United States Bankruptcy Appellate Panel
                               FOR THE EIGHTH CIRCUIT

                                      ____________

                                      No. 99-6070SI
                                      ____________

In re: Billie Franklin Guske                *
                                            *
       Debtor                               *
                                            *
Barbara M. Guske                            *
                                            *   Appeal from the United States
       Plaintiff - Appellee                 *   Bankruptcy Court for the
                                            *   Southern District of Iowa
                v.                          *
                                            *
Billie Franklin Guske                       *
                                            *
       Defendant - Appellant                *

                                      ____________

                               Submitted: December 29, 1999
                                  Filed: January 13, 2000
                                      ____________

Before KOGER, Chief Judge, KRESSEL and WILLIAM A. HILL, Bankruptcy Judges.
                                ____________

KOGER, Chief Judge.


       Debtor Billie Franklin Guske appeals the Judgment of the Bankruptcy Court excepting
his debt to Barbara M. Guske from discharge pursuant to 11 U.S.C. § 523(a)(2)(A). For the
reasons that follow, we reverse and remand the cause to the Bankruptcy Court for further
findings.
                                    Factual Background

        The Debtor and Barbara Guske were married on December 5, 1969. On or about
March 30, 1991, the parties executed a financial statement that indicated they had a net
worth of $241,925.00. On or about April 10, 1992, the parties were divorced by the Iowa
District Court, Dallas County, Iowa. The parties, who were represented by the same attorney
in the dissolution proceedings, signed a consent dissolution decree which the state court
approved. Among other things, the decree provided that neither party was to pay alimony
to the other. In addition, the decree awarded certain stock and personalty to the Debtor and
awarded certain real estate and personalty to Ms. Guske. In addition, the dissolution decree
awarded Ms. Guske a judgment for $30,000 payable interest free within five years. The
wording of the relevant provision was as follows:

       That Respondent [Billie F. Guske] shall pay to Petitioner [Barbara M. Guske],
       as and for property settlement, the sum of $30,000.00, without interest, within
       5 years from the date of this decree; provided further, that any amount not paid
       within said 5 year period shall then draw interest at the rate of ten per cent
       (10%) per annum until paid.

The Debtor had paid approximately $1,400 toward the $30,000 obligation under the
dissolution decree by paying some insurance premiums during the five-year interest-free
period.

        On May 27, 1997, some forty-seven days after the full unpaid balance became due
under the dissolution decree, the Debtor filed his voluntary petition for relief under Chapter
7 of Title 11 of the United States Code. On August 20, 1997, Barbara Guske filed a
Complaint to Determine Dischargeability wherein she asserted that the Debtor’s debt to her
pursuant to the dissolution decree was nondischargeable under 11 U.S.C. § 523(a)(15),
which renders nondischargeable certain debts relating to property divisions in connection
with a divorce or separation. Ms. Guske amended her Complaint on August 21, 1997, to also
assert a § 523(a)(2)(A) cause of action based on fraud.

     On September 1, 1999, following a trial, the Bankruptcy Court entered an Order and
Judgment finding and ordering that the $28,600.00 remaining on the unpaid balance plus

                                              2
interest at 10% per annum from April 10, 1997, was nondischargeable under 11 U.S.C. §
523(a)(2)(A). Because the Bankruptcy Court determined the debt to be nondischargeable
under § 523(a)(2)(A), it expressly declined to address the issues raised under § 523(a)(15).

                                    Standard of Review

       We review findings of fact for clear error and legal conclusions de novo. See O’Neal
v. Southwest Mo. Bank (In re Broadview Lumber Co.), 

, 1250 (8th Cir. 1997);
Hartford Cas. Ins. Co. v. Food Barn Stores, Inc. (In re Food Barn Stores, Inc.), 

,
199 (B.A.P. 8th Cir. 1997); see also Fed. R. Bankr. P. 8013. Because the Bankruptcy Court
applied the correct legal principles and standard for nondischargeability under §
523(a)(2)(A), our review of its factual findings thereunder is under the clearly erroneous
standard. “A finding is ‘clearly erroneous’ when although there is evidence to support it, the
reviewing court on the entire evidence is left with a definite and firm conviction that a
mistake has been committed.” Anderson v. Bessemer City, 

, 573, 

, 1511, 

(1985) (quoting United States v. U.S. Gypsum Co., 

, 395, 

, 542, 92 L.Ed.746 (1948); accord In re Waugh, 

, 711 (8th
Cir. 1996); Chamberlain v. Kula (In re Kula), 

, 735 (B.A.P. 8th Cir. 1997).

                                         Discussion

       The Bankruptcy Court correctly held that in order to establish nondischargeability of
a debt by reason of 11 U.S.C. § 523(a)(2)(A), the plaintiff must prove, by a preponderance
of the evidence, five discrete elements. Those are:
       1) that the debtor made a representation;
       2) that at the time the debtor knew the representation was false;
       3) that the debtor made the representation deliberately and intentionally and
       with the intention and purpose of deceiving the creditor;
       4) that the creditor justifiably relied on such representation; and
       5) that the creditor sustained the alleged loss and damage as the proximate
       result of the representation having been made.




