Copy of mercantile agency statement sufficient.

ever, such statements will not support specifications to bar a bankrupt's discharge."

What has heretofore been stated as to the length of time the creditor may rely on a financial statement given by the debtor direct to the creditor, applies with equal force to financial statements issued by the debtor through a mercantile agency.

§ 25. Creditor need not see original statement given by debtor to mercantile agency.

A subscriber of a mercantile agency is not required to see the original statement furnished by the debtor to the mercantile agency, but has a right to rely on a copy of the debtor's statement furnished by the mercantile agency. The statement furnished to a mercantile agency by a debtor, is deemed to be a direct representation to all of the subscribers of the mercantile agency to whom such information is communicated."

790; Hinchman vs. Weeks, 85 Mich. 535, 48 N. W. 790; Cox Shoe Co. vs. Adams, 105 Ia. 402, 75 N. W. 316; Meyer vs. Lederer, 50 Ill. App. 94; Aultman et al. vs. Carr, 16 Tex. Civ. App. 430, 42 S. W. 614; Stevens vs. Ludlum, 46 Minn. 160, 48 N. W. 771.

5. See sec. 69 infra.

6. Aultman et al. vs. Carr, 16 Tex. Civ. App. 430, 42 S. W. 614; Genesee Savings Bank vs. Mich. Barge Co., 52 Mich. 164, 17 N. W. 790.

7. Meyer vs. Lederer, 50 Ill. App. 94; Cox Shoe Co. vs. Adams, 105 Ia. 402, 75 N. W. 316; Eaton vs. Avery, 83 N. Y. 31, 38 Am. Rep. 389.

Financial reports published by debtor.

§ 26. Financial statements and other financial reports published by debtor.

8

False financial statements are frequently contained in annual reports filed by corporations, in articles of association filed by corporations, in articles of partnership filed by partnerships, in returns furnished for tax statements, and in statements furnished to banks. With reference to returns filed for tax purposes, these are usually confidential returns and are kept in the private file of the tax officials. Being confidential reports which are not open to the public, no creditor would ordinarily have the right to rely on information kept in such a file. If a copy of the tax statement were furnished for the purpose of credit, such a statement would be considered the same as any other financial statement made by a debtor to a creditor. A financial statement given to a bank is likewise confidential and private information for the bank, and no creditor would ordinarily have the right to rely upon the same. The case would be different, however, if a copy of the statement were given to a creditor for the purpose of obtaining credit, or if the debtor referred a creditor to the bank's statement, for by such action, the debtor's statement given to the bank would stand in the same position for the purposes of a fraud suit, as though the same statement had been given by the debtor to the creditor. As to statements on file in public

8. See in re Reid, 17 Am. B. R. 477, 155 Fed. 933, and Matter of Velecia Condensed Milk Co. (C. C. A. 7th Cir.), 39 Am. B. R. 232, 240 Fed. 310, to the effect that creditors have no right to use debtor's tax returns as evidence in court proceedings.

Fraudulent intent must be proved.

offices which are open to the general public, e.g., articles of association of a corporation or partnership and annual reports of corporations, these may be relied upon by a creditor without further inquiry of the debtor."

A corporation's statement made to the Secretary of State for the purpose of obtaining permission to do business within the state, according to some decisions, may not be relied upon by creditors for credit purposes. With regard to such a statement, one court said: "Its design was not to procure credit among merchants, but to secure the right to transact business in the state.""

§ 27. Fraudulent intent must be proved.

2

Fraudulent intent must be proved in cases based on false representations. But when the debtor obtains goods on credit, on the strength of a financial statement which he knows to be false, fraudulent in

9. Fletcher on Corporations, Vol. 4, p. 4196. See also Chapter 46 idem.

Silberman vs. Munroe, 104 Mich. 352, 62 N. W. 555; Steel vs. Webster, 188 Mass. 478, 74 N. E. 686; Mayer vs. New England Lithographic Co., 108 Mass. 523; Felker vs. Standard Yarn Co.,. 148 Mass. 226, 19 N. E. 220; Heard vs. Pictorial Press, 182 Mass. 530, 65 N. E. 901.

1. Hunnewell vs. Duxbury, 154 Mass. 286, 28 N. E. 267.

2. In Macullar vs. McKinley, 99 N. Y. 353, 2 N. E. 9, the court said: "The statement of February was not by one asking, expecting or desiring credit. On the contrary he says, 'I pay cash for all my purchases,' implying thereby, 'I ask no credit.' He did not claim to be desirous of any." It was held that this negatived any fraudulent intent.

Fraudulent intent must be proved.

tent will be inferred from the issuance of the statement. "The law infers a purpose to injure from an intentional false statement of fact. When a man knowingly makes a false statement to one who relies on it and suffers injury, the latter's right of action is complete." The injured party is not required to prove as an additional element, a design or purpose to injure, or a specific fraudulent intent.

The debtor is presumed to know his financial condition. Hence if he makes a false representation of a material fact, concerning his financial condition for the purpose of obtaining credit, he must "be presumed to know whether the representation which he makes is true or false." In making a statement for such a purpose, the debtor ought not be heard to say that he was ignorant as to the condition of his business. "A person so situated ought not to be heard to say that he does not know what his firm owns and

3. Farwell vs. Nathan, 99 Ill. App. 185.

4. Miner vs. Medbury, 6 Wis. 295; Montreal River Lbr. Co. vs. Mihills, 80 Wis. 540, 50 N. W. 507; Cox Shoe Co. vs. Adams, 105 Ia. 402, 75 N. W. 316; Johnston vs. Monnell, 2 Key's (N. Y.) 655; Quinesbaug Bank vs. Brewster, 30 Conn. 559 (Contra). This statement of the rule is applied to all cases of fraudulent representation.

5. Morrison vs. Adove, 76 Tex. 255, 13 S. W. 166.

Mechem on Sales, Sec. 892, states the rule as follows: "A false representation unqualifiedly made as of his own knowledge, must be deemed to have been knowingly and wilfully made, though there may, perhaps, be cases where such misrepresentation would be innocent."

Fraudulent intent may be imputed to debtor.

§ 28. Fraudulent intent may be imputed to debtor who negligently issues false statement.

Fraudulent intent may be implied as a matter of law where a debtor makes a false financial statement in reckless disregard of the truth, omitting those ordinary inquiries in his own business, which would have disclosed the untruth of his statement. A materially false statement made by a debtor, in reckless disregard of its truth or falsity, gives to the creditor the same rights as though the debtor had knowingly and fraudulently made some material misrepresentation. Fraudulent intent is imputed to corporate officers who participate in the issuance of false financial statements by the corpo

6. Dime Bank vs. Fletcher, 158 Mich. 162, 122 N. W. 540. In this case Fletcher claimed he did not know of the falsity of the report signed by him, and relied on by the creditor. The court said: "Nor under the facts in this case, is it important whether the untruthful representations were made by him with a knowledge of their falsity or a reckless disregard of their truth or falsity. . . . It must be presumed that all officers making such representations know the facts."

In Ver Wys vs. Vanderweg, 206 Mich. 499, 173 N. W. 504, a stockholder signed a statement in the articles of association as to the value of the assets of the corporation, without actually knowing the contents of the articles. Held: defendant signed in reckless disregard as to whether the statement was true or false and defendant was liable for fraud.

In Hubbard vs. Oliver, 173 Mich. 337, 139 N. W. 77, the trial court instructed the jury, "if the defendant made false representations and knew they were false, or if he made statements of which he had no knowledge, intending, in making them, to defraud the plaintiff, and relying on these statements, the plaintiff was defrauded, the plaintiff could recover.