279 F. 372 | 2d Cir. | 1922
(after stating the facts as above). The order involved was entered in the District Court on April 13, 1921, in a reclamation proceeding instituted by Garó Keshishian & Co., Inc., to recover from the receiver of the alleged bankrupt certain property which had come into his possession as such receiver. The order adjudged and decreed that the receiver turn over to the reclaiming petitioner certain property which was the subject of the reclamation proceeding. The receiver, feeling himself aggrieved by such order and being in doubt whether the order ought properly to be reviewed by appeal or by petition to revise, appealed to .this court and likewise filed in this court a petition to revise. As both the appeal and the petition to revise involved the same identical questions and were .based upon the same record, the attorneys for the receiver entered into a stipulation with the attorneys for the reclaiming petitioner, by which it was agreed that the proceedings arising upon the appeal and those arising upon the petition to revise should be consolidated and heard on one record. That stipulation was presented to one of the judges of this court, who signed an order directing the clerk of this court to combine the records upon the appeal and petition into one record and so certify the same to this court.
It appears that on June 2, 1920, the alleged bankrupt delivered to the claimant a statement of its financial condition as of March 10, 1920. Upon the strength of the condition shown on that statement the claimant sold to the alleged bankrupt on credit certain merchandise which was subsequently paid for. There were no further transactions between the parties until the transaction herein involved. In the month of December, 1920, the salesman of the claimant called upon the alleged bankrupt and endeavored to sell it some merchandise. At that time, according to the testimony of the claimant’s salesman, the following took place:
“Q. You didn’t see any financial statement at that time, did you? A. No.
“Q. You asked him for cash, and when he refused to give cash, you simply took his word to the effect that he had outstanding hills sufficient to meet his obligations? A. Yes; that is what he told me at the time.
“Q. And that is all you had to do with it at the time? A. Well, I spoke to Mr. Keshishian.”
The president of the bankrupt then saw Mr.' Keshishian himself, and a sale on credit- was agreed to; one sale being made on December 10th, and another on December 16th. The bankrupt stated through its president at that time that it wished to make two payments, one half on January 25th, and the other half on February 25th, and this was assented to by Mr. Keshishian. The latter stated that, in the interview regarding these two credit sales in December, no reference was made by either of them to the financial statement of June 2d. He was asked by the commissioner as follows:
“Q. Did you allude to the statement in December? A. No; I did not.
“Q. Did he say anything about the statement in December? A. No; he did not.
“Q. Did you ask him anything about his present condition? A.'Without my asking, when he said that he was so busy, and I had the information already that he had many accounts collectible with which he could pay all his debts early in January, those things gave me satisfaction, gave me confidence.
“Q. Well, give me the whole of the conversation that you had in December with this officer of the company? A. The conversation with him was to the effect that he had many orders, that he was very busy, and that he was going to ship out much goods before the end of the year, whereas his competitors were not so busy; that was all that he spoke to me.”
He also testified as follows:
“Q. On what did you rely in making that sale on December 16, 1920, and giving the credit to the bankrupt corporation? A. Again his financial statement of June 2d and his verbal statement to the effect that he had enough accounts collectible to pay all his debts on the 1st of January or in the middle of January.”
On his cross-examination he testified as follows:
“Q. Your statement, which you received, was given to you in the month of June? A. Yes.
“Q. And at -the time the bankrupt purchased this merchandise from you, did Mr. Rosenberg as president refer to the statement of June 2d? A. No.
“Q. You didn’t ask him about the statement either, did you? A. No.
“Q. And you accepted his trade acceptance for the merchandise? A. Yes, sir.
“Q. And you extended credit to him on that basis? A. Exactly.”
