Opinion
No. 78 B 606
January 24, 1979
Debts Not Affected by Discharge — False Financial Statement — Unreasonable Reliance
A creditor acted unreasonably when, without further investigation, it extended credit to a bankrupt based on what it knew to be a false financial statement. Its reliance on the statement having been unjustified, the creditor failed in its attempt to have the debt declared non-dischargeable.
The creditor was a finance company that had made a loan to the bankrupt. It alleged that the bankrupt's financial statement was materially and intentionally false. Thus, the creditor sought a determination that the debt was non-dischargeable.
The court noted that all of the essential elements required to be found in order to grant the application under Section 17a(2) of the Bankruptcy Act had either been established by clear and convincing evidence or were undisputed, except the creditor's reliance and the bankrupt's intent to deceive. Where no reliance is shown, observed the court, relief must be denied. Moreover, unreasonable reliance is no reliance at all, and will not bar the dischargeability of the bankrupt's debt.
Knowing at the outset that the bankrupt's financial statement was inaccurate, the creditor had no right to rely on it. Its reliance was therefore unjustified, and the creditor acted unreasonably in extending credit to the bankrupt based upon that financial statement without further investigation. Moreover, the creditor failed to offer any testimony that it had, in fact, relied upon the financial statement. In addition, there was no evidence of intent by the bankrupt to defraud the creditor. Thus, the court declared the debt to be dischargeable. See Sec. 17a(2) [§ 523(a)(2)] at ¶ 9228.