                                              3
See In re Ophaug, 

(8th Cir. 1987), as refined by Field v. Mans, 

,

, 

(1995); see also Merchants Nat’l Bank of Winona v. Moen
(In re Moen), 

, 790 (B.A.P. 8th Cir. 1999).

       In its Order, the Bankruptcy Court found that Ms. Guske met her burden of proving
each of the elements of fraud under § 523(a)(2)(A). After carefully reviewing the entire
record, we respectfully disagree. We concur that the record contains sufficient evidence to
support a finding that Ms. Guske met her burden as to the first three elements, as well,
perhaps, as the fifth element. However, because the record before us is devoid of any
evidence regarding justifiable reliance, we find that Bankruptcy Court clearly erred in
concluding that Ms. Guske met her burden of proving that element under § 523(a)(2)(A).

       At the outset, we note that although Ms. Guske amended her Complaint to add the §
523(a)(2)(A) cause of action well before trial, counsel for both parties seemed to have
forgotten this fact at trial. In his opening statement, counsel for Ms. Guske stated, “this
action lives or dies entirely on this Court’s interpretation and application of 11 U.S.C.
Section 523(a)(15).” He made no mention of § 523(a)(2) in his opening statement. The trial
then proceeded in a manner that conformed to counsel’s statement: the evidence and
arguments focused almost exclusively on the cause of action under § 523(a)(15). In fact, the
first mention of § 523(a)(2)(A) came at what appeared to be the conclusion of the Debtor’s
testimony when, after the Debtor admitted he never intended to pay Ms. Guske (discussed
more fully below), the Court prompted the Debtor’s attorney that he might want to ask the
Debtor some questions pertaining to § 523(a)(2)(A). Even then, neither attorney asked more
than a few questions relevant to that cause of action. Finally, at the conclusion of the
presentation of evidence and argument, which had been based almost exclusively on the
elements of § 523(a)(15), counsel for Ms. Guske orally moved to amend the Complaint to
add a basis of recovery under § 523(a)(2)(A) “for purposes of amending to conform to
proof,” apparently having forgotten that the Complaint had already been so amended long
before trial.

       Nevertheless, we reviewed the record and transcript very carefully for any evidence
tending to support each of the elements of § 523(a)(2)(A). As the Bankruptcy Court found,
the Debtor admitted at trial that he had no intention of ever paying his ex-wife the $30,000

                                             4
property settlement obligation under the dissolution decree, essentially because he did not
have the money to pay her. Specifically, the Debtor testified:

        Q. [BY MS. GUSKE’S ATTORNEY]: Was it ever your intent to pay [Barbara] any
of that property settlement?
        A. [BY THE DEBTOR]: No, sir.
        Q. You signed a decree that said you would, didn’t you?
        A. Well, I also told her I’d never pay her.
        Q. All right. You told her you never intended to pay her off?
        A. That’s right.

At what appeared to be the conclusion of the Debtor’s testimony,1 the Court asked the Debtor
about this again:

      THE COURT: Did you tell Barbara Guske that you weren’t going to pay that?
      THE WITNESS: I sure did.
      THE COURT: You had no intention of paying it?
      THE WITNESS: I told her that for sure.
      THE COURT: And when the Court, the Iowa district court, ordered you to pay that
$30,000, you had no intention of paying it?
      THE WITNESS: No, sir.2

       After this testimony, it should have been relatively easy for Ms. Guske to prove a §
523(a)(2)(A) cause of action because intent is very often one of the most difficult, if not the
most difficult element to prove. Because a debtor rarely, if ever, admits he made a promise
to pay an obligation which he never intended to pay, and since the court cannot look inside


       1
          As discussed more fully below, it is extremely rare for a debtor to admit under oath
that he entered into an agreement to pay an obligation with no intent to fulfill that obligation.
It is not surprising that this testimony caught the attention of the Bankruptcy Judge.
       2
         It was at this point when the Court asked Debtor’s counsel where he stood on §
523(a)(2)(A) and suggested to Debtor’s counsel that it would be a good idea if he would ask
some questions to clear that up.

                                               5
the debtor’s head to determine intent, courts have been required to formulate various lists and
tests to help them determine intent based on the surrounding circumstantial evidence. See
e.g., In re 

(because direct proof of intent is nearly impossible to
obtain, the creditor may present evidence of the surrounding circumstances from which intent
may be inferred) (quoting In re Van Horne, 

, 1287 (8th Cir. 1987)). Needless
to say, this is often a difficult and time consuming task. Very luckily for Ms. Guske,
however, that was not the case here: the Debtor freely admitted he never intended to pay the
debt and thereby set a foundation (perhaps unwittingly) for proving a § 523(a)(2)(A) cause
of action.