The special commissioner, to whom, the application of the reclaiming petitioner was referred, came to the conclusion that the right to reclaim had not been established and so reported. In his report he says:
“In December, at the time of the alleged sales, the statement of June 2d was not mentioned by either party. There was a general inquiry made by the petitioners as how the alleged bankrupt was getting on, and the alleged bankrupt answered that it was doing some business, a lot more than its competitors; that it could not pay cash which was asked for by i>etitioners,_ but that it expected to get in collections for goods sold that would enable it in January and February to pay for the goods bought. Between June, when the written statement was delivered by the alleged bankrupt^ to the time of the sales in December, a period of six months had elapsed. 'It is a well-known fact that merchandise generally declined greatly in value between early in June, 1920, and December, 1920. Under the circumstances, I think the petitioners were not justified in relying upon this statement without calling the attention of the alleged bankrupt to it, and making inquiries calculated to disclose the changes in the financial condition of the alleged bankrupt. While these statements are held to be continuing statements, it is also true that they do not continue forever, and that the reasonable time of their continuance depends upon the circumstances in any given ease.
“The further question is: Were the circumstances such as to require the alleged bankrupt, in the absence of any inquiries on the part of the petitioners, to disclose fully its financial condition. The evidence shows that the petitioners solicited these orders from the alleged bankrupt. There is no evidence to show whether or not the alleged bankrupt in fact notified the Irving National Bank of any material reduction of financial responsibility. Assuming that this provision in the statement amounted to an agreement on the part of the alleged bankrupt to notify the petitioners of such material reduction of financial responsibility, in my judgment the proper construction of that provision would be this: That thereby the alleged bankrupt agreed, in case it asked for the credit, that it would notify the petitioners of any change in its financial condition. The facts indicate that the alleged bankrupt did not ask or solicit this credit, but that the' petitioners asked the alleged bankrupt to buy the goods in question.”
The reclaiming creditor thereupon gave notice of a motion to set aside the above report; and the matter coming on to be heard before the District Judge he dissapproved the conclusion of the special master and set it aside; and an order was entered on April 13, 1921, which
The District Judge in his opinion declared that the record seemed to liim to establish clearly that the reclaiming creditor relied in December on the statement of June 2d, and had the right so to rely. He said that the testimony of the treasurer of the reclaiming creditor that he relied upon the statement of June 2, 1920, was “reasonable and credible.”
There is another consideration which, in this connection, should be mentioned. If we are mistaken in thinking that the claimant did not rely upon the statement of June 2d, and as a matter of fact it did rely upon it, as testified to by the treasurer of the claimant corporation, we should nevertheless be compelled to hold that it had no right under all the circumstances to rely upon it. In reaching that conclusion we have considered the nature of a financial statement and of the statement herein involved.
Written financial statements are divided into two classes. In the first class belong statements in which the only representation involved is that tfye statement of financial condition was true as of the date of which it purports to speak. In the second class belong statements in which two representations are made; first, that the statement was true as of its date; and, second, that the statement may be relied upon to be a true statement of financial condition at the dates in the future when further credits are extended. In statements of the first class there is no express agreement to furnish supplementary statements in the future to keep the creditor advised on any changes in financial responsibility since the date of the original statement. In statements of the second class there is such an express agreement. The statement in the case at bar belongs to the second class of financial statements, in which the debtor, not only warranted the truth of its statement of financial condition as of the date of the statement, but also expressly agreed to notify the creditor of any change of financial responsibility in the future.
The financial statement herein involved was on a printed form of the Irving National Bank, and was made and delivered directly to the claimant, and not to the bank, for the purpose of inducing the claimant to extend commercial credit to the bankrupt. The special commissioner and the District Judge both held that, whenever “Irving
“The undersigned also expressly agrees to notify Irving National Bank of any material reduction of financial responsibility of the undersigned.”
Counsel for the receiver, in his argument in this court, stated that the question whether the parties intended the statement of June 2d to be a continuing statement is purely a question of fact and proceeded' to argue that the circumstances connected with the transaction made it clear that the idea of a continuing statement never suggested itself ’ until the present opportunity was found for its use. But whether the question be one of fact or of law is quite immaterial as this is before us on an appeal.
