author: Per Curiam.

text:
    In the Matter of Annabelle Staber, Appellant, v Lewis A. Fidler et al., Respondents. (And Another Proceeding.) In the Matter of Nydia M. Velazquez, Respondent, v Daisey B. Parrilla, Appellant. (And Another Proceeding.) In the Matter of Dora M. Garrett, Appellant, v Susan D. Alter et al., Respondents. (And Another Proceeding.)
    Argued August 26, 1985;
    decided August 28, 1985

      POINTS OF COUNSEL

      Aaron D. Maslow and Debra Silber for appellant in the first above-entitled proceeding.
    I. The Fidler petition is invalid for noncompliance with the Election Law’s mandatory requirements concerning petition cover sheets, in that each cover sheet overstates the total number of signatures actually contained in the petition and the total number of signatures actually contained in each volume of the petition. (Matter of Hargett v Jefferson, 63 NY2d 696; Jefferson v Abrams, 747 F2d 94; Matter of Jonas v Black, 104 AD2d 466, 63 NY2d 685; Matter of Higby v Mahoney, 48 NY2d 15; Matter of Morris v Hayduk, 45 NY2d 793; Matter of Brace v Scaringe, 96 AD2d 1012; Matter of Delle Cese v Black, 63 NY2d 694; Matter of Smith v Mahoney, 60 NY2d 596; Matter of Golata v Mahoney, 60 NY2d 597; Matter of Hutson v Bass, 54 NY2d 772.) II. The requirement of Election Law § 6-134 (2) that a designating petition cover sheet shall indicate “the total number of signatures contained in such petition” is constitutional. (Oregon v Mitchell, 400 US 112; Jenness v Forison, 403 US 431; Williams v Rhodes, 393 US 23; Valenti v Rockefeller, 292 F Supp 851, 393 US 405, 1124; New York State Democratic Party v Lomenzo, 460 F2d 250; American Party v White, 415 US 767; Unity Party v Wallace, 707 F2d 59; Gammerman v Board of Elections, 550 F Supp 1031; Moldonado v Rodriguez, 523 F Supp 177; Gangemi v Sclafani, 506 F2d 570.)

      Michael Freedman and Melvin B. Berfond for Lewis A. Fidler, respondent in the first above-entitled proceeding.
    I. The total of signatures set forth in the cover sheet fully complies with the provisions of the Election Law. (Matter of Hargett v Jefferson, 63 NY2d 696; Matter of King v Van Wart, 67 Misc 2d 592, 37 AD2d 773; Matter of O'Brien v Meisser, 14 AD2d 600, 10 NY2d 799; Matter of Bernhardt v Sachs, 57 AD2d 598; Matter of Esse v Chiavaroli, 71 AD2d 1046; Matter of Krueger v Richards, 93 AD2d 898; Matter of Alamo v Black, 51 NY2d 716.) II. Respondent’s petition for council member is valid in that there was substantial compliance with the Election Law. (Matter of Kantrowitz v Goldin, 47 Misc 2d 658; Matter of Rosen v McNab, 25 NY2d 798; Matter of Golata v Mahoney, 60 NY2d 597; Matter of Hutson v Bass, 54 NY2d 772; Ruiz v Sachs, 43 NY2d 894; Matter of Jonas v Black, 104 AD2d 466, 63 NY2d 685; Matter of Amalfitano v Sadowski, 51 NY2d 719; Matter of Cairo v Hardwood, 42 NY2d 1098; Matter of Sheehan v Scaringe, 60 NY2d 795.) III. The remedy for an incorrect number of signatures stated in a subscribing witness statement is the invalidation of that incorrect sheet only. (Matter of Livreri v Garguilo, 49 NY2d 832; Matter of Klemann v Acito, 45 NY2d 796; Matter of White v McNab, 40 NY2d 912; Matter of O'Brien v Meisser, 14 AD2d 600, 10 NY2d 799; Matter of Hall v Heffeman, 185 Misc 742, 269 App Div 953, 295 NY 599; Matter of Sullivan, 259 App Div 752; Matter of Berger v Acito, 64 AD2d 949; Matter of King v Van Wart, 67 Misc 2d 592, 37 AD2d 773; Matter of Esse v Chiavaroli, 71 AD2d 1046.) IV. Denial of ballot access for a trivial reason violates the 1st and 14th Amendment rights of respondent. (Moldonado v Rodriguez, 423 F Supp 177; Gammerman v Board of Elections, 550 F Supp 1031; Unity Party v Wallace, 707 F2d 59.)

