(a)(2)(A), the objecting creditor must show three things. First, that the debtor transferred, removed, destroyed, mutilated or concealed his property. Second, that he did so within one year of the filing of the petition, and third, that it was done with the requisite intent. In the present case, it is clear that the Rieses did transfer property. However, WFC has failed to establish that this transfer occurred within the one-year period.
WFC presented no evidence to establish the date of the transfer of the piano to have been within one year of filing. However, it argued that the Rieses concealed the sale, and that this concealment made the violation ongoing until within one year of filing. Thus, the actual date of sale would be unimportant. It is true that discharge has been denied where the debtor had begun the concealment more than a year prior to bankruptcy, but the concealment continued into the one-year period. In Re Baxter, 27 F.Supp. 54 (S.D.N.Y.1939). However, as the court explained in In Re Smith, 11 B.R. 20 (Bkrtcy.N.D.Ohio 1981), this theory of continued concealment is only applicable where the debtor has retained some interest in or control over the concealed property. The court explained:
In the Smith case, the court found that the debtor's absolute transfer of secured property more than one year prior to bankruptcy did not constitute a continuous concealment and could not be the grounds for denying discharge. In the present case, no allegation was made or proven that the
WFC's next contention is that the Rieses' sale of the piano constituted a willful and malicious injury to property under 11 U.S.C. § 523(a)(6).
Injury under this section includes common law conversion, In Re Donny, 19 B.R. 354 (Bkrtcy.W.D.Wis.1982), which was recently defined by the Wisconsin Supreme Court:
In In Re Duranti, 1 B.R. 54 (Bkrtcy.W.D. Wis.1979) this court found the sale of secured property to be conversion. "The effect of the sale was to place the collateral securing the Bank's loan out of the reach of the Bank without compensating the Bank for its collateral. This is a classical conversion." 1 B.R. at 56.
Although conversion clearly constitutes an injury, the injury must be willful and malicious to be excepted from discharge. Courts have had little trouble defining willful as intentional or deliberate. In Re Giantvalley, 14 B.R. 457, 458 (Bkrtcy.D.Nev. 1981), In Re Meyer, 7 B.R. 932, 933, 3 C.B.C.2d 534, 535 [1978-81 Transfer Binder] BANKR.L.REP. (CCH) ¶ 67,777, at 78,477 (Bkrtcy.N.D.Ill.1981), In Re McCloud, 7 B.R. 819, 825-26, 3 C.B.C.2d 701, 709 [1978-81 Transfer Binder] BANKR.L.REP. (CCH) ¶ 67,818, at 78,561 (Bkrtcy.M.D.Tenn.1980). In this case the Rieses' acts were clearly deliberate and intentional. However, the question of what constitutes malice, when the debtor has willfully sold secured property, has troubled many courts. From an analysis of the various cases construing 11 U.S.C. § 523(a)(6) there appear to be two general approaches taken in construing "malice". Both begin with a definition of malice as "intent to harm". In Re Hodges, 4 B.R. 513, 517, 6 B.C.D. 531, 2 C.B.C.2d 566, [1978-81 Transfer Binder] BANKR.L.REP. (CCH) ¶ 67,678, at 78,182 (Bkrtcy.W.D.Va. 1980), In Re Langer, 12 B.R. 957, 959, 7 B.C.D. 1323, 1325 (D.C.N.D.1981), In Re Giantvalley, infra at 458. However, courts have interpreted "intent to harm" in different ways. One line of cases holds that unless the debtor's purpose in selling secured property was to do harm to the creditor, the debt is dischargeable. In Re Hodges, 4 B.R. at 517, 6 B.C.D. at 533, 2 C.B.C.2d at 571, BANKR.L.REP. (CCH) ¶ 67,678, at 78,185. In Re Gentis, 10 B.R. 209, 213 (Bkrtcy.S.D.Ohio 1981), In Re Nelson, 10 B.R. 691, 4 C.B.C.2d 548, 549 (Bkrtcy.N.D. Ill.1981), In Re McLaughlin, 14 B.R. 773
The disadvantage of this definition of malice was described by the court in In Re Nelson:
Other courts have found that the intent to do harm definition of malice does not require personal ill will or hatred. Instead, what is required is that the debtor know that his act will harm another and proceed in the face of that knowledge. In Re Giantvalley, 14 B.R. at 458, In Re McCloud, 7 B.R. 819, 825-26, 3 C.B.C.2d 701, 709 (Bankr.M.D.Tenn.1980). In Re Donofrio, 19 B.R. 734 (Bkrtcy.N.D.Ohio 1982), In Re Obermeyer, 12 B.R. 26 (Bkrtcy.N.D.Ohio 1981). This is the definition of malice adopted by this court in In Re Donny, under somewhat different circumstances:
Thus, under the Donny standard, all that is required is that the Rieses knew that in selling the piano, they would be harming WFC. It appears that there must actually be knowledge; a finding that the debtors should have known that harm would result will not suffice. As the court in In Re Lewis, 17 B.R. 46, 48 (Bkrtcy.W.D.Ark.1981) explained:
The debtor's knowledge can be inferred, of course, from his experience in business, his concealment of the sale, or his admission that he read the security agreement which forbade the sale of the collateral. This approach was used by the bankruptcy court of the Northern District of Georgia in In Re Ricketts, 16 B.R. 833 (Bkrtcy.N.D.Ga.1982). The court first discussed In Re McLaughlin, infra, an earlier case in which the court had found a sale of secured property not to be a willful conversion. The court then distinguished the cases:
In the present case, the Rieses apparently were not in business. Although, I am somewhat uneasy about assuming that they had read the security agreement, it is reasonable to suppose that they knew what it meant or that they understood that the sale of the collateral would harm WFC. This element is sufficiently common to consumer credit transactions, and these transactions are sufficiently common in modern life of the sort experienced by these debtors, that I believe it would be unrealistic to presume the debtors' ignorance with regard thereto. Therefore, I am convinced that the debt should be found nondischargeable.
The final issue is how much of the debt to WFC should be excepted from discharge. WFC contends that the entire debt of $2,924.70 owed to WFC should be excepted from discharge. The Rieses argue that only the amount the collateral sold for, $450.00, should be excepted. WFC's argument appears incorrect. Section 523(a)(6) provides that any debt for malicious and willful injury not be discharged. In the present case, the only part of the debt owed to WFC which is for a willful and malicious injury is the amount the debt would have been reduced by, had WFC been able to repossess and sell the piano. The remainder of the debt is not for willful and malicious injury but merely the result of a loan transaction. As the court in In Re Pommerer, 10 B.R. 935, 941, 4 C.B.C.2d 766 (Bkrtcy.D.Minn.1981) explained: "The liability arising from the conversion is measured by the market value of the property converted."
However, the Rieses' contention that the price the piano sold for is the amount to be excepted is also incorrect. WFC is entitled to have the amount it would have been able to realize, had it repossessed and sold the piano, declared nondischargeable. Although this may be the same as the amount it sold for, this is not necessarily the case. WFC argues that because the debtors sold the piano, it is impossible to determine the actual value of the piano. However, it should be possible for WFC to obtain evidence of the value of a piano of the same type and age and similar condition. The Rieses may also obtain such evidence. Because no evidence has been presented of the actual value of the piano, judgment upon the determination that the debt created by the conversion of the piano must await further hearing. Such a hearing may be scheduled upon request of either party.