Case ID: misc_90/html/0678-01.html
Source: Caselaw Access Project
Author: {"author": "Bijur, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

E. I. Du Pont De Nemours Powder Company, Respondent, v. Ben Schwenger, Appellant.
    (Supreme Court, Appellate Term, First Department,
    June, 1915.)
    False representations — when not liable for failure to.make statement of financial condition — bankruptcy — action against bankrupt after his discharge — Bankruptcy Act, § 14(3).
    Defendant, who made a true statement in March of his financial condition to a commercial agency to which he was not a subscriber, is not bound to correct the statement, in November, - his circumstances having changed in the meantime, and he is not liable for false representations for failure so to do.
    Where, in an action brought on the allegation that defendant had made false representations prior to November, 1911, and thus obtained credit and goods from plaintiff in that month, it appeared that the commercial agency to which defendant had given a statement of his financial condition had given him a rating which it revised in September and that had plaintiff in-, quired he would have been informed that the rating was lower than the one which appeared in the book issued by the commercial agency in September, held, that, assuming that plaintiff offered sufficient proof for submission to the jury of the falseness of the statement made by defendant in March and of defendant’s knowledge thereof, it was error to charge, over objection and exception by defendant, that his statement “ was a continuous statement and bound him as much in November as it did in March,” as the charge was unqualified and regardless of whether defendant’s statement was in March true or false.
    That as neither the complaint nor the charge to the jury was directed to the claim that the mere fact of insolvency imposed on defendant the duty to disclose such condition when he bought said goods of plaintiff, and there being no direct proof either that defendant was insolvent in November or, if so, that he knew it, it was also error to charge that if defendant knew he was insolvent in November it was his duty to have notified the commercial agency and had his rating changed.
    Where defendant was adjudicated a bankrupt in March, 1912, and plaintiff’s claim was duly scheduled and it filed specifications of objections to defendant’s discharge, substantially identical with the allegations of the complaint herein, but failed to support its objections and defendant was granted his discharge, the overruling of the objections was not res adjudieata in an action brought against the bankrupt after his discharge for false representations in obtaining property on credit, as the statement to the commercial agency was not one to a creditor’s representa^ tive within the meaning of section 14(3) of the Bankruptcy Act.
    Appeal by defendant from a judgment of the City Court of the city of New York, in favor of plaintiff, entered upon the verdict of a jury.
    Solomon J. Rosenblum (Arthur C. Mandel, of counsel), for appellant.
    William Wallace Young (James A. Hughes, of counsel), for respondent.
   Bijur, J.

This action was brought on the allegation that defendant had made false representations prior to November, 1911, and thus obtained credit and goods from the plaintiff in that month. The proof adduced by the plaintiff, however, showed that the statement had been made on March 20, 1911, to Dun’s Commercial Agency, on which it gave the defendant a certain rating ” in its published July report; and, when a new edition was issued in September, the rating was not changed. It was also shown that the agency issued four reference books a year, namely, in January, March, July and September; also that it revised its ratings every six months; that defendant’s rating had actually been revised in September (apparently after the September book had been issued), and that had plaintiff inquired ho would have been informed that the rating then was actually lower than the one which had appeared in the book. Defendant was not a subscriber to Dun’s Agency, and it is not claimed that he was expressly or impliedly chargeable with knowledge either of the cqntents of Dun’s publications or their exact manner of doing business.

Assuming, though it is by no means clear, that plaintiff offered sufficient proof for submission to the jury of the falseness of the statement made by defendant on March twentieth, and of • defendant’s knowledge thereof, nevertheless, the learned judge below erred in charging, over the objection and exception of the defendant, that defendant’s statement was a continuous-statement and bound him (the defendant) as much in November as it did in March.” He also charged that, if defendant knew he was insolvent in November, it was his duty to have notified the Dun Agency and had his standing changed.”

