
    Daniel Bradley, Appellant, v. Seaboard National Bank, Respondent.
    
      Valse representations —failure to state to a commercial agency a liability on a guaranty of mortgages—when communicated by the agency, they have the sarnie effect as when directly made ■—when not too remote in date to justify repudiation of a transaction — set-off of an unmatured note against a bank deposit.
    
    Where a dealer for' the purpose of obtaining credit makes to a commercial agency a false and fraudulent representation respecting his property, which representation is communicated by the commercial agency to a person who gives the dealer credit in reliance thereon, the representation has the same effect as if it had been made by the dealer directly to the person who acted upon the faith thereof.
    
      It seems, that fraudulent representations made by a firm concerning its condition in May, 1891, embodied in a commercial report dated June 1,1891, entitle a banking corporation to repudiate transactions had by it with the firm in August, 1893, and August, 1893, where it appears that the banking corporation relied upon such representations in the latter transactions, and that such transactions were immediately connected with an earlier transaction which was entered into upon the faith of such representations.
    Van Brunt, P. J., dissented.
    The failure of a firm to mention to a commercial agency the fact that it had sold-certain mortgages and had guaranteed payment thereof to the purchasers, does not amount to a fraudulent suppression of its liabilities where it appears that, at the time the statement was made, the mortgaged property was worth ' the full amount of the mortgages.
    A banking corporation which has discounted a note for a firm doing business in Colorado, is not, where the firm has made an assignment in insolvency under the laws of that State before thenote became due, entitled to retain the amount of a deposit made with it by the firm as an offset to the note, under section 187 of chapter 34 of the Session Laws of Colorado for the year 1893, which provides, “Debts not due may be claimed, but if the same are not bearing interest a suitable rebate shall be made. Interest shall be computed to the date of the assignment and not afterward; ” as that section was only intended to place undue debts on an equality with matured debts in respect to dividends paid by the assignee, and was not intended to change the common-law rule in regard to setrQffs.
    Appeal by the plaintiff, Daniel Bradley, from a judgment of the Supreme Court in favor of the defendant, entered in the office of , the clerk of the county of New York on the 9th day of June, 1898, upon the decision of the court, rendered after a trial before the court without a jury at the New York Trial Term.
    
      
      Jonathan C. Ross, for the appellant.
    
      Herman Aaron, for the respondent.
   Patterson, J.:

This cause was tried by the court without a jury and judgment was directed for the defendant. The action was brought to recover an amount which on the 16th day of September, 1893, stood on the books of the defendant bank to the credit of Crippen, Lawrence & Oo., one of its depositors. That firm did business at Denver in Colorado, and on or about September 18, 1893, made an assignment in insolvency under the laws of that State to'one Stephen H. Standard, who afterward demanded from the defendant the amount appearing to the credit of his assignors, which demand was refused. Thereupon Standard assigned his claim against the defendant to the present plaintiff. The defendant sets up two defenses as follows: First. That prior to September, 1893, at the request of the firm of Crippen, Lawrence & Co., it advanced to that firm the sum of $7,500; that that firm is insolvent, and was so insolvent at the time the loan or advance was made by the defendant to it; that before such advance was made, that firm, for the purpose of procuring ■credit from the defendant and others, made and circulated.through a commercial agency, with the intent and purpose of having the same communicated and come to the knowledge of the defendant, a statement of its assets and liabilities purporting to show its financial condition; that the defendant before making the loan and. advance, obtained that statement and believed and relied upon it, and upon the faith thereof and of its correctness made the loan and advance; that the statement/was false in material parts and was fraudulent; that the assets of the firm were falsely and fraudulently ■exaggerated-; that the statements of the firm’s liabilities were false and fraudulent, and that certain liabilities were falsely and fraudulently omitted therefrom and concealed, and that by reason thereof the defendant was misled and defrauded into making the loan and advance; and thereupon it claimed the right to retain the amount'of the firm’s deposit as an offset to the amount of the loan upon the theory that the loan having been contracted by fraud, although it had not matured according to the terms of the contract, the defendant could rescind the transaction and make the debt presently due.. Second. The other defense is that, under a provision of a statute of the State of Colorado relating to insolvent assignments, the defendant is entitled to offset against the deposit its undue claim against the assignor.'

