United States Bankruptcy Appellate Panel
                            FOR THE EIGHTH CIRCUIT


                                        No. 08-6028


In re:                                       *
                                             *
Dwayne Shearder Eccles and                   *
Priska Jolanka Eccles,                       *
                                             *
         Debtors.                            *
                                             *
                                             *        Appeal from the United States
Larry J. Fee and Brenda Fee,                 *        Bankruptcy Court for the
                                             *        Western District of Missouri
         Plaintiffs - Appellees.             *
                                             *
               v.                            *
                                             *
Dwayne Shearder Eccles and                   *
Priska Jolanka Eccles,                       *
                                             *
         Defendants - Appellants.            *
                                             *


                                   Submitted May 21, 2009
                                     Filed: June 8, 2009


Before KRESSEL, Chief Judge, MAHONEY, and SALADINO, Bankruptcy Judges


MAHONEY, Bankruptcy Judge.
      Debtors/Appellants appeal from the judgment entered by the bankruptcy court1
which determined that a debt owed to the appellees is non-dischargeable under 11
U.S.C. § 523(a)(2)(A) as having been incurred as a result of actual fraud. We affirm.

                          I. FACTUAL BACKGROUND

       The Debtors, Dwayne and Priska Eccles, moved to southwest Missouri from
California in December 2005. Prior to moving to Missouri, they purchased two pieces
of property in the Branson area. They moved into the house located at 23 Lake Point
Lane, Galena, Missouri (the "Lake Point property"), and rented out the property in
Kirbyville, Missouri. The Debtors met Larry and Brenda Fee shortly after they moved
to Missouri and the two couples became friends and had similar interests concerning
real estate. The Fees owned several properties and the Debtors had come to Missouri
to purchase houses, renovate them and resell them. They had taken a seminar in real
estate investing and, at the time they moved to Missouri, they owned property in
Kansas, Las Vegas, and Missouri.

      In May 2006, the Debtors bought six houses located next to one another in
Reeds Spring, Missouri. They paid a down payment of $20,000 on the sale price of
$185,000 and the seller financed the balance. Priska Eccles testified that the Debtors
bought the Reeds Spring properties for the purposes of fixing up the dilapidated
houses on the properties and reselling them. Based on an estimate the Debtors
obtained from the contractor they hoped to employ to help renovate the properties, the
Debtors estimated it would take approximately $120,000 to sufficiently renovate the
properties for resale.




      1
        The Honorable Jerry Venters, United States Bankruptcy Judge for the Western
District of Missouri.

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      When the Debtors arrived in Missouri in 2005, they had significant funds
representing the proceeds of the home they had sold in California. They used those
proceeds for living expenses during the winter of 2005-2006, but by the time they
purchased the Reeds Spring properties they had insufficient funds available to pay for
the material and labor necessary to renovate the properties. Neither Mr. nor Mrs.
Eccles obtained full time employment to cover their living expenses.

      When the Eccles began looking for financing, the Fees suggested they contact
Pamela Barry, a longtime friend of and mortgage broker for the Fees. Ms. Barry was
unable to find conventional financing and, at Ms. Barry's suggestion, the Debtors
entered into discussions with the Fees for a loan to fund the project.

       The Debtors had estimated that the total project would cost $120,000 and
anticipated it would take approximately one month and $20,000 to renovate each
house. Prior to agreeing to loan them money, the Fees insisted on an appraisal to
assure themselves that, after renovation, the houses would sell for enough to pay off
the seller financing and repay the Fees their loan amounts plus interest. Once the Fees
were satisfied that the project was feasible, the Debtors executed six six-month
promissory notes for $20,000. Each note was secured by a separate deed of trust on
one of the houses to be renovated. The notes were executed on November 6, 2006, and
matured on May 31, 2007.

      Rather than restricting the use of the funds to material and labor expenditures
on the project, the Debtors immediately began using the proceeds for general living
expenses, including health insurance, mortgage payments on other properties,
automobile loans, and child care. On the date the Debtors received the loan proceeds
– $114,563.86 after closing costs – the Debtors had approximately $6,500 remaining
from the California house proceeds in the bank and no other income. By the end of
November 2006, the Debtors had spent more than $31,000 of which no more than
$13,000 was used on the project. From the end of November 2006 to March 2007, the

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Debtors devoted little or no money to the project, other than approximately $1,000
spent on carpeting in March. At a trial, the Debtors testified that the project had to be
put on hold because their contractor broke his toe. Even though the project was placed
on hold, the Debtors continued spending the loan proceeds. In December 2006, they
spent $42,000 on toys for their children, eating out, groceries, more mortgage
payments, a new roof on the Lake Point property, a down payment on a new home
located at 330 Meadow Ridge North in Branson, Missouri, and furniture for their new
home. In January 2007, the Debtors spent another $19,000, including $1,679 on a
large-screen television, and $1,584 on furniture for the Meadow Ridge property. They
spent about $19,000 in February, and by March the Debtors had essentially run out
of money.

       At the end of April, the Debtors told the Fees that they could not finish the
project and could not pay the money they owed the Fees. The Fees then sued in state
court alleging fraud and seeking the imposition of a constructive trust on the other
properties owned by the Debtors. The Debtors filed for protection under Chapter 7 of
the Bankruptcy Code on September 29, 2007.