      William J. Garry and Francis J. Aquila for appellant in the second above-entitled proceeding.
    The Velazquez petition for council member is invalid for noncompliance with the Election Law’s mandatory requirements concerning petition cover sheets in that there was a failure to set forth the total number of signatures actually contained in the petition and a failure to set forth the total number of signatures actually contained in each volume of the petition. (Matter of Hargett v Jefferson, 63 NY2d 696; Matter of Delle Cese v Black, 63 NY2d 694; Matter of Smith v Mahoney, 60 NY2d 596; Matter of Golata v Mahoney, 60 NY2d 597; Matter of Engert v McNab, 60 NY2d 607; Matter of Hutson v Bass, 54 NY2d 772; Matter of Brosnan v Black, 104 AD2d 469,63 NY2d 692; Matter of Contessa v McCarthy, 40 NY2d 629; Matter of Brace v Scaringe, 96 AD2d 1012.)

      Emmett Haines Pritchard, Herman Badillo, Esmeralda Simmons and Paul Wooten for respondent in the second above-entitled proceeding.
    I. Appellant Parrilla is precluded from raising the new cover sheet challenge since she did not specify an objection on this ground in her pleadings. (Matter of Brosnan v Black, 104 AD2d 469, 63 NY2d 692; Matter of Belak v Rossi, 96 AD2d 1011; Matter of Suarez v Sadowski, 48 NY2d 620.) II. Hargett should not apply to the Velazquez petition because the facts are clearly different. (Matter of Hargett v Jefferson, 63 NY2d 696.) III. The trial court erred in not allowing testimony from the subscribing witnesses on the challenged sheets.

      John M. Leventhal for appellant in the third above-entitled proceeding.
    The Alter petition for council member is invalid for noncompliance with the Election Law’s mandatory requirements concerning petition cover sheets in that there was a failure to set forth the total number of signatures actually contained in the petition and a failure to set forth the total number of signatures actually contained in each volume of the petition. (Matter of Hargett v Jefferson, 63 NY2d 696; Jefferson v Abrams, 747 F2d 94; Matter of Delle Cese v Black, 63 NY2d 694; Matter of Smith v Mahoney, 60 NY2d 596; Matter of Golata v Mahoney, 60 NY2d 597; Matter of Engert v McNab, 60 NY2d 607; Matter of Hutson v Bass, 54 NY2d 772; Matter of Brosnan v Black, 104 AD2d 469, 63 NY2d 692; Matter of Contessa v McCarthy, 40 NY2d 629; Matter of Brace v Scaringe, 96 AD2d 1012.)

      Anthony J. Genovesi for Susan D. Alter, respondent in the third above-entitled proceeding.
    I. Respondent adopts the conclusions of law contained in petitioner’s memorandum of law submitted in the Matter of Staber v Fidler. II. Petitioner’s argument in the case at bar is contradictory to his position in the Matter of Staber v Fidler. III. Respondent Alter’s cover sheet discrepancy is distinguished from Fidler’s cover sheet discrepancy. (Matter of Jonas v Black, 104 AD2d 466, 63 NY2d 685; Matter of Hargett v Jefferson, 63 NY2d 696.)
   OPINION OF THE COURT

Per Curiam.

These proceedings, like others before us today, involve minor discrepancies between the numbers of signatures indicated on cover sheets and the actual numbers of signatures contained in the designating petitions themselves. Each of the three candidates seeks a place on the New York City Democratic primary ballot for the public office of council member from his or her respective district. The designating petition of Lewis A. Fidler contains either 4,659 or 4,660 signatures, which his cover sheets overstated as 4,669. Nydia M. Velazquez’s designating petition contains 2,420 signatures, overstated on her cover sheet by four. Susan D. Alter’s designating petition contains 4,643 signatures, which her cover sheets understate by three. In each case, a place on the primary ballot requires 1,500 valid signatures.

