Action may be brought immediately.

§ 45. Action may be brought immediately.

In either of the cases above mentioned, a fraud action may be brought immediately following the consummation of the fraud and the defrauded creditor need not wait until the maturity of a note or other obligation which may have been issued by the fraudulent debtor in connection with the fraudulent purchase on credit. A creditor who has been defrauded by means of a false financial statement, is not required to withhold legal action until the account matures. He may rescind at once and sue for the recovery of his goods, or he may sue at once for damages for deceit or fraud.' But he may

6. Thomas vs. Dickinson, 67 Hun 356, 22 N. Y. Suppl. 260; Cain vs. Dickinson, 60 N. H. 371. The defrauded vendor is held to have sustained at least nominal damages.

7. Manufacturers & Mechanics Bank vs. Gore, 15 Mass. 74, 8 Am. Dec. 83; Heilbrown vs. Herzog, 165 N. Y. 98, 58 N. E. 759; Roth vs. Palmer, 27 Barb. 652; Effens vs. McGrath, 3 N. Y. Supp. 213; Jaffray vs. Wolf, 4 Okla. 303; Barrett vs. Koella, 2 Fed. Cas. 1048; see also Galloway vs. Holmes, 1 Doug. Mich. 330.

There are decisions which present an apparent conflict of authority in reference to this rule. An examination of the facts in these cases will undoubtedly disclose that suit was brought for the recovery of the price of the goods, such action being in affirmance of the contract between buyer and seller. It follows of course, that if the seller affirms the contract, he binds himself to all of its terms including the term of the credit. The cases are otherwise where the seller discovers the fraud and rescinds. In the latter case, the rescission puts an end to the contract of sale and the seller may sue for the damage caused by the buyer's fraud and deceit. In such a case, the seller will

The fraud declaration or complaint.

not waive the fraud and then sue for the goods when the account matures, for the waiver of the fraud operates as an affirmance of the contract of sale made with the debtor.

§ 46. The fraud declaration or complaint.

Plaintiff is required to show in his declaration or complaint, the actual facts making out a case of fraud. The declaration or complaint must show representations as to debtor's financial responsibility. Such representations must be material in their character, must relate directly to the financial responsibility of the debtor, and must relate to existing facts. The declaration or complaint must set forth the falsity of the representations, must set forth that the representations were made in order to induce the seller to deliver property to the buyer on credit, and must set forth that the creditor relied upon the representations to his damage. In many states it is necessary, in addition, to set forth a statement as to the fraudulent intent on the part of the debtor in making a false representation." In case the debtor's false statement was communicated to the creditor through a mercantile agency

not be bound by the terms of the contract of sale, and the credit term being part of the rescinded contract, it must fall with the rest of the contract.

8. See Sec. 27 as to necessity for proving fraudulent intent. Scienter must be alleged in plaintiff's declaration or complaint in the following states: Ala., Col., Fla., Ga., Ill., Md., Ken., Kan., Ind., Mass., Miss., Mo., N. H., N. Y., Ore., Pa., S. C., Vt., Wash., Wis.

UNIV. OF

Evidence, burden of proof, intent, etc.

or through some other third party, it must be alleged that the debtor made the statement to such third party with the intention of having it communicated to various persons or classes of persons for credit purposes.

§ 47. Specific facts showing falsity, must be set forth. In the declaration or complaint, the particular falsity charged, must be set out in detail, and a mere statement that the financial statement was false "as to assets" or "as to liabilities" will not be sufficient. The details in which the statement is false must be set forth in the declaration or complaint and must be proved on the trial."

§ 48. Sufficiency of evidence, burden of proof, presumptions, intent.

Plaintiff is required to make out a case of fraud by a preponderance of the evidence.1

A person who issues a statement showing his financial condition, is presumed to know what his financial condition is. He is ordinarily chargeable

9. See appendix, pages 247-53 for forms of declaration for fraud in obtaining goods on credit on a false financial statement; also forms for affidavits for writ of capias in such actions.

1. Barron vs. International Trust Co., 184 Mass. 440, 68 N. E. 831; Willoughby vs. Fredonia Nat'l Bank, 75 N. Y. Supr. Ct. 275, 68 Hun 275, 23 N. Y. Suppl. 46.

2. Johnson vs. Monnell, 2 Keys (N. Y.) 655; Cox Shoe Co. vs. Adams, 105 Ia. 402, 75 N. W. 316. See also Sec. 27.

Debtor required to explain sudden shrinkage.

with knowledge of those things which his business records disclose. This applies with equal force to his indebtedness, to his inventory, to his sales, and to all other conditions in his business which are material in obtaining credit. The conduct of the defendant subsequent to the alleged fraud may be shown, if it tends to prove conditions existing at the time the representations were made, or if it bears directly on the alleged fraudulent intent of the defendant."

§ 49. Debtor required to explain sudden shrinkage. Where the debtor has made a financial statement of recent date, showing a net worth of a substantial amount, and becomes insolvent shortly thereafter, the debtor is required to account for the sudden shrinkage in his assets. His failure to account for the shrinkage may be considered with the other

3. See Sec. 27.

4. In Krolik vs. Lang, 187 Mich. 286, 153 N. W. 686, the debtor, Lang, gave a false statement showing a net worth of several thousand dollars, and shortly thereafter became insolvent. The court admitted testimony showing that defendant's banker bought the debtor's former assets on mortgage foreclosure sale for a small fraction of the amount which debtor claimed as his net worth a few months before. The court further permitted proof of the transfer of those assets to debtor's wife, of the organization of a corporation to which she transferred said assets and allowed evidence to be introduced showing that debtor was manager of the corporate business. See also Warfield vs. Clark, 118 Ia. 69, 91 N. W. 833.

Particular proofs as to falsity.

evidence in the case, in determining whether debtor was guilty of fraud."

§ 50. Proof of financial statements, continued: particular proofs as to falsity.

The charge of falsity in the making of a financial statement must be supported by proof of the facts so charged. If the falsity relates to the statement as to assets, evidence must be offered to show the untruth of the representations set forth by the debtor as regards his assets at the time he made the financial statement." If the charge of fraud rests upon an alleged false representation as to the amount of liabilities, the falsity in this respect may have to be proved by the testimony of creditors hav

5. In Mooney vs. Davis, 75 Mich. 188, 42 N. W. 802, debtor in March, 1887, showed a surplus or net worth of $36,000 and became insolvent in December, 1887. Debtor being unable to show any recent reverses, and being unable to account for the shrinkage, it was held that debtor's financial statement of March, 1887, in connection with the other facts in the case, would support an inference of fraud in the issuance of debtor's financial statement.

In Silberman vs. Monroe, 104 Mich. 352, 355, 62 N. W. 555, a shrinkage of $240,000 in eight months' time was unexplained. It was held to be evidence of the untruthfulness of the financial statement.

6. This may be aided (a) by inventories, (b) by contemporaneous financial statements of the debtor, (c) by less recent statements of the condition of the business, adding purchases, deducting sales and expenses, and (d) by direct testimony of qualified witnesses who saw debtor's stock at the time of the making of the financial statement in question.