concurring:
In connection with the renewal of a corporate line of credit, Citizens Bank required an updated financial statement of the corporation’s principals, David and Emily Broyles, who were guarantors on the line. The Broyles submitted a financial statement which deliberately omitted a $766,434 debt owed to Emily’s parents and the fact that the $6167 monthly payments on the debt were six months in default. The bankruptcy court found that Emily Broyles, who prepared the statement, deliberately intended to deceive the bank in order not “to upset the apple cart at a time her husband was in the hospital and cause trouble with the business.” The court also found the omission material. It concluded, however, that despite the testimony of the bank officer, who stated that the bank would not have extended the credit if it had known of the omitted facts, the bank did not in fact rely on the financial statement of the guarantors in extending the line of credit to the corporation. The court found that that bank was looking primarily to the corporation’s business and assets to repay the loan and relied only on the fact that the corporation’s principals supplied guarantees without relying on their particular financial strength.
This deception by the guarantors, who were also principals in the corporation borrowing the money, is precisely the type of conduct which bars a discharge in bankruptcy. See 11 U.S.C. § 523(a)(2)(B). And it is troubling that it should not be found to prejudice the debtor in this case. Banks have good reason for demanding evidence of assets when lending money, and any conclusion that the bank in such circumstances did not actually rely on the statement would imply that there is “little point in banks requiring financial statements.” McGhee v. First National Bank of Ferrum, No. 92-2296, 1993 WL 143574, at *3 (4th Cir. May 6, 1993) (unpublished). “Our legal system expects that individuals will make truthful representations on financial statements, and allows others to reasonably rely on those representations.” Id. If the financial statement involved in this case had been that of the borrower, as distinguished from the guarantor, I would think that we would be required to find reliance as a matter of law.
However, this case contains facts which indicate that the bank was looking primarily to the corporation’s business and assets and to the fact that its principals had given personal guarantees, but not necessarily to the particular financial strength of the guarantors. With some hesitation, therefore, I concur in the opinion on the limited basis that we cannot conclude that the factual finding was clearly erroneous.*
My reluctance is also based on the fact that the Broyles purposefully omitted information, and the difficult burden that such an omission places on the lender to prove that it relied on the absence of specific data in making its decision. I would agree with the First Circuit’s view that:
Likelihoods are about all that can be expected when the question is what the bank would have done five years ago if faced with a disclosure that did not occur.... After all, if a financial statement is materially false and intended to deceive, then a showing that the creditor "relied” upon it arguably requires no more than that the creditor took it into account and gave it weight.
In Re Goodrich, 999 F.2d 22, 25 (1st Cir.1993).