Upon cross applications to validate and invalidate, Special Term found the cover sheet overstatements in the designating petitions of Fidler and Velazquez inconsequential violations of Election Law § 6-134 (2). Nonetheless, interpreting our decision in Matter of Hargett v Jefferson (63 NY2d 696) to require “ ‘strict’ compliance” in every case of cover sheet overstatements, the court “most reluctantly” granted the applications to invalidate and denied the applications to validate in the Fidler and Velazquez proceedings. In the Alter proceeding, the court denied the application to invalidate and granted the application to validate, reading our decision in Matter of Jonas v Black (63 NY2d 685, affg 104 AD2d 466) as requiring only “ ‘substantial’ compliance” in cases of cover sheet understatements.

The Appellate Division modified, on the law and the facts, by reversing Special Term’s determinations in Fidler and Velazquez, granting their applications to validate, denying the applications to invalidate and ordering that their names be placed on the appropriate ballots. It expressed the view, in which we concur, that “Matter of Hargett v Jefferson (supra) has been misconstrued by those who rely upon it to attack designating petitions where the overstatement or understatement of the numbers of signatures is extremely minor”, and that Hargett was not intended to abrogate the doctrine that the law will not bother with trifles. This is so, even within the context of the heightened scrutiny with which courts must determine compliance with the technical requirements of the Election Law.

This is not to say that all cover sheet discrepancies may be ignored. Broad policy considerations weigh in favor of requiring strict compliance with the Election Law in these cases. One of the purposes of the statutory requirements is to facilitate the discovery of fraud and irregularity in designating petitions (Matter of Rutter v Coveney, 38 NY2d 993, 994). Overstatements of the number of signatures in designating petitions may deter potential challengers, who believe they could more profitably spend their time and energy challenging designating petitions whose cover sheets indicate a number of signatures closer to the required minimum. Conversely, understatements, especially substantial ones, could attract challenges which would otherwise be deemed unwarranted and a waste of judicial and other resources when they are most in demand. Another benefit of strict construction of the Election Law is that it reduces the likelihood of unequal enforcement (Matter of Carr v State Bd. of Elections, 40 NY2d 556, 558). Both the actual operation and public perception of the electoral process as one that seeks regularity and evenhanded application must not be distorted. The Election Law must have a neutral application unaffected by party affiliation, policy, position, incumbency, race, sex, or any other criterion irrelevant to a determination of whether its requirements have been met. In short, a too-liberal construction of the Election Law has the potential for inviting mischief on the part of candidates, or their supporters or aides, or worse still, manipulations of the entire election process.

On the other hand, a strictness of construction beyond that necessary for the effectuation of those policies can also lead to injustice (Matter of Carr v State Bd. of Elections, supra, at p 559). We implicitly recognized this in Matter of Jonas v Black (supra), where an inconsequential understatement was not fatal to the validity of the designating petition. We did not hold to the contrary in Matter of Hargett v Jefferson (supra), which involved overstatements that were substantial by any estimate (one cover sheet claimed 5,074 signatures though the designating petition to which it related only contained 3,831; the other claimed 3,325 though its designating petition contained 2,083).

Even though laboring under the severe time constraints of election cases, of which we are painfully aware (see, Matter of Reiter v Black, 63 NY2d 689), it should be apparent from a reading of our precedents, informed by the underlying policies they are intended to serve, that there is room for judicious decision-making within the confines marked by Matter of Hargett v Jefferson (supra), and Matter of Jonas v Black (supra), without offending the policy of stare decisis. As this court announced many years ago, “No opinion is an authority beyond the point actually decided, and no judge can write freely if every sentence is to be taken as a rule of law separate from its association” (Dougherty v Equitable Life Assur. Socy., 266 NY 71, 88, rearg denied 266 NY 615).

In the present cases, we agree with the Appellate Division that the discrepancies in the designating petitions of all three candidates were inconsequential and did not implicate any of the underlying policy considerations discussed above, and no potential for fraud has been alleged or is apparent. Accordingly, we affirm its order.