The evidence adduced at the trial showed that Crippen, Lawrence & Co. began their- dealings with the defendant about the middle of June, 1892, when they opened the deposit account; but previously to that date the defendant had rediscounted for the First National Bank of Salena, Kansas, commercial paper of Crippen, Lawrence & Co. Before that was done the defendant asked for a statement of the financial condition of that firm ■ and. one was forwarded to it by the Bank of Salena. It bears date June 1, 1891, and purports to show the condition of the firm in May, 1891. The statement was procured from Dun’s Commercial Agency, and, as would appear from the testimony of Crippen, one of the members of the firm, it was a statement authorized by that firm. On the faith of the statement the original rediscount, which was the first in the series of transactions of the defendant in connection with mercantile paper of Crippen, Lawrence & Co., was made. In August, 189-2, the defendant discounted for that firm a note for $10,000, and that indebtedness was carried along by renewals until August 19,. 1893, when $2,500 was paid on account of it and a new note for $7,500 was given^as a renewal of so much of the loan. On September 18, 1893, Crippen, Lawrence & Co. made their assignment for the benefit of creditors, and thereunder the title to the money on deposit to the credit of Crippen, Lawrence & Co. in the defendant’s bank passed to the assignee. The $7,500 note was payable ninety days after date and, therefore, would not mature until November of that year. The vice-president of the defendant testifies that when the discount of the $10,000 note of Crippen, Lawre'nce & Co. was made by the defendant in August, 1892, and the renewal note for $7,500 was given in August, 1893, the bank relied on the truth of the statement communicated by the Salena Bank as having come through the Dun Commercial Agency of the condition of the affairs of Crippen, Lawrence & Co., in May, 1891; and he also testifies that had it been known that the firm of Crippen, Lawrence & Co. was engaged in a certain kind of business, not disclosed by the statement, neither the original discount in 1892, nor the renewal in 1893, would have been made.

It is earnestly contended by the plaintiff that there can be no’ legitimate relation between the statement of the condition of Grip-pen, Lawrence & Co.’s affairs made in 1891 and the transaction of the renewal of the note in August, 1893, there being an interval of more than two years during which changes in the affairs of that firm must necessarily have occurred. That the May, 1891, statement was authorized by Crippen, Lawrence & Co., is fully shown. At the beginning of the transactions of the defendant bank with that firm it was authorized to rely upon the truth of the statement and to base its transactions with the firm upon that statement. Commercial agency reports relating to the financial standing and condition of those in business have become part of the ordinary business methods of the country. Reports of such agencies are in general use for the purpose of establishing credit. Where a dealer makes to such an agency, for the purpose of effecting a credit, a false or fraudulent representation respecting his property, and the reports become known to and are relied upon by persons giving credit on the faith thereof, the representations contained in the agency’s-statement have the same effect as if they were made directly by the person accredited to the person who acts upon the faith of them. (Eaton, Cole & Burnham Co. v. Avery, 83 N. Y. 31; Humphrey v. Smith, 7 App. Div. 444, and numerous cases cited by Follett, J., in the opinion of the court.) That the representations contained in such statements have to some extent a continuing effect has been declared. • In the Humphrey case, representations were made three months and a half prior to the date of the transaction involved in that action. In Bliss v. Sickles (50 N. Y. St. Repr. 139) there were intervals of five and eight months between the false representations and the transactions founded on them; and in The Haugatuck Cutlery Co. v. Babcock (22 Hun, 481) there was an interval of five months. There are cases, however, in which it is, in effect, held that the false representations must be proximately connected in point of time with the transaction in which the plaintiff asserts he was deceived. In Macullar v. McKinley (99 N. Y. 353) Judge Daneobth, in speaking for the court, and referring to the case of Eaton v. Avery (supra), states that the •doctrine of that case should not be stretched. In the MacuTlar ■case, the defendant McKinley made a statement to Bradstreet’s Commercial Agency purporting to be as of May, 1881, respecting his pecuniary condition. The plaintiffs, merchants, sold to him merchandise in August, September and October upon credit,, which "they claimed to have based upon the May statement, which was, in fact, made to ■ the agency in the preceding February. Another statement was solicited from McKinley in June, 1881, but he declined to give any further information. He made an assignment for the benefit of creditors in November, 1881.' In an action for deceit the court held, in substance, that the creditor was not authorized to rely upon representations made six months before the earliest sales made by them to the defendant. Under ordinary circumstances, representations of the character involved in this suit should be regarded ap continuous for a reasonable time only, and they may well be considered as continuous during a series of dealings immediately connected with or growing out of an original transaction ■entered into upon the faith of such representations. Here, it would seem," according to the testimony of the vice-president of the defendant as to the connected character of the transactions, that it may have been reasonable for the defendant, when it renewed $J,500 of the indebtedness, to rely upon, the commercial agency report of May, 1891, as to the condition- of the firm of Crippen, Lawrence & Co., and, therefore, we must inquire into the -nature and substance of those representations.

