Phillips v. Joseph Kantor & Co.

Decision Date03 November 1972
Citation31 N.Y.2d 307,291 N.E.2d 129,338 N.Y.S.2d 882
CourtNew York Court of Appeals Court of Appeals
Parties, 291 N.E.2d 129, 67 A.L.R.3d 961 Nathan PHILLIPS, Appellant, v. JOSEPH KANTOR & COMPANY et al., Respondents, and Herbert Kantor, Defendant.

Benjamin Gassman, New York City, for appellant.

Donald Stuart Bab and James D. Mollica, New York City, for respondents and defendant.

BREITEL, Judge.

In a malpractice action against a partnership of accountants and the executors of the estate of the senior partner, the accountants' motion for summary judgment was granted and the complaint dismissed. Plaintiff, a lender to a third-party client of the accountants, who allegedly relied on false statements of the deceased partner appeals. The issue, one of first impression in this court, is whether evidence, excludable under the Dead Man's Statute (CPLR 4519), may be considered to defeat a motion for summary judgment.

There should be a reversal and summary judgment denied. Evidence, otherwise relevant and competent upon a trial or hearing, but subject to exclusion on objection under the Dead Man's Statute, should not predetermine the result on summary judgment in anticipation of the objection. Moreover, there is in this case some evidence free from exclusionary objection which suggests a palpable likelihood of establishing plaintiff's prima facie case, without use of the evidence excludable under the Dead Man's Statute.

On December 23, 1965, plaintiff Phillips loaned Russell Springs Manufacturing Corporation $50,000. Then, on June 21 and June 30, 1966, plaintiff Phillips loaned an affiliate, Townley Shirts, Inc., $150,000 and $50,000, respectively. Both companies were subsidiaries of Townley Associates, Inc., which manufactured shirts and materials. The companies have failed to repay the loans, and have gone severally into bankruptcy.

Plaintiff Phillips' pretrial deposition was completed October 9, 1968. The deposition of the defendant senior partner, Joseph Kantor, was begun October 18, 1968, but on December 12, 1968, before the examination was complete, he died in an airplane crash. His executors were substituted on September 10, 1969.

In support of defendants' motion for summary judgment, they quote plaintiff Phillips' statement in his pretrial examination that he relied solely on alleged, private conversations with the decedent to establish malpractice. Defendants contend that testimony by plaintiff Phillips to that effect is excludable under the Dead Man's Statute (CPLR 4519).

The opposing affidavits quote extensively from the remainder of plaintiff Phillips' deposition detailing the conversations. In brief, he said that the decedent told him that Townley Shirts was 'current', when in fact it had current debts outstanding, and that the decedent recommended the loan be made when in fact Townley Shirts was known to him to be insolvent. If this deposition were admitted into evidence, triable issues of fact would concededly be raised.

In opposition to the motion, plaintiff Phillips also relies on a letter, in the decedent's handwriting, sent to the plaintiff with a financial statement, and testimony of the decedent on June 21, 1967, before a referee in bankruptcy. The letter dated March 23, 1966 states that 'The net worth of Russell Springs is $27,000'. The decedent's testimony in the Townley Shirts bankruptcy includes a statement that a balance sheet of June 30, 1966, about three months later, indicated 'that Russell Springs shows a deficiency of capital of $215,800.25.' The financial status of Russell Springs could have been crucial to the lender. A balance sheet of Townley Shirts as of March 31, 1966, less than three months before the last loans were made, prepared by the defendant-accounting firm, shows as an asset $267,636.74 due from Russell Springs, and a total surplus of $67,598.91, plus capital stock of $134,641.

On July 13, 1971, Special Term, in considering the motion for summary judgment, granted plaintiff Phillips a continuance 'to permit affidavits to be obtained from persons competent to testify as to the representations.' Additional affidavits were submitted, but they were held insufficient. The motion was granted and the complaint dismissed.

Plaintiff Phillips also alleged that defendant Herbert Kantor, a lawyer and the deceased accountant's son, was retained to protect the lender in this transaction, and that the financial weaknesses of the borrowing companies were not fully disclosed. This cause of action is not involved on this appeal.

Special Term and the Appellate Division, 39 A.D.2d 521, 330 N.Y.S.2d 557, held that the only evidence to support the complaint was excludable under the Dead Man's Statute, and that, therefore, summary judgment should be granted.

Plaintiff Phillips contends, on the appeal, that there was evidence other than his testimony of the alleged misrepresentations of the deceased accountant. Moreover, he contends that evidence excludable under the Dead Man's Statute should be considered to defeat summary judgment even if it is the only evidence to support the complaint.