Chief Judge Wachtler and Judges Jasen, Meyer, Simons, Kaye, Alexander and Titone concur in Per Curiam opinion.

In each case: Order, insofar as appealed from, affirmed, without costs.

      . Election Law § 6-134 (2) provides in pertinent part: “There shall be a cover sheet attached to each petition consisting of ten or more sheets and each volume thereof. Each cover sheet shall indicate *** the total number of signatures contained in such petition. If the petition is filed in two or more volumes, the cover sheet for each volume shall also contain the following additional information: * * * the total number of signatures contained in the volume”.

      . That court affirmed the determination in Matter of Garrett v Alter, and the appeal is here by our leave (65 NY2d 607).


source: Caselaw Access Project

author: Jasen, J.

license: Public Domain

text:
    Credit Alliance Corporation et al., Respondents, v Arthur Andersen & Co., Appellant. European American Bank and Trust Company, Respondent, v Strauhs & Kaye et al., Appellants.
    Argued May 29, 1985;
    decided July 2, 1985

      POINTS OF COUNSEL

      Robert L. King, John S. Kiernan and Charles W. Boand for appellant in the first above-entitled action.
    I. Andersen owed no duty of care to plaintiffs, with whom it was not in privity. (Dworman v Lee, 83 AD2d 507, 56 NY2d 816; State St. Trust Co. v Ernst, 278 NY 104; Glanzer v Shepard, 233 NY 236; Home Mut. Ins. Co. v Broadway Bank & Trust Co., 76 AD2d 24, 53 NY2d 568; Calamari v Grace, 98 AD2d 74; Aeronca, Inc. v Gorin,
      561 F Supp 370.) II. Ultramares remains good law, and should not be overruled or eroded. (Dworman v Lee, 83 AD2d 507, 56 NY2d 816; State St. Trust Co. v Ernst, 278 NY 104; Decker v Massey-Ferguson, Ltd., 681 F2d 111; Blue Chip Stamps v Manor Drug Stores, 421 US 723; Ernst & Ernst v Hochfelder, 425 US 185; Flood v Kuhn, 407 US 258; People v Green, 56 NY2d 427; Matter of Higby v Mahoney, 48 NY2d 15; Murphy v American Home Prods. Corp., 58 NY2d 293.) III. Plaintiffs’ negligence claim should have been dismissed as barred by the applicable Statute of Limitations, CPLR 214 (6). (White v Guarente, 43 NY2d 356.) IV. The fraud count should have been dismissed for failure to state a cause of action and failure to plead fraud with particularity. (Reno v Bull, 226 NY 546; Federation Chems. v Chemical Constr. Corp., 31 AD2d 799, 27 NY2d 564; Knowles v City of New York, 176 NY 430; Lanzi v Brooks, 54 AD2d 1057, 43 NY2d 778; Lapis Enters. v International Blimpie Corp., 84 AD2d 286; Decker v Massey-Ferguson, Ltd., 681 F2d 111; Segal v Gordon, 467 F2d 602; Chase v United Hosp., 60 AD2d 558; Amigo Foods Corp. v Marine Midland Bank-N. Y., 39 NY2d 391.)

