This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The nature of fraud whether the basis of a judgment, as under the act of 1898, or whether a claim not in judgment as under other bankrupt acts, must next be considered. The term " fraud " means positive fraud, and implies some degree of moral turpitude.1 To fall within this clause of the statute the debt must have been created by fraud. Fraudulent conduct after the debt has been created does not bring it within this class.2 Hence a debt which arises from an overpayment by a mistake which the party receiving it declines to refund, is not a debt created by fraud.3 A judgment rendered in favor of a father against one who has seduced the former's daughter not under promise of marriage is not a " debt created by fraud."4 " Fraud " means fraud whereby the bankrupt deceives his creditor and induces him to extend credit. It has no reference to fraud which the bankrupt and his creditor have conspired to practice on a third person. Hence if A buys on credit from B under an agreement to defraud B's creditors, A's debt to B is not incurred through " fraud "; and hence is barred by A's discharge in bankruptcy.5 Actual fraud is included within the bankrupt acts. A debt incurred in the purchase of goods by one who does not intend to pay for them, but to resell them and appropriate the proceeds,6 or by one who induces the sale on credit by false and fraudulent statements as to his own financial condition,7 or by false representations as to the condition of his business and the profits thereof8 is created by fraud. So is a loan, induced by fraudulently giving worthless bonds as security therefor.9 So is an accommodation note fraudulently procured by false representations that accommodation notes executed prior thereto had not been put into circulation.10 So is a note and mortgage which A induces X to execute to B, to obtain a loan from B to X, where A concealed from X the fact that A was indebted to B and that A had used the money derived from this loan in part to pay off his own debt to B, instead of using it to discharge a debt owing from X, as he promised to do.11 Advances of money obtained by false and fraudulent representations that the debtor had a certain amount of wood cut and ready for shipment, and that he had contracted for the sale of it at a certain price, constitute a debt created by means of fraud involving moral turpitude and intentional wrong. Such debt is not barred by a discharge under the bankrupt act of 1867.12
7 Watertown Carriage Co. v. Hall, 176 N. Y. 313; 68 N. E. 629.
1 Noble v. Hammond, 129 U. S. 65; reversing 57 Vt. 193; Henne-quin v. Clews, 111 U. S. 676; affirm, ing 77 N. Y. 427; 33 Am. Rep. 641. The term fraud means " positive fraud or fraud in fact involving moral turpitude or intentional wrong, as does embezzlement, and not implied fraud or fraud in law which may exist without the imputation of bad faith or immorality." Ames v. Moir, 138 U. S. 306, 311; affirming 130 111. 582; 22 N. E. 535; and citing Neal v. Clark, 95 U.
S. 704; Wolf v. Stix, 99 U. S. 1; Hennequin v. Clews, 111 U. S. 676; Strang v. Bradner, 114 U. S. 555; Noble v. Hammond, 129 U. S. 65; Upshur v. Briscoe, 138 IT. S. 365.
2 Wolf v. Stix. 99 U. S. 1; Neal v. Clark. 95 U. S. 704; Western Union Cold Storage Co. v. Hurd, 116 Fed. 442; Brown v. Broach. 52 Miss. 536; Bank v. Crandall, 87 Mo. 208.
3 Western Union Cold Storage Co. v. Hurd. 116 Fed. 442.
4 Howland v. Carson, 28 O. S. 625.
5 Wolf v. Stix. 99 U. S. 1.