Upon analyzing the commercial agency report in connection with the evidence relating to the condition of Crippen, Lawrence & Co. . at the time of that report, we fail to find any fraudulent intent whatever on the part of that firm in any of the representations ■contained in the report. From all that appears, it is a fair and honest statement of the condition of the firm. There are three subjects in respect of which fraud is claimed by the defendant, and the first relates -to the amount of capital it was stated the firm then had. That capital is declared in the statement to be $500,000. It appears in the proof that when the firm was first formed its capital-was but.$50,00.0, but the evidence shows that in May, 1891, it actually had an additional sum of $450,000, which was held -and used by the firm as. capital, and that it consisted of undivided and undrawn profits which belonged to the various members of the firm, and that it was treated as so much capital in the business. In that respect the statement was substantially correct. Another item of assets was real estate, which is valued in the statement at $121,9'52.44. There is nothing in the record before us to show that the valuation of the real estate made at that time was not honest, or that the property was worth any less than that amount. Long after the failure of the firm and its insolvent assignment; this real estate was sold for $37,000. In the meantime, the panic of 1893 had supervened. The real estate was situated in western. States. What it brought upon sales under such circumstances after 1893 cannot be used as evidence of its value some years before.

But it is claimed that there was a fraudulent suppression of liabilities, and an exclusion of such liabilities from the statement of 1891. It would appear that the business of Crippen, Lawrence & Co. was largely that of making loans upon real estate throughout the west, taking mortgages for such loans and selling those mortgages. At the time the statement of 1891 was made, there were about $200,000 of such mortgages, the payment of which Crippen, Lawrence & Co. had guaranteed to the purchasers of the mortgages. Between 1891 and the time of the failure of the firm that amount had largely increased. It is now asserted that it was fraud on the part of Crippen, Lawrence & Co, not to mention these liabilities in its statement. It affirmatively appears from the evidence of Mr. Crippen that the properties covered by such mortgages were worth the full amount of the mortgages. The liability incurred by them was solely conditional upon the failure of the mortgagors to pay their mortgages, or the property being insufficient to discharge those mortgages. The security was equal to the liability, and it cannot be assumed that there was any fraud under such circumstances in Crippen, Lawrence & Co. failing to make mention of such possible liability in the statement. Before any fraud can be inferred in this case the intent to defraud must be made in some way satisfactorily to appear. The record is devoid' of any proof from which that inference can fairly be drawn. We do not find anything which authorized the defendant to rescind the transaction resulting in the renewal note of $7,500 in August, 1893. Ro representation of any kind was made by Crippen, Lawrence & Co. to the Seaboard National Bank between June, 1892, and August, 1893, and the statement of May, 1891, is not successfully impeached in any of the respects in which it has been attacked.

Concerning the second ground upon which the defendant seeks to offset Crippen, Lawrence & Co.’s indebtedness against the plaintiff’s claim, it is sufficient to say that the provision of the statute of the State of Colorado relied upon does not relate to the subject of set-off and gives no other or further right of set-off than would exist at common law. The debt to the Seaboard National Bank was not due when the assignment for the benefit of creditors was made, and, upon the well understood rule of law, could not be set off against it. The provision of the statute reads as follows: Section 187. Debts .not due may be claimed, but if the same are not bearing interest a suitable rebate shall be made. Interest shall be computed to the date of the assignment and not afterward.” This section is a part of the provisions of chapter 34 of the Session Laws of Colorado of 'fhe year 1893, which went into effect on April 8, 1893, and it evidently refers only to administration of estates under the general provisions of an insolvent law, and is intended only to place holders of undue debts on an equality in proving claims for dividends with the holders of matured- debts under an assignment for the benefit of ■ creditors. By section 171 of the same statute preferences to creditors are forbidden. All are to share in proportion to the amount of their respective claims. An assignee for the benefit of creditors is, by section 175, required forthwith, upon an assignment being made, to publish notices of claims and to give notice to creditors .to present their claims under oath within three months from the filing of the .notice; and it declares that claim's filed within those three months shall have priority over those filed thereafter unless a proper excuse is given to the satisfaction of the court or judge acting in the assignment proceeding. That is all the legislation brought to our notice respecting the status of holders of undue claims. They simply come in as if they held claims that were due, and for the purposes of distribution of the assets upon the basis -of equality between debts due and debts not due. It requires something more than such provisions to authorize us to conclude that a new rule of. set-off was introduced into the law in Colorado, which would affect the rights of the parties to this action.

The judgment must be reversed and a new trial ordered, with costs to appellant to abide the event.

O’Brien, Ingraham and McLaughlin, JJ., concurred.

Van Brunt, P. J.:

I concur in the result. Even if the representations were false, the defendant could not avail itself of them. They were too remote.

Judgment reversed, new trial ordered,.costs to appellant to abide event.  