Representations as to gains made in business.

which his net worth is determined, in order to support a fraud action based on debtor's false representation as to net worth. If a computation as shown, is false either as to assets or as to liabilities the fact that the net worth is correctly stated, will not excuse the debtor from liability if the misrepresentation is fradulent. A representation as to net worth is often an aid in proving falsity as to the showing of assets or liabilities in the debtor's financial statement.

9

§ 21. False representations as to gains made in busi

ness.

Good business practice requires a creditor to know whether the debtor is losing, or making progress in his business. A business which is losing ground is not considered the best class of credit risk. This being true, false representations as to gains made in the business, when in fact the business is losing, will support fraud proceedings.'

10

9. See contra, Gerner vs. Yates, 61 Nebr. 100, 85 N. W. 596. See in re Maaget (D. C. Wyo.), 40 Am. B. R. 221, 245 Fed. 84. See also In re Reed, 43 Am. B. R. 132, 256 Fed. 412. See note 5, section 74, infra.

10. Krolik vs. Lang, 187 Mich. 286, 153 N. W. 686. In this case the debtor had given out two earlier financial statements, the third statement showing a large gain in net resources, whereas there had been no such gain. The Court said (p. 291): "Error is assigned on the admission, against objection, of two financial statements given plaintiffs by defendant prior to the time of giving the one upon which fraud is alleged. These statements showed a financial gain in defendant's business up

Continuing effect of representation.

§ 22. Continuing effect of representation.

Where the transaction between debtor and creditor consists of a single purchase, and a financial statement is given for the purpose of such purchase, representations made at that time are not to be deemed guarantees of the continuance of the existing condition.' The truth or falsity of such representations must be determined as of the time of the making of the statement.

A different rule arises where a financial statement is given for the purpose of obtaining general credit. In such case, it is assumed that the statement is given for the purpose of a series of purchases or other transactions, and the debtor's representations are considered as continuing for a reasonable length of

to and including the time the statement of February 18, 1910, was made, and were introduced as an element tending not only to show plaintiffs were deceived, but, in the light of subsequent events, an intent on the part of defendant to deceive."

In Cincinnati Cooperage Co. vs. Gaul, 170 Pa. 545, 32 Atl. 1093, debtor wrote back to creditor in response to an inquiry as to debtor's financial condition: "I am in better condition than ever I was. Debtor became insolvent two months later. Held, defendant's representation may well be held to be considered as an assurance of debtor's solvency. Recovery for fraud was allowed.

In Prescott vs. Houghney, 65 Fed. 653, defendant bank advertised that it was doing a large business and was in prospering condition, when in fact it was insolvent. On the strength of these representations it obtained large deposits from plaintiffs, after which the bank failed. The bank's officers were held liable in fraud.

1. Morris vs. Talcott, 96 N. Y. 100.

Continuing effect of representation.

time. In the latter class of cases, the creditor, or other claimant, has a right to rely on the continuance of the conditions as represented.2

2. Mechem on Sales, sec. 896; Krolik vs. Lang, 187 Mich. 286, 153 N. W. 686.

In Atlas Shoe Co. vs. Bechard, 102 Me. 197, 69 Atl. 390; Henery vs. Dennis, 45 Me. 24, 49 Atl. 58; Wells vs. Cook, 16 Ohio St. 67, 88 Am. Dec. 444, it was held that creditors may rely on a debtor's financial statement during the time elapsing between the issuance of regular periodic statements, if such periodic statements are issued.

In Reid vs. Kempe, 74 Minn. 474, 77 N. W. 413, it was held that the creditor, in extending credit, has no right to rely on a financial statement issued by debtor 15 to 18 months prior to the extension of such credit.

In Lowden vs. Fisk, (not reported) Tex. Civil App., 27 S. W. 180, it was held that a creditor may rely upon a financial statement issued one year prior to the extension of credit on such statement. It was also held that the right of the creditor to rely upon any financial statement is a question for court and jury as to how far the statement influenced the credit.

In Cox Shoe Co. vs. Adams, 105 Ia. 402, 75 N. W. 316, it was held that the right of a creditor to rely on a financial statement issued by a debtor some time prior to the proposed extension of credit to such debtor, is a question for court and jury, who should determine how far the statement influenced the credit.

In Richardson Dry Goods Co. vs. Goodkind, 22 Mont. 462, 56 Pac. 1079, it was held to be a question for the jury as to how long creditors have the right to continue to rely on a financial statement of a debtor in extending credit to him.

See matter of B. & R. Glove Corporation, 48 Am. B. R. 329, 279 Fed. 372, where it was held a financial statement seven months old could not be relied upon on account of changes caused by an extreme business depression.

Continuing effect of representation.

§ 23. Continuing effect of representation: illustrative

cases.

In Krolik vs. Lang, 187 Mich. 286, 153 N.W. 686, a statement fifteen months old, which contained false representations as to assets and liabilities, was held to support a fraud suit against the debtor. In Mooney vs. Davis, 75 Mich. 188, 191, 42 N. W. 802, a statement fifteen months old was referred to, by the debtor, and approved by him as showing the financial condition of his business. It was held such financial statement, though given fifteen months earlier, was relevant evidence on the subject of the debtor's fraud in obtaining credit and was not too remote. In Levy vs. Abrahamson, 81 N. Y. Supp. 344, it was held that a creditor had the right to rely on a financial statement which was given six months prior to the day the credit was extended. In Gray-Hamilton Furniture Company, 9 Am. B. R. 65, 117 Fed. 774, a statement had been given nine months prior to the extension of credit, and it was held that a recovery could be had for false representations made in the statement. In re Braverman, 28 Am. B. R. 513, the court held that a statement which had been given eighteen months prior to the extension of credit, could not be used as a basis for the recovery of damages for fraud. The court held that the seller has no legal right to rely on such a statement, as it did not show the present financial condition of the debtor. In re Cotton & Preston, 25

3. Morris vs. Talcott, 96 N. Y. 100; Macullar vs. McKinley, 99 N. Y. 353, 2 N. E. 9.

Mercantile agency statements.

Am. B. R. 524, 183 Fed. 181, 190, eighteen months had elapsed after the giving of a financial statement by the debtor. Notwithstanding, a recovery was allowed. In re Kean, 38 Am. B. R. 629-30 (Dis. Ct. of N. J.) it was held that a statement made out two years previously, which was given to a mercantile agency, could not be relied on, by a creditor, without additional inquiry. The court held that in the extension of credit, such a statement could not have been in the contemplation of the creditor, as a basis for the extension of credit. In Sharpless vs. Gummey, 166 Pa. St. 199, 30 Atl. 1127, two years had elapsed before the creditor extended credit on the strength of the debtors' financial statement. It was held that a creditor is not justified in extending credit in reliance on a financial statement which shows the condition of the debtor's business two years prior.

§ 24. False financial statements published through mercantile agencies.

False financial statements published through mercantile agencies, if given for publication to the trade as a basis for credit, will sustain an action for fraud in case credit is extended in reliance thereon, to the party giving out such statements.

The legal effect of giving such statements to a mercantile agency is, so far as civil suits are concerned, the equivalent of issuing the statements direct to the creditor who relied on them. How

4. Eaton vs. Avery, 83 N. Y. 31, 38 Am. Rep. 389; Genesee Savings Bank vs. Mich. Barge Co., 52 Mich. 164, 17 N. W.