As to the latter charge, I have not found, nor am I cited by respondent’s counsel to, any part of the record containing direct proof either that defendant was insolvent in November, or, if so, that he knew it. It is to be noted also that although the complaint charges that defendant was insolvent at the time the goods were delivered, that statement is coupled with the allegation of the misrepresentations, which, as pointed out, were made in March. Neither.the complaint nor the charge is directed to the claim that the mere fact of insolvency imposed upon the defendant the duty to disclose that condition when he bought the goods — a duty which is .said in Noyes v. Wilson, 7 N. Y. St. Repr. 439, 441, to depend upon the insolvency being ‘ of such character as plainly showed that he would be unable to pay for the goods in question when they became due.” As to the charge that defendant’s statement ‘ ‘ was a continuous statement and bound him as much in November as it did in March,” it will be observed, in the first place, that it was unqualified, and regardless of whether the statement was in March true or false. Respondent claims that any statement for credit is necessarily a “ continuing ” one, but in Tindle v. Birkett, 171 N. Y. 520, which respondent cites as a case in which the credit was extended some fourteen months after a false statement to the agency had been made, it appears that the defendant reiterated his statement to the agency less than a month before the credit was extended, and repeated the statement again during the very time that goods were being sold to him. See also Macullar v. McKinley, 49 N. Y. Super. Ct. 5, 10, 11; affd., but not on this point, 99 N. Y. 353.

In Matter of Kyle, 174 Fed. Repr. 867, the language of the court (p. 872') is merely that such a statement “was entitled for a reasonable time at least to be taken and relied on.” Furthermore, the authority cited for this view, namely, Matter of Terens, 172 Fed. Repr. 938, scarcely warrants so broad an assertion. In the Terens case, Quarles, District Judge, says that “ such property statements are frequently intended as a continuing representation for indefinite periods of time,” but as neither the statement of facts nor the opinion indicates what dates were involved, nor the circumstances of the case, the value of the qualified statement made is, to say the least, exceedingly limited.

On the whole, however, whatever view may he entertained regarding the continuing liability for a reasonable time of a person who has made a statement false at the time it was made, I have been cited to no authority which places upon one who has made a truthful statement the affirmative duty of correcting it when his circumstances have changed. The exigencies of business and the opportunity of the intending creditor to obtain an immediate statement at any time would seem to negative the correctness of any such rule. The only case which I have been able to find in which such a duty was said to exist places it upon the peculiar circumstances of the case, entirely different from those of the case at bar. Loewer v. Harris, 57 Fed. Repr. 368.

The characterization of statements for credit as continuing ” is in itself rather misleading. What seems to be meant in the eases which employ that phrase is that, if a statement for credit be false when made, the creditor may, with reason, claim that he relied upon that statement while giving credit for a reasonable time thereafter. In other words, his claim that he relied for sometime thereafter upon the statement as true at the time it was made may reasonably be believed, even though he would know that in the natural course of business conditions could and would change in the meantime. Nowhere is it intimated that he has the right to assume, at any time thereafter, that the conditions set forth in the statement are represented by the person making them to continue unchanged thereafter. Indeed, as I have said, common sense would necessarily indicate that such an assumption was unfounded.

Appellant also urges that the complaint should have been dismissed on the ground that the claim therein set forth is barred by a prior adjudication. This is based on the fact that in the proceedings whereunder defendant was adjudicated a bankrupt in March, 1912, plaintiff’s claim was duly scheduled, and plaintiff’s attorneys appeared and filed specifications substantially identical with the allegations of the complaint in opposition to defendant’s discharge. The plaintiff, however, failed to appear in support of its objection, and the defendant was duly discharged. Defendant claims that, as under section 14 of the Bankrupt Act, as amended in 1910, these specifications, if sustained, would have been good ground for the denial of defendant’s discharge, they have practically been adjudicated adversely to plaintiff. Among the grounds for objection specified in section 14 are (3) “ obtaining money or property on credit upon a materially false statement in writing made by him (the bankrupt) to any person or Ms representative,” etc. It has been held in Matter of Kretz, 212 Fed. Repr. 784 (see also Remington on Bankruptcy, § 2565, p. 2391) that “ a statement, under the circumstances disclosed in the case at bar, to a commercial agency, is not one to a creditor’s representative.” Consequently, the issues tendered by plaintiff in the present action could not have been adjudicated in the bankruptcy proceeding because, even if plaintiff had proved them, they would not be cognizable in the proceedings as a valid objection to defendant’s discharge. Defendant’s claim, therefore, of res judicata in this connection is not good. Talcott v. Friend, 179 Fed. Repr. 676.

Guy and Page, JJ., concur.

Judgment reversed and new trial granted, with costs to appellant to abide event.