                           II. STANDARD OF REVIEW

      The bankruptcy court's findings of fact are reviewed for clear error and its
conclusions of law are reviewed de novo. First Nat’l Bank of Olathe v. Pontow (In re
Pontow), 

, 609 (8th Cir. 1997); Sholdan v. Dietz (In re Sholdan), 

, 888 (8th Cir. 1997); Fed. R. Bankr. P. 8013. The determination of whether
a requisite element of a claim under § 523(a)(2)(A) is present is a factual
determination which is reviewed for clear error. Lindau v. Nelson (In re Nelson), 

, 512 (B.A.P. 8th Cir. 2006); Merchants Nat’l Bank of Winona v. Moen (In
re Moen), 

, 790 (B.A.P. 8th Cir. 1999). We will not set aside the
bankruptcy court's findings of fact unless those findings are clearly erroneous. Fed.
R. Bankr. P. 8013. A finding is clearly erroneous if, after examining the entire record,

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we are left with a definite and firm conviction that the bankruptcy court has made a
mistake. Anderson v. City of Bessemer City, 

, 573 (1985). Also, when
reviewing the evidentiary record, we will give due deference to the bankruptcy court's
opportunity to judge the credibility of witnesses. Fed. R. Bankr. P. 8013.

                                  III. DISCUSSION

        In the bankruptcy court, the Fees filed an adversary proceeding requesting a
judgment of non-dischargeability under 11 U.S.C. § 523(a)(2)(A) based upon their
contention that the debt was incurred through actual fraud. Section 523(a)(2)(A)
excepts from discharge "any debt or money, property, services, or an extension, or
renewal, or refinancing of credit, to the extent obtained by — (A) false pretenses, a
false representation, or actual fraud, other than a statement respecting the debtor's or
insider's financial condition." To prove actual fraud, a creditor must prove the
following by a preponderance of the evidence: (1) the debtor made a false
representation; (2) at the time the representation was made the debtor knew it was
false; (3) the debtor subjectively intended to deceive the creditor at the time he made
the representation; (4) the creditor justifiably relied upon the representation; and (5)
the creditor was damaged. Universal Bank, N.A. v. Grause (In re Grause), 

, 99 (B.A.P. 8th Cir. 2000) (citing Thul v. Ophaug (In re Ophaug), 

,
342 n.1 (8th Cir. 1987), as supplemented by Field v. Mans, 

(1995)); Blue
Skies, Inc. v. Preece (In re Preece), 

, 652 (B.A.P. 8th Cir. 2007).

       The Debtors admitted at trial that the primary purpose of the loan was to pay
for the renovation of the Reeds Spring properties. However, they asserted at trial that
renovating the properties was not the only purpose of the loan and that they never
represented that they would not use the loan proceeds for any other purpose.

      The bankruptcy court found as a fact that the Debtors made a false
representation when they specifically requested the use of the loan proceeds to

                                           5
renovate the houses, but omitted to inform the Fees that they intended to use the funds
for other things, including living expenses. Silence regarding a material fact can
constitute a false representation actionable under § 523(a)(2)(A). Caspers v. Van
Horne (In re Van Horne), 

, 1288 (8th Cir. 1987). In addition, the court
decided this issue on the credibility of the witnesses. The Fees testified that it was
clear from their conversation with the Debtors that the loan proceeds were going to
be used solely to renovate the Reeds Spring properties.

      Deference is to be given to the credibility findings of the trial court. The factual
finding of false representation is not clearly erroneous.

      Similarly, the bankruptcy court made factual findings on the second and third
elements of § 523(a)(2)(A) that the Eccles intended all along to use the loan proceeds
for purposes other than renovation of the Reeds Spring properties and that they
intended to deceive the Fees so that they could get the money to use for their own
purposes. Such a factual finding is not clearly erroneous.

       The bankruptcy court then made a factual finding that the Fees justifiably relied
on the Debtors' representation that the loan proceeds would be used solely for the
renovation project. The reliance prong of § 523(a)(2)(A) does not require the creditor
to prove that its reliance on the Debtor's misrepresentation was reasonable; rather, the
creditor’s reliance need only be "justifiable." Field v. 

.
Justifiable reliance does not require an investigation, even if the failure to investigate
would be considered negligent and the falsity of the representation would be readily
discovered upon investigation. 

. Applying that standard, the
bankruptcy court found that the Fees justifiably relied on the Debtors' representation
that the loan proceeds were to be used solely for the renovation project.

      The bankruptcy court made such a finding on the testimony of the Fees that
they did not suspect the Debtors needed the funds for their daily living and that they

                                            6
believed Dwayne Eccles either had, or hoped to have, full time employment with
United Parcel Service. The factual finding that the Fees justifiably relied on the
Debtors' representation that the loan proceeds would be used solely for the renovation
project is not clearly erroneous.

      The bankruptcy court made a factual finding that the Fees were damaged by the
fraudulent misrepresentation. Support for such a finding is in the fact that $120,000
was loaned and very little was paid back. This factual finding is not clearly erroneous.

                                   CONCLUSION

      The bankruptcy court's findings of fact that the Debtors obtained monies from
the Fees through actual fraud is supported by the evidence and is not clearly
erroneous. The judgment of the bankruptcy court is affirmed.




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