Summary judgment should be denied where there is any doubt, at least any significant doubt, whether there is a material, triable issue of fact (e.g., Glick & Dolleck v. Tri-Pac Export Corp., 22 N.Y.2d 439, 441, 293 N.Y.S.2d 93, 94, 239 N.E.2d 725, 726; Exchange Leasing Corp. v. Bundy, 29 A.D.2d 828, 287 N.Y.S.2d 548; 4 Weinstein-Korn-Miller, N.Y.Civ.Prac., 3212.05c). As stated in the Exchange Leasing case (29 A.D.2d 828, 287 N.Y.S.2d 548, Supra) 'Rules of evidence should be guardedly and cautiously applied on an application for summary judgment, particularly where there are many exceptions to general rules and where the application of a rule of evidence or the exceptions thereto can best be determined upon evidence offered at a trial' (id.). True, it has been said that inadmissible evidence is insufficient to defeat a motion for summary judgment (e.g., Cohen v. Pannia, 7 A.D.2d 886, 181 N.Y.S.2d 220; Ford v. Hahn, 269 App.Div. 436, 55 N.Y.S.2d 854; 4 Weinstein-Korn-Miller, N.Y.Civ.Prac., 3212.05c, at p. 32--142.37, but compare 3212.05; 6 Carmody-Wait 2d, New York Practice, § 39:29). The case of Indig v. Finkelstein, 23 N.Y.2d 728, 296 N.Y.S.2d 370, 244 N.E.2d 61, restates the rule, however, applicable to summary judgment and indicates that an affidavit setting forth names of witnesses, the substance of their testimony, how it was known what their testimony would be, and how the witnesses acquired their knowledge might be sufficient to defeat a motion for summary judgment, without the witnesses' own affidavits (Id., at p. 730, 296 N.Y.S.2d at p. 372, 244 N.E.2d at p. 62).

In England, where summary judgment originated, the motion is decided, as in the United States, on affidavits (e.g., United Founders' Trust Ltd. v. Fitzgeorge, 7 Times L.R. 620 (1891)). To defeat the motion the opposing party need not necessarily 'show a good defence on the merits if he can suggest some reasonable defence.' 'Hearsay evidence is not to be shut out' (50 English and Empire Digest 408; Harrison v. Bottenheim, 26 W.R. 362, 363 (1878)). An affidavit is not conclusive, for 'it is impossible to tell what facts may be discovered and relied on by the time the trial comes on' (Ray v. Newton, (1913) 1 K.B. 249, 258).

In applying these general principles to cases in which the evidentiary facts in opposing affidavits are excludable under the Dead Man's Statute, the Appellate Divisions have divided. The First Department has consistently held, until the instant case, that 'matter which might be excluded on a trial pursuant to (the dead man's statute) may nevertheless be considered in determining whether a triable issue exists to defeat the motion' (Bourgeois v. Celentano, 10 A.D.2d 824, 199 N.Y.S.2d 87, mot. for lv. to app. den. 8 N.Y.2d 708, 206 N.Y.S.2d 1025, 169 N.E.2d 925; Lindner v. Eichel, 34 Misc.2d 840, 846, 232 N.Y.S.2d 240, 246 (Matthew M. Levy, J.), affd. 17 A.D.2d 735, 233 N.Y.S.2d 238; Richardson, Evidence (9th ed.), § 414). The Second and Third Department now take a contrary though arguably distinguishable view (Friese v. Baird, 36 A.D.2d 727, 320 N.Y.S.2d 469 (2d Dept.); Lombardi v. First Nat. Bank of Hancock, 23 A.D.2d 713, 257 N.Y.S.2d 83 (3d Dept.)). The First Department rule finds numerous applications at Special Term (Tichonchuk v. Orloff, 36 Misc.2d 623, 627, 233 N.Y.S.2d 321, 325 (Stier, J.); de Huff v. Bulova Fund, 36 Misc.2d 28, 30, 231 N.Y.S.2d 928, 929 (McGivern, J.); cf. Great Atlantic & Pacific Tea Co. v. Lloyd Brasileiro Patrimonio, 36 Misc.2d 821, 824, 234 N.Y.S.2d 243, 245). Emphatically, evidence excludable under the Dead Man's Statute should not be used to support summary judgment; but that is another matter (e.g., Sprung v. Halberstam, 28 Misc.2d 636, 208 N.Y.S.2d 203).

The Second Department initially followed the First Department rule in a succinct statement of the difference between using the excludable evidence to defeat summary judgment in contrast to using it to support summary judgment (Raybin v. Raybin, 15 A.D.2d 679, 224 N.Y.S.2d 165). But later Second and Third Department cases attempt to distinguish the Bourgeois and Raybin cases (supra) on the ground that summary judgment should be granted if the only evidence offered in opposition is excludable and 'it is abundantly clear that no additional evidence can be adduced at the trial' (Lombardi v. First Nat. Bank of Hancock, 23 A.D.2d 713, 257 N.Y.S.2d 83, Supra; Friese v. Baird, 36 A.D.2d 727, 320 N.Y.S.2d 469, Supra). The Weinstein-Korn-Miller treatise makes the same distinction and comments '(t)he result is somewhat shocking but this is because of the policy of the Dead Man Statute which deliberately impedes the courts' search for the truth on the ground that judges and jurors are not capable of properly assessing credibility' (Supra, 4519.06, at p. 45--334).

New York's Dead Man's Statute by its terms makes testimony by an interested witness ...

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