      Melvyn I. Weiss, Jerome M. Congress and Elizabeth A. Shollenberger for respondents in the first above-entitled action.
    I. Plaintiffs have stated a claim for negligence. (White v Guarente, 43 NY2d 356; Mallis v Bankers Trust Co., 615 F2d 68, 449 US 1123; Matter of Douglas, 104 Misc 2d 430; Chemical Bank v National Union Fire Ins. Co., 74 AD2d 786; Gordon v Holt, 65 AD2d 344; Cline v Avery Abrasives, 96 Misc 2d 258; Dworman v Lee, 83 AD2d 507, 56 NY2d 816; Sharp v Coopers & Lybrand, 457 F Supp 879, 649 F2d 175, 455 US 938; Gold v DCL Inc., 399 F Supp 1123; Escott v Barchris Constr. Corp., 283 F Supp 643; Glanzer v Shepard, 233 NY 236.) II. The negligence claim is not barred by the Statute of Limitations. (Cubito v Kreisberg, 69 AD2d 738, 51 NY2d 900; Sosnow v Paul, 43 AD2d 978, 36 NY2d 780; Cameron Estates v Deering, 308 NY 24; Alexander & Baldwin v Peat, Marwick, Mitchell & Co., 385 F Supp 230; Wasserman v Herwood, 36 Misc 2d 522; Martin v Edwards Labs., 60 NY2d 417; Victorson v Bock Laundry Mach. Co., 37 NY2d 395; Gilbert Props. v Millstein, 40 AD2d 100, 33 NY2d 857; Wilkin v Dana R. Pickup & Co., 74 Misc 2d 1025; General Stencils v Chiappa, 18 NY2d 125; Summer v Land & Leisure, 571 F Supp 380.) III. The court below was correct in refusing to dismiss the fraud count. (State St. Trust Co. v Ernst, 278 NY 104; Lanzi v Brooks, 43 NY2d 778; McLean v Alexander, 599 F2d 1190; Foley v D'Agostino, 21 AD2d 60; Dimmer v Medallion

      Group, 75 AD2d 299; Jered Contr. Corp. v New York City Tr. Auth., 22 NY2d 187; Schlick v Penn-Dixie Cement Corp., 507 F2d 374, 421 US 976; Walling v Beverly Enters., 476 F2d 393.)

      Dan L. Goldwasser, John G. Grosz, Bernard Persky and Jehv A. Gold for New York State Society of Certified Public Accountants, amicus curiae in the first above-entitled action.
    I. The standard adopted by the majority in the court below would involve a wholesale, not a limited, departure from the privity requirement of Ultramares. (Ultramares Corp. v Touche, 255 NY 170.) II. As a matter of policy the rule of Ultramares should be retained. (State St. Trust Co. v Ernst, 278 NY 104; Dworman v Lee, 56 NY2d 816; Ernst & Ernst v Hochfelder, 425 US 185; Blue Chip Stamps v Manor Drug Stores, 421 US 723; Tango v Tulevech, 61 NY2d 34; Rottkamp v Young, 21 AD2d 373, 15 NY2d 831; Auerbach v Bennett, 47 NY2d 619; Murphy v American Home Prods. Corp., 58 NY2d 293.) III. This court, as it did in Murphy v American Home Prods., should defer to the Legislature on a challenge to a long-settled rule of common law involving critical considerations of public policy. (Murphy v American Home Prods. Corp., 58 NY2d 293.)

      Kenneth J. Bialkin, Louis A. Craco, Deborah E. Cooper and J. Kelly Strader for American Institute of Certified Public Accountants, amicus curiae in the first above-entitled action.
    I. In establishing a foreseeable plaintiff exception to the Ultramares rule, the decision below both contravenes long-standing precedent of this court and ignores the carefully crafted policy calculus upon which that precedent is based. (Ultramares Corp. v Touche, 255 NY 170; State St. Trust Co. v Ernst, 278 NY 104; White v Guarente, 43 NY2d 356; Aeronca, Inc. v Gorin, 561 F Supp 370; Dworman v Lee, 83 AD2d 507, 56 NY2d 816; Quintel Corp. v Citibank, 589 F Supp 1235; Home Mut. Ins. Co. v Broadway Bank & Trust Co., 53 NY2d 568; Calamari v Grace, 98 AD2d 74.) II. Sound public policy considerations merit this court’s continued adherence to its decision in Ultramares. (Securities & Exch. Commn. v Texas Gulf Sulphur Co., 401 F2d 833, cert denied sub nom. Kline v Securities & Exch. Commn., 394 US 976; Decker v Massey-Ferguson, Ltd., 681 F2d 111; Blue Chip Stamps v Manor Drug Stores, 421 US 723; MacPherson v Buick Motor Co., 217 NY 382; Ernst & Ernst v Hochfelder, 425 US 185; Murphy v American Home Prods. Corp., 58 NY2d 293; Matter of Higby v Mahoney, 48 NY2d 15; Flood v Kuhn, 407 US 258; People v Green, 56 NY2d 427.)