       Clearly, the first three elements of fraud have been met at this point: the Debtor made
a representation by signing the dissolution decree that he would pay the $30,000 obligation;
the representation was admittedly knowingly false; and the debtor admittedly intended to
never pay his wife, despite the promise to do so.

        However, the record contains no evidence that Ms. Guske justifiably relied upon the
representation contained in the dissolution decree. We recognize that the standard for
showing justifiable reliance as established by the Supreme Court in Field v. Mans is fairly
low and that a party may justifiably rely on a misrepresentation even when she could have
ascertained its falsity by conducting an investigation. See Sanford Institution for Savings v.
Gallo, 

, 74 (1st Cir. 1998) (citing Restatement (Second) or Torts § 540, 541 cmt.
a (1976)). “However, the reliance on misrepresentations known to the victim to be false or
obviously false is not justified; falsity which could have been discovered by senses during
a cursory glance may not be relied upon.” 

(citations omitted). In other words, if
there are any warning signs (i.e., obvious or known falsities, see Restatement § 541) either
in the documents, in the nature of the transaction, or in the debtor’s conduct or statements,
the creditor has not justifiably relied on his representation. 

case at bar, by signing the consent decree, the Debtor represented that he would
pay Ms. Guske $30,000. There was no evidence that the Debtor made any affirmative
representation to Ms. Guske that he would pay her the money or honor the provisions of the
dissolution decree. To the contrary, as quoted above, the Debtor testified twice that he had
told his wife he never intended to pay her. This testimony set the groundwork for an obvious

                                              6
defense to the § 523(a)(2)(A) action because if the Debtor had told Ms. Guske from the
beginning that he did not intend to pay the debt, there clearly could be no justifiable reliance
on her part.

        Unfortunately, however, no one asked Ms. Guske (who followed the Debtor on the
witness stand) whether the Debtor had ever told her that he did not intend to pay her.
Although Ms. Guske testified from page 69 of the transcript to page 124 of the transcript, the
only statement relevant to reliance came when she said she expected to be paid when they
got the divorce. We recognize that the Bankruptcy Court may have discredited the Debtor’s
testimony on this issue.3 However, it was Ms. Guske who bore the burden of proving she
relied on the Debtor’s representation that he would pay her the $30,000, and that her reliance
was justifiable. Despite being presented with the opportunity and patent reason to do so, she
never rebutted his statement that he had told her that he did not intend to pay the $30,000.
A simple denial by her would have been sufficient to put the issue in play, but her total
silence in response to his direct testimony left that testimony essentially uncontroverted.

        Likewise, we believe Guske’s testimony that she “expected [to receive the money]
when we got the divorce,” without more, is not enough to meet her burden of proving she
justifiably relied on the dissolution decree, particularly considering the Debtor’s
uncontroverted testimony that he would not pay her. Although Ms. Guske was not required
to conduct any investigation as to the truth of the Debtor’s representation by signing the
consent decree that he intended to pay the money, the evidence indicates that there were
“obvious warning signs” of its falsity, namely, that he told her he would not pay it.

      As a result, because the record contains no evidence that the plaintiff met her burden
of proving she justifiably relied upon any alleged misrepresentation by the debtor, we
conclude that the Bankruptcy Court’s determination that the debt to her was


       3
         On the issue of justifiable reliance, the Bankruptcy Court’s Order merely states
“The court finds that Barbara was unaware of [the Debtor’s] intentions at the time of the
signing of the stipulated dissolution of marriage decree,” and that “Barbara justifiably relied
upon these representations and was unaware of Bill’s deceit when she signed the consent
decree.”

                                               7
nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) was clearly erroneous. See Anderson
v. Bessemer City, 

, 573, 

, 1511, 

(1985); In re
Waugh, 

, 711 (8th Cir. 1996); Chamberlain v. Kula (In re Kula), 

,
735 (B.A.P. 8th Cir. 1997).

        Finally, we wish to comment that we believe the appropriateness of a § 523(a)(2)(A)
action in typical cases involving marital obligations is questionable. Although the possibility
exists that a case giving rise to a § 523(a)(2)(A) action in the marital obligation context may
come along, we believe that under normal circumstances, debts arising out of marital
dissolutions are more appropriately addressed under either § 523(a)(5) or § 523(a)(15).

       In this case, the Bankruptcy Court expressly declined to address the alternative §
523(a)(15) action because he determined the debt was nondischargeable under §
523(a)(2)(A). Consequently, we believe it is appropriate to remand the matter for findings
under the alternative § 523(a)(15) cause of action. Upon remand, the bankruptcy court’s
review shall be limited to the evidentiary record previously established in the trial of the
adversary proceeding.

      For the foregoing reasons, the judgment of the Bankruptcy Court is reversed and
remanded for further findings pertaining to the cause of action under § 523(a)(15).

       A true copy.

              Attest:

                        CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
                        EIGHTH CIRCUIT




                                              8