SECURITY PACIFIC BUSINESS CREDIT, INC., RESPONDENT, v. PEAT MARWICK MAIN &
CO., &C., APPELLANT.
79 N.Y.2d 695, 597 N.E.2d 1080, 586 N.Y.S.2d 87 (1992).
July 1, 1992
1 No. 103
Decided July 1, 1992
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This opinion is uncorrected and subject to revision before publication
in the New York Reports.
Mathias E. Mone, for Appellant.
Gabriel B. Schwartz, for Respondent.
New York State Society of Certified Public Accountants, amicus curiae.
New York State Bankers Association, et al., amici curiae.
American Institute of Certified Public Accountants, amicus curiae.
BELLACOSA, J.:
Plaintiff, an institutional lender lacking a contractual or other
direct business relationship with defendant accounting firm, seeks to
hold the defendant liable for alleged negligence committed by
defendant's predecessor in its 1984 audit of financial statements of
its client, Top Brass Enterprise, Inc. (Top Brass). In October, 1984,
plaintiff, Security Pacific Business Credit, Inc. (SPBC), an asset
based lender, and Bankers Trust Co. loaned Top Brass approximately $40
million on a $50 million line of credit, secured by Top Brass's
accounts receivable and merchandise inventory. After Top Brass filed
for bankruptcy in 1986, SPBC sued defendant Peat Marwick, as successor
to Main Hurdman. SPBC alleged that it had relied on Main Hurdman's
1984 unqualified audit opinion and financial statements, which did not
accurately present the financial position of Top Brass in that they
negligently over-valued Top Brass's accounts receivable and
merchandise inventory. SPBC's alleged reliance is premised essentially
on a telephone call from its vice president, Seiden, to Main Hurdman's
audit partner, Freeman, during and with respect only to the 1984 audit
process and audit work papers supplied to SPBC by Top Brass. SPBC
claimed losses on the loans of at least $8 million.
The issue presented is whether defendant accountants may be held
liable in negligence by application of the principles of the Credit
Alliance Corp. v Andersen & Co. (65 NY2d 536) line of precedents. We
conclude that SPBC failed to demonstrate the existence of a
relationship between itself and defendant's predecessor accounting
SNIPPETS:
SECURITY PACIFIC BUSINESS CREDIT, INC., RESPONDENT, v. PEAT MARWICK MAIN &
This opinion is uncorrected and subject to revision before publication in the New York
New York State Society of Certified Public Accountants,
Plaintiff, an institutional lender lacking a contractual or other direct business
After Top Brass filed for bankruptcy in 1986, SPBC sued defendant Peat Marwick, as successor
SPBC alleged that it had relied on Main Hurdman's 1984 unqualified audit opinion and
The issue presented is whether defendant accountants may be held liable in negligence by
We conclude that SPBC failed to demonstrate the existence of a relationship between itself
Top Brass, a publicly-owned retailing chain, retained Main Hurdman, a national accounting
It made no mention of SPBC, loan negotiations, or of any other uses or potential uses of the
According to Seiden, upon his receipt on September 13 from Top Brass of the 1984 draft
Freeman did not have any recollection of that phone call or any call from Seiden, but
SPBC and Bankers Trust subsequently granted Top Brass the $50 million line of credit it had
In "carefully circumscribed" instances, accountants may also incur liability to injured third
The indicia, while distinct, are interrelated and collectively require a third party claiming
European Am. Bank & Trust Co. v Strauhs & Kaye, decided as a companion, complementary case to
The facts, as alleged by European American Bank, "clearly showthat was well aware that a
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