Ordinarily, creditor not put upon inquiry. does not take advantage of this opportunity, he cannot be heard to impeach the transaction on the ground of the falsehoods of the other party."" This is the rule established in many states. The rule is otherwise in other states." § 41. No diligence required of creditor who has no knowledge of facts which impeach debtor's financial statement. In the matter of extending credit on representations as to debtor's solvency, the creditor has a right to rely on representations made by debtor, in the absence of knowledge of facts to the contrary. This rule seems to be the most reasonable for application to cases involving false financial statements given for credit purposes, where the debtor undertakes to detail facts known to him alone. In this class of cases, where false statements are made by the debtor, and the creditor has no information which impeaches debtor's statements, negligence barring a recovery cannot be charged against the creditor by reason of his failure to make independent investigation of debtor's statements. § 42. Creditor not put upon inquiry as to debtor's statement given to obtain credit. "Where the representation is a statement amounting to the positive assertion of an existing fact, the 7. Mabardy vs. McHugh, 202 Mass. 148, 88 N. E. 894. 8. Ala., Ark., Cal., Conn., Ga., Ind., Ky., Md., Mass., N. J., Ore., Tex., Vt., Minn. 9. Mich., Col., Fla., Mo., Neb., N. Y., Okla. Constructive notice no defense. person to whom it is made has a right to rely upon its truth, and having the right to rely upon it, is not put to his inquiry; and therefore, if the representation be untrue, and he is deceived thereby to his injury, negligence which will preclude his recovery cannot be predicated on his failure to make the inquiry."" § 43. Constructive notice no defense to false financial statement. The debtor's representation may be relied upon by the public if such representation is contained in a public record which is required by law, to be filed for the purpose of showing debtor's financial condition. Constructive notice to a creditor will not relieve a debtor from responsibility for false representations and fraud. 1. Hunt vs. Barker, 22 R. I. 18, 46 Atl. 46. In this case a heating plant was installed in a building, under contract with a husband, on the husband's representation that he was owner of the building, whereas the wife owned the building, the contractor suffering a loss as a result of the husband's false representation. It was held a recovery could be had for fraud, even though the contractor might have found the true status of the title by an investigation of the public records. See also note 2, infra. 2. Backer vs. Pyne, 130 Ind. 288, 30 N. E. 21; Converse vs. Blumrich, 14 Mich. 109. In David vs. Park, 103 Mass. 571, the seller of a patent right fraudulently represented as of his own knowledge that his invention was not covered by any other patent. The court said: "A statement of such a fact by a seller, knowing it to be false, and with intent to deceive the Constructive notice no defense. buyer, and on which the buyer acts to his own injury, will sustain an action of deceit, even if the buyer might have discovered the fraud by searching the records of the patent office." In Dodge vs. Pope, 93 Ind. 480, defendant sold mortgage notes to plaintiff on the representation that these were secured by first mortgage, when as a matter of fact they were a second lien. Plaintiff did not examine the title records. Held: "If a party makes an express statement that there is no mortgage on the land in which he endeavors to sell an interest, he is bound, notwithstanding the fact that an examination of the record would have disclosd the existence of a prior mortgage." Defendant was held for fraud. CHAPTER V. CREDITOR'S ACTIONS ON FALSE FINANCIAL STATE MENTS. Section 44. Actions on false financial statements. 45. Action may be brought immediately. 46. The fraud declaration or complaint. 47. Specific facts showing falsity must be set forth. 49. Debtor required to explain sudden shrinkage. 51. Proof of debtor's financial condition before and 52. Persons liable for issuing of false financial statements. 53. Persons to be joined as parties defendant. 54. Financial statements as proof in other legal pro ceedings. 55. Damages which creditor may recover. 56. Defenses. 57. Dealings with debtor which affect question of waiver. 58. Question of waiver, continued. 59. Defenses, continued: where creditor is placed on inquiry as to the correctness of debtor's statement. 60. Defenses, continued: where statement is too old. § 44. Actions on false financial statements. Various legal remedies may be had by a creditor against a debtor who has obtained property on credit, on the strength of a false financial statement.* 3. The remedies of the seller are fixed in many jurisdictions by the uniform sales law recently enacted in the various states. Actions on false financial statements. In this section, we shall discuss only those remedies of the creditor, which may be had in civil proceedings. (a) They include a tort action for damages, based on debtor's fraud, accompanied by a body execution if desired by the creditor. Such execution may be preliminary, by way of capias. It may issue on the entry of suit. If a capias does not issue on the entry of suit, a body execution may issue after judgment is obtained, upon which the body of the defendant may be seized (except in some states, in the case of females) and the person so held, may be placed in jail until he is released according to law. (b) The creditor may rescind the sale and repossess himself of his property. If the creditor recovers only a part of his goods, he may have his remedy against the debtor for deceit, and recover a fraud judgment for the value of the goods not recovered, plus interest, as the measure of his damages. (c) On the other hand, the element of deceit may be waived and suit for damages for fraud may be entered, the damage being, in such case, the loss of the creditor resulting from the wrongful conduct of the debtor in obtaining property on a false statement. 5 4. Jordon vs. Hall, 9 R. I. 218; Ex Parte Morton, 196 Mass. 21, 81 N. E. 869. 5. If bankruptcy proceedings have intervened before a recovery of the creditor's goods takes place, the creditor may file a petition for reclamation in the bankruptcy court to reclaim his goods on account of the debtor's fraud. See Sec. 83 et seq as to reclamations in bankruptcy. |