## Facts

- Gregory and Mary Posta financed a mobile travel trailer through C.I.T. Financial Services, Inc. (CIT) and granted CIT a security interest.
- The security agreement barred selling or transferring the trailer, or moving it from their address, without CIT’s written consent.
- The bankruptcy court found the Postas did not read the agreement and had little business experience.
- Under financial strain, the Postas moved the trailer to a Denver dealership, advertised it for sale, and agreed to sell it to Ronald Swartz.
- Swartz paid a small cash amount and delivered a promissory note roughly equal to the Postas’ remaining CIT balance, purportedly secured by a deed of trust on a condominium.
- The Postas intended to use the sale proceeds to repay CIT.
- Swartz absconded with the trailer, defaulted, and the supposed security proved worthless.
- The Postas promptly reported the incident to law enforcement and notified CIT, later defaulted to CIT, and filed bankruptcy.
- CIT filed an adversary proceeding seeking nondischargeability under 11 U.S.C. § 523(a)(6), alleging willful and malicious injury through conversion of its collateral.

## Issues

1. Whether selling collateral in violation of a security agreement, followed by the creditor’s loss when the buyer absconds, constitutes a “willful and malicious injury” under 11 U.S.C. § 523(a)(6) rendering the debt nondischargeable.
2. Whether a technical conversion, without proof of conscious disregard of the secured creditor’s rights, satisfies the “malicious” element of § 523(a)(6).

## Decision

- The Tenth Circuit affirmed the district court and bankruptcy court.
- The court held the Postas’ conduct did not constitute a willful and malicious injury under § 523(a)(6).
- CIT’s claim was dischargeable, and dismissal of the adversary complaint was affirmed.
- The bankruptcy court’s findings on the debtors’ state of mind were not clearly erroneous.

## Legal Principles

- Section 523(a)(6) excepts from discharge debts “for willful and malicious injury” to another entity or its property.
- In the Tenth Circuit, “malicious” requires conduct that is wrongful and without just cause or excuse, reflecting conscious disregard of another’s rights; personal animus is unnecessary.
- A technical conversion of collateral does not automatically establish nondischargeability; intent to perform the act is insufficient without the required culpable state of mind.
- A debtor’s subjective intent and good-faith purpose (including an intent to repay the secured debt) may support a finding that the conversion was not “malicious.”
- Determining the debtor’s intent for § 523(a)(6) is a factual matter reviewed for clear error; legal conclusions are reviewed de novo.

## Conclusion

The court held that the Postas’ unauthorized sale of CIT’s collateral was a technical conversion but, given their good-faith intent to repay CIT, lack of concealment, prompt reporting of the loss, and the bankruptcy court’s supported findings on intent, the conduct was not “willful and malicious” under § 523(a)(6), so the debt was dischargeable.


C.I.T. Fin. Servs., Inc. v. Posta (In re Posta), 866 F.2d 364 (10th Cir. 1989)