Prior and subsequent financial condition.

ing claims against the debtor at the time of the making of the representation. This presents a great practical difficulty, as it is usual, in most cases, that the various creditors reside in various places, some of which may be remote from the residence of the debtor. In order to prove the falsity of the representation as to liabilities, it might thus become necessary to take depositions in many places, the difficulty and expense attending the taking of testimony in this way, making the burden unbearable for the creditor who asserts falsity in a financial statement as regards the debtor's liabilities."

§ 51. Proof of debtor's financial condition before and after the date of financial statement.

The financial condition of the debtor, both before and after the giving of the false financial statement, together with other information relating to debtor's business shortly before and after the giving of the financial statement, is competent evidence. The evi

7. Such proofs might, in some cases, be secured through the admissions of the debtor. Debtor's testimony is frequently given in bankruptcy court. He may be asked regarding the claims filed by creditors, whether such claims are correct and whether they represent liabilities on the date of the issuance of debtor's financial statement. If the debtor admits the correctness of these claims and such admission tends to establish falsity in his financial statement as to liabilities, his admission may be used in a fraud action based upon the financial statement. The debtor's books, bank accounts, cancelled vouchers, and other business records provide valuable evidence of the debtor's financial condition.

8. Krolik vs. Lang, 187 Mich. 286, 153 N. W. 686.

Persons liable for fraud.

dence as to what was the condition of the debtor shortly before and shortly after the giving of the false financial statement, can only be relevant and competent if it goes to show that the debtor's condition could not have been such as was represented in his financial statement.

§ 52. Persons liable for issuing of false financial statements.

All parties who participate in the giving of a false financial statement are chargeable with the legal consequences of issuing the same.1 So also are all parties who knowingly accept benefits derived as a result of the issuance of a false financial statement. In cases of partnership, the general rule is that each partner, whether he participated in the issuance of the false financial statement or not, is held to be liable in damages for fraud." However, in bankruptcy proceedings, a discharge will not be denied a partner who has not participated in the issuance of a false financial statement, even though the partnership interests benefited, the indirect benefit re

1. Ovid First Nat'l Bank vs. Steel, 136 Mich. 588, 99 N. W. 786; Craig vs. Ward, 3 Abb. Pr. (N. S.) 235.

2. Banner vs. Schessinger, 109 Mich. 262, 67 N. W. 116; Haney Mfg. Co. vs. Perkins, 78 Mich. 1, 43 N. W. 1073; Levy vs. Abramsohn, 81 N. Y. Suppl. 344; Coman vs. Allen, 21 Howard's Practice (N. Y.) 114; Strang vs. Bradner, 114 U. S. 555, 5 Sup. Ct. Rep. 1038, affg. 89 N. Y. 299; Lothrop vs. Adams, 133 Mass. 471; Story on Partnership, p. 108. This rule is based on the fact that each partner, as regards the conduct of the partnership business, is the agent of the other partners.

Persons to be joined as defendants.

sulting to the partner who did not participate in the issuance of such false financial statement being held too remote to furnish a basis for a bar to his discharge.3

§ 53. Persons to be joined as parties defendant.

For the purposes of suit, those persons who have knowingly aided in the perpetration of the fraud on a creditor, may be joined in one action. The creditor is not bound to join all parties who aided in perpetrating the fraud.* Action may be brought against those parties alone, who gave the statement, or against others who have a legal liability (not joint) for the fraud thus perpetrated. In the case of a false financial statement issued on behalf of a partnership or on behalf of other parties who have a joint liability, all those who are jointly liable must be joined in a fraud action brought by the creditor." This is true although but one party, of those jointly liable, issued the statement on behalf of the partnership or other joint association. Where an agent issues a false statement on behalf of a principal in the course of the principal's business and within

3. See Sec. 73.

4. Montreal Bank vs. Thayer, 7 Fed. 622; Harlow vs. Haynes, 63 Miss. 98.

5. Gilbert vs. Lodge, 80 Ga. 284, 4 S. E. 905. Where the act in issuing a false financial statement legally constitutes an intentional wrong, all those who participate in issuing the statement may be sued jointly or severally. 1 Cooley on Torts, 3rd ed., p. 223; Cascarella vs. National Grocer Co., 151 Mich. 18, 114 N. W. 857.

Financial statements in other proceedings.

the scope of the agency, either the agent or the principal may be held, and according to the great weight of authority, both agent and principal may be held liable."

§ 54. Financial statements as proof in other legal proceedings.

False financial statements may be used on collateral issues. In cases which involve the concealment of assets, financial statements are competent to prove the debtor's claims and admissions as to what assets he had at various times shortly before his failure. Such financial statements are invaluable for proof of fraud in cases where a party who is conducting an apparently prosperous business, suddenly becoming insolvent, shows an extraordinary shrinkage in his assets. Financial statements are also invaluable in defeating fraudulent claims asserted by relatives, the financial statements showing in many cases that no such relatives' claims exist against the business. While the debtor's statement would not be binding on the relative, still it places in the hands of an assignee or trustee, substantive evidence to disprove false claims made subsequently by the bankrupt, to the effect that he owes money to relatives."

6. Section 2011, page 1580, Mechem on Agency (2d ed.); Rhoda vs. Annis, 75 Me. 17.

7. Eberline vs. Prager, 209 Mich. 322, 176 N. W. 428.

8. In re Steinberg, 45 Am. B. R. 666.

Defenses.

§ 55. Damages which creditor may recover.

The rules relating to damages in fraud cases generally, are followed in fraud cases based upon false financial statements. What is recognized in law as an injury, must be proved by the creditor, in order to recover even nominal damages. But if a legal injury is proved, the complaining party is entitled to recover at least nominal damages. Where a debtor, by means of a false financial statement, obtains an extension of time on an indebtedness and becomes a bankrupt within a few days thereafter, the forbearance of the creditor in granting the extension of time would be considered sufficient injury to sustain a judgment for at least nominal damages, and where more than nominal loss to the creditor is proved, all such loss or damage may be recovered on account of the debtor's fraud.

§ 56. Defenses.

The debtor who has participated in any way in the issuance of a false financial statement and has succeeded in obtaining credit on the strength of such statement, is not necessarily liable in damages for fraud. There are many ways in which the creditor may lose the right to pursue the debtor in a fraud action.

The creditor will be held to have waived the fraud if he delivers property to the debtor, on credit, after knowledge of the falsity of the debtor's financial statement. Any loss sustained under such

9. Pryor vs. Foster, 130 N. Y. 171, 29 N. E. 123, 124.