“The English law, which in this respect has been adopted by us, frequently requires things to be done within a reasonable time; but what a reasonable time is, it does not define; ‘quam longum debet esse rationabile tempus non definitur in lege, sed pendet ex discretione justiciariorum.’ Oo. Litt. 50.”
A financial statement, made for obtaining credit, is like a promissory note payable on demand, in that it is intended to be a continuing security, and, as in the case of the note the demand must be made in a reasonable time, in like manner reliance on the financial statement' does not extend beyond a reasonable time, and what constituted such time is as much a question of law in the one case as in the other.
As respects that part of the financial statement in which it was agreed that the debtor would notify the creditor of any material reduction of the latter’s financial responsibility, it is not to be understood as imposing an obligation unlimited in time, but only during such a reasonable time as the financial statement itself could be relied upon. This case differs materially from that of the Atlas Shoe Co. v. Bechard, supra, upon which the claimant strongly relies. In that case the agreement expressly provided that it might be considered as a continuing statement, “and a new and original statement of our assets and liabilities upon each and every purchase of goods from them [it] hereafter until we advise them in writing to the contrary.” The court said:
“This is something more than a representation true at the time and a mere failure to notify of a change of conditions. Such a representation may be relied upon only for a reasonable time. It is here expressly ‘agreed that it may be considered a continuing statement, and a new and original statement upon each and every purchase of goods. That can mean nothing less than that it is to have the same force and effect ‘as a basis for credit’ that it would have if it accompanied each order of goods and was made as of the date of said order. The intention of the parties is apparent and unmistakable that the plaintiff might rely upon it the same when the last as when the first goods were sold.”
In Re Weil, 111 Fed. 897, a financial statement was made in March to a mercantile agency, and credit was given upon it in July and August. It was held by the District Judge that the creditor had a right to rely thereon and coúld reclaim the goods. In the case of In re J. S. Patterson & Co. (D. C.) 125 Fed. 562, it was claimed that creditors should not have relied on a financial statement made in February as a basis of credit for goods ordered in May to be shipped in September. In that case the District Judge said that—
“Such statements are made the basis of continuing credit, and it is not necessary that they should be made exactly at the time of sale. Such a requirement would be unreasonable.”
That is certainly true as respects the statement involved, in which a financial statement provided expressly that it should stand as to all subsequent purchases, “unless at the time of such subsequent purchase or purchases we shall notify them of any change in our assets or liabilities, and hereby bind ourselves to give such notice in case of any material change in our pecuniary condition; otherwise, all subsequent purchases to be made on the faith of the above statement.” The case is not unlike the Atlas Case. We may observe that in the Patterson Case it is said that—
“The length of time that has elapsed since malting the statement, within reasonable limits, is for the consideration of the court in passing upon the extent that the sale was actually influenced thereby.”
In Re Braverman (D. C.) 199 Fed. 863, credit was given based on a financial statement issued 18 months prior thereto. The bankrupt had failed to fill in the blank showing how long the statement might be regarded as continuing. The discharge of the bankrupt was opposed on the ground that credit had been obtained by a false statement. The
“Does that give the seller any right, 18 months thereafter, to assume that the condition remains approximately as then stated? ”
He answers his own question by saying, “Certainly not.” He says:
“It is unreasonable to suppose that such a statement would be any index of his financial condition 18 months after it was made. If the seller relied on it, he had no right to do so.”
In Haimowich v. Mandel, 243 Fed. 338, 342, 156 C. C. A. 118, a financial statement was given to a mercantile agency in March, 1912, and was acted on by the creditor in September of that year. The party giving the statement then became bankrupt. His discharge in bankruptcy was opposed on the ground that he had obtained credit by a false ■statement. The court refers to the statement given to the agency as “a general and continuing statement” — -“running for an indefinite period.” It also refers to tire period during which it was intended to be used and says, “Such a period may be long or short according to varying circumstances.” We construe this to mean for a time which under the circumstances can be deemed “reasonable.”
The order of the District Court is reversed, the report of the special commissioner is confirmed, and the reclamation petition denied.