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 distinguished from constructive fraud; and it implies some degree of moral turpitude.1 In construing section 14b of the bankrupt act, which provides that a materially false statement may be a ground for refusing a discharge, it is held that the word "false" means knowingly false, and that it does not include innocent though erroneous statements.2 A false representation by a member of a partnership does not prevent the other partner from obtaining a discharge if he was ignorant of such false representation; 3 and it would seem that such discharge would be a bar against such obligation. 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.4 If the statement which was relied upon as a false representation was true when made, the fact that the party who made it did not disclose a subsequent change of facts which made such representation untrue at the time, may amount .to fraud for which the transaction could be avoided;5 but it is not fraud within the meaning of this section of the bankrupt act,6 and a debt thus incurred is barred by a discharge in bankruptcy.7
& Wallace Co. v. Lambert, 60 N. J. L. 487, 55 Atl. 88; Crosby v. Miller, 25 R. I. 172, 55 Atl. 328.
4 United States. Friend v. Talcott, 228 U. S. 27, 57 L. ed. 718 [affirming, Talcott v. Friend, 179 Fed. 676, 43 L. R. A. (N.S.) 649].
Arkansas. Dilley v. Simmons National Bank, 108 Ark. 342, 158 S. W. 144.
California. Woehrle v. Canclini, 158 Cal. 107, 109 Pac. 888.
Kansas. Gregory v. Williams, -. Kan. -, 189 Pac. 932.
New Hampshire. Lund v. Bull, 76 N. H. 132, 80 Atl. 141.
Contra, apparently on the theory that the amendment of 1903 did not change the rule in Crawford v. Burke, 196 U. S. 176, 49 L. ed. 147; Roth ▼. Pechin. 260 Pa. St. 450, 103 Atl. 894.
5 United States. Warner v. Cronk-hite. 6 Biss. (U. S. C. C.) 463.
Kentucky. Taylor v. Farmer, 81 Ky 458.
Massachusetts. Wilson v. Hawley, 158 Mass. 250, 33 N. E. 522.
North Dakota. In re Kaeppler, 7 N. D. 435, 75 N. W. 789.
Pennsylvania. Hughes v. Oliver, 8 Pa. St. 426.
Rhode Island. Stokes v. Mason, 10 R. I. 261.
1 Hennequin v. Clews, 111 U. S. 676, 28 L. ed. 565 [affirming, 77 N. Y. 427, 33 Am. Rep. 6411; Noble v. Hammond,
129 U S. 65, 32 L. ed 621 [reversing, 57 Vt. 1931; Bullis v. O'Beirne, 195 U. S. 606, 49 L. ed. 340; Louisville & Nashville Ry. v. Bryant, 149 Ky. 359, 149 S. W. 830; Lund v. Bull, 76 N. H. 132, 80 Atl. 141.
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. 34 L. ed. 951 [affirming,
130 lll. 582, 22 N. E. 535: and citing, Neal v. Clark, 95 U. S. 704, 24 L. ed. 586; Wolf v. Stix, 99 U. S. 1, 25 L. ed. 309; Heimequin v. Clews, 111 U.
A false statement which is intended to deceive, but which does not induce action in reliance thereon, is not fraud within section 17, clause 2, of the bankruptcy act.8
"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.9 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.10 If A borrows money from B, intending to prefer one of A's creditors, B's debt is not incurred in fraud, at least if B does not know of A's intention.11
S. 676, 28 L. ed. 665; Strang v. Brad-ner, 114 U. S. 666, 29 L. ed. 248; Noble v. Hammond, 129 U. S. 66, 32 L. ed. 621, and Upshur v. Briscoe, 138 U. S. 365, 34 L. ed. 931].
See also as to fraud which prevents a discharge, Gilpin v. Merchants* National Bank, 165 Eed. 607, 20 L. R. A. (N.S.) 1023.
2 Gilpin v. Merchants' National Bank, 166 Fed. 607, 20 L. R. A. (N.
3 Hardie v. Swafford Bros. Dry Goods Co., 165 Fed. 688, 20 L. R. A. (N.S.) 786; Frank v. Michigan Paper
Co., 179 Fed. 776, 30 L.R.A. (N.S.) 623.
4 Western Union Cold Storage Co. ▼. Hurd, 116 Fed. 442.
5 See Sec. 323.
6 Gregory v. Pierce, - la. -, 172 N. W. 288.
7 Gregory v. Pierce, - Ia. -, 172 N. W. 288.
8 Rudstrom v. Sheridan, 122 Minn. 262, 142 N. W. 313.
9 Wolf v. Stix, 99 U. S. 1, 25 L. ed. 309.
10 Wolf v. 8tix, 99 U. S 1, 25 L. ed. .309.
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.12 A promise which is made after the original transaction, without the intention of keeping such promise, does not convert the original liability into a liability for obtaining property by false pretenses.13 Accordingly, the conduct of the debtor in inducing the creditor to dismiss an action upon a note and to surrender such note to him in reliance upon his promise to pay it, does not make the original liability a liability for obtaining property by false representations, although the debtor did not mean to keep such promise and made it in order to secure an opportunity to conceal his property and to resort to voluntary bankruptcy.14 If the seller has agreed to refund the purchase price to the buyer in case certain representations and warranties which were made a part of the contract of sale prove to be untrue, the liability of the seller upon such promise is not a liability for obtaining property by false pretenses or false representations;l5 and a judgment rendered in an action against the seller on such contract is barred by such discharge in bankruptcy.16 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."17 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 1867.18
If the original liability growing out of fraud is barred by the Statute of Limitations, and it is sought to hold the debtor upon his subsequent promise to discharge such liability, his .discharge in bankruptcy is a bar to his liability upon such express promise.19 Acceptance of a negotiable instrument in place of the original liability created by fraud, does not waive the fraud; and such instrument is not barred by a discharge in bankruptcy.20
11 Ohio Valley Bank v. Mack, 163 Fed. 155, 24 L. R. A. (N.S.) 184.
12 Neal v. Clark, 95 U. S. 704, 24 L. ed. 586; Wolf v. Stix, 99 U. S. 1, 25 L. ed. 309; Western Union Cold Storage Co. v. Hurd, 116 Fed. 442; Jenkins v. Pilcher, 160 Mich. 349, 28 L. R. A. (N.S.) 423, 125 N. W. 355; Brown v. Broach, 52 Miss. 536; Bank v. Cran-dall, 87 Mo. 208.
13 Jenkins v. Pilcher, 160 Mich. 349,
28 L. R. A. (N.S.) 423, 125 N. W. 355.
14 Jenkins v. Pilcher, 160 Mich. 349, 28 L. R. A. (N.S.) 423, 125 N. W. 355.
15 Guindon v. Brusky, 142 Minn. 86, 170 N. W. 918.
16 Guindon v. Brusky, 142 Minn. 86, 170 N. W. 918.
17 Howland v. Carson, 28 O. S. 625.
18 Forsyth v. Vehmeyer, 177 U. S. 177, 44 L. ed. 723 [affirming, Forsyth v. Vehmeyer, 176 111. 359, 52 N. E. 551.