Opinion
No. 79-00386.
September 3, 1980
Former Bankruptcy Act — Discharge of Debts — False Representations — Insufficient Fund Check
The utterance of a check in simultaneous exchange for merchandise may constitute false representations if a regular course of insufficient funds to pay the draft upon presentation at the bank develops. However, an intent to defraud is not proven by the mere issuance of worthless checks unless payment is an inducement to delivery of the goods. See Sec. 17a(2) at ¶ 2146 and Sec. 523(a)(2) at ¶ 9228.
[Digest of Opinion]
The bankrupt operated a retail business which was supplied merchandise pursuant to an agreement entered into with the creditor that "company checks" delivered to the shipper's agent would be accepted as payment.
For a period of three months, the creditor shipped eleven orders of merchandise and received the bankrupt's company checks, all of which were returned for insufficient funds. Five orders were subsequently shipped with checks in payment returned. Further, the bankrupt's initial bank account was closed because of its problem with numerous checks being returned. Subsequently, a second account, opened for a one month period, was closed due to fluctuations and many daily overdrafts.
Whether the bankrupt's conduct constituted false pretenses under Section 17a(2) of the Bankruptcy Act was the issue presented to the court.
The court found that where a regular course of insufficient funds developed, it amounted to fraud and constituted false representations. However, the issuance of worthless checks itself did not prove an intent to defraud. In Beneficial Finance Co. v. Cote, 216 So.2d 163, a worthless check given in payment of an open account or pre-existing indebtedness could not be issued with an intent to defraud because the creditor was not misled by such action. The merchandise had already been delivered and payment was not a pretense or representation to induce delivery. Thus, the court reasoned that the uttering of a check for payment in simultaneous exchange for merchandise is a representation that there will be sufficient funds to pay the check on presentation. Consequently, the bankrupt was not entitled to a discharge.