In this case, the debtor borrowed substantial funds from Barnett Bank of Marion County as a long time customer without any account problems.

The debtor’s continued good terms with the bank allowed him to obtain several loans. Each time the debtor borrowed money, the bank required the debtor to complete a new financial statement disclosing his income and liabilities.

The debtor substantially misrepresented his other obligations on (at least) the last loan application. On each loan, the bank evaluated the debtor’s obligations to ascertain his creditworthiness.

The bank testified that they relied upon the loan applications, and if the bank had known of any additional debts, it would not have made the loans.

The bank did not, however, inquire further as to the borrower’s debts. The debtor filed for bankruptcy and the bank filed objections to its discharge.

The Court held that the creditor has the burden to prove: (1) the debtor made a material misrepresentation as to his financial condition; (2) the non-disclosure was “material”; and (3) the creditor reasonably relied on the false financial statement.

Here, the Court found that the creditor’s failure to make additional inquiries as to whether the debtor’s statements were true, constituted an unreasonable reliance on the debtor’s statements. The bank lost and the loan was discharged in bankruptcy. Barnett Bank of Marion County v. Raymond Burnett, (U.S. Bkrtcy., M.D. Florida, No. 90-185).

Author: Charles R. Harroun, Attorney at Law