      John C. Grosz, Dan L. Goldwasser, Bernard Persky and Jehv A. Gold for appellants in the second above-entitled action.
    I. The privity requirement in Ultramares, as recently reaffirmed by this court in Dworman v Lee, requires dismissal of the negligence claim. (Ultramares Corp. v Touche, 255 NY 170; State St. Trust Co. v Ernst, 278 NY 104; Home Mut. Ins. Co. v Broadway Bank & Trust Co., 53 NY2d 568; Pulka v Edelman, 40 NY2d 781; Dworman v Lee, 83 AD2d 507, 56 NY2d 816; White v Guarente, 43 NY2d 356; Calamari v Grace, 98 AD2d 74; Aeronca, Inc. v Gorin, 561 F Supp 370; Quintel Corp. v Citibank, 589 F Supp 1235.) II. The standard adopted by the court below would involve a broad and inequitable departure from the requirement of privity. (Albala v City of New York, 54 NY2d 269; Bovsun v Sanperi, 61 NY2d 219; Pulka v Edelman, 40 NY2d 781; Tobin v Grossman, 24 NY2d 609.) III. As a matter of policy the rule of Ultramares should not be discarded or eroded. (Auerbach v Bennett, 47 NY2d 619.) IV. This court, as it did in Murphy v American Home Prods., should defer to the Legislature on a challenge to a long-settled rule of common law involving critical considerations of public policy. (Murphy v American Home Prods. Corp., 58 NY2d 293.) V. Respondent cannot circumvent the privity requirement by alleging gross negligence and reckless indifference. (Iselin & Co. v Muhlstock, Elowitz & Co., 52 AD2d 540.)

      John W. McGrath and James L. Marketos for respondent in the second above-entitled action.
    I. The ruling of the court below does not depart from the established law of New York. (Ultramares Corp. v Touche, 255 NY 170; White v Guarente, 43 NY2d 356; Glanzer v Shepard, 233 NY 236; Chemical Bank v National Union Fire Ins. Co., 74 AD2d 786; Chemical Bank v Sternbach & Co., 91 AD2d 518; Cline v Avery Abrasives, 96 Misc 2d 258; State of New York v Oxford Nursing Home, 96 Misc 2d 103; State St. Trust Co. v Ernst, 278 NY 104; Dworman v Lee, 83 AD2d 507,56 NY2d 816.) II. A negligence standard of liability for accountants in third-party actions will adequately limit liability while providing for the redress of substantial wrongs. (Tobin v Grossman, 24 NY2d 609; Rusch Factors v Levin, 284 F Supp 85; Palsgraf v Long Is. R. R. Co., 248 NY 339; Pulka v Edelman, 40 NY2d 781; Bovsun v Sanperi, 61 NY2d 219.) III. Policy considerations do not justify the imposition of a different standard of liability on accountants in third-party actions. Winter v Anderson, 245 App Div 907; Village of Bronxville v New York, Westchester & Conn. Traction Co., 46 App Div 627; Woods v Lancet, 303 NY 349; MacPherson v Buick Motor Co., 217 NY 382.) IV. This court need not defer to the Legislature in this case. (Woods v Lancet, 303 NY 349; Randy Knitwear v American Cyanamid Co., 11 NY2d 5.) V. The rule of Ultramares Corp. v Touche sustains the second cause of action. (State St. Trust Co. v Ernst, 278 NY 104: Iselin & Co. v Muhlstock, Elowitz & Co., 52 AD2d 540.)
   OPINION OF THE COURT

Jasen, J.

The critical issue common to these two appeals is whether an accountant may be held liable, absent privity of contract, to a party who relies to his detriment upon a negligently prepared financial report and, if so, within what limits does that liability extend.

I

In Credit Alliance Corp. v Andersen & Co. (^‘Credit Alliance”), plaintiffs are major financial service companies engaged primarily in financing the purchase of capital equipment through installment sales or leasing agreements. Defendant, Arthur Andersen & Co. (“Andersen”), is a national accounting firm. Plaintiffs’ complaint and affidavit allege that prior to 1978, plaintiffs had provided financing to L. B. Smith, Inc. of Virginia (“Smith”), a capital intensive enterprise that regularly required financing. During 1978, plaintiffs advised Smith that as a condition to extending additional major financing, they would insist upon examining an audited financial statement. Accordingly, Smith provided plaintiffs with its consolidated financial statements, covering both itself and its subsidiaries, “For The Years Ended December 31, 1977 and 1976” (the “1977 statements”). These statements contained an auditor’s report prepared by Andersen stating that it had examined the statements in accordance with generally accepted auditing standards (“GAAS”) and found them to reflect fairly the financial position of Smith in conformity with generally accepted accounting principles (“GAAP”). In reliance upon the 1977 statements, plaintiffs provided substantial amounts in financing to Smith through various extensions of credit. Thereafter, in 1979, as a precondition to continued financing, plaintiffs requested and received from Smith the consolidated financial statements “For The Years Ended February 28, 1979 and December 31, 1977” (the “1979 statements”). Again, Andersen’s report vouched for its examination of the financial statements and the financial position of Smith reflected therein. Relying upon these certified statements, plaintiffs provided additional substantial financing to Smith.

It is alleged that both statements overstated Smith’s assets, net worth and general financial health, and that Andersen failed to conduct investigations in accordance with proper auditing standards, thereby failing to discover Smith’s precarious financial condition and the serious possibility that Smith would be unable to survive as a going concern. Indeed, in 1980, Smith filed a petition for bankruptcy. By that time, Smith had already defaulted on several millions of dollars of obligations to plaintiffs.

In August 1981, plaintiffs commenced this suit for damages lost on its outstanding loans to Smith, claiming both negligence and fraud by Andersen in the preparation of its audit reports. The complaint alleges that Andersen knew, should have known or was on notice that the 1977 and 1979 certified statements were being utilized by Smith to induce companies such as plaintiffs to make credit available to Smith. The complaint further states that Andersen knew, should have known or was on notice that the certified statements were being shown to plaintiffs for such a purpose. It is also alleged that Andersen knew or recklessly disregarded facts which indicated that the 1977 and 1979 statements were misleading.

On Andersen’s motion to dismiss the complaint, Special Term initially held the negligence cause of action to be barred by the Statute of Limitations, but denied the motion with regard to the claim for fraud. On reargument, the court reversed its dismissal of the negligence cause of action and denied Andersen’s motion in its entirety. On appeal, the Appellate Division affirmed the order below, holding, in part, that despite the absence of contractual privity between the parties, plaintiffs were members of a limited class whose reliance upon the financial statements should have been specifically foreseen by defendants. The court concluded that plaintiffs fell within the exception to the general rule that requires privity to maintain an action against an accountant for negligence. Two Justices dissented on the ground that the rule requiring privity has been repeatedly reaffirmed by this court and mandates dismissal of the action for negligence.

The Appellate Division granted Andersen’s motion for leave to appeal to this court and certified the following question: “Was the order of the Supreme Court, as affirmed by this Court, properly made?” Because the allegations in plaintiffs’ complaint and affidavit fail to set forth either a relationship of contractual privity with Andersen or a relationship sufficiently intimate to be equated with privity, the first cause of action should be dismissed. Further, inasmuch as plaintiffs’ second cause of action, sounding in fraud, comprises mere conclusory allegations, it also should be dismissed. Accordingly, in Credit Alliance, we now reverse and answer the certified question in the negative.

In European Am. Bank & Trust Co. v Strauhs & Kaye (“European American”), the complaint, together with the affidavit in opposition to the motion to dismiss, alleges that plaintiff, European American Bank and Trust Company (“EAB”), made substantial loans to Majestic Electro Industries and certain of its subsidiaries (collectively, “Majestic Electro”) in March 1979 pursuant to their written agreements. Several months later, EAB partially financed Majestic Electro’s acquisition of Brite Lite Lamps Corp. by again advancing substantial funds.

Beginning in 1979, and continuing thereafter at all relevant . times, Majestic Electro retained defendant Strauhs & Kaye (“S & K”), an accounting partnership rendering services in this State, to audit its financial records in accordance with GAAS and to report its findings in conformity with GAAP. During the course of its lending relationship with Majestic Electro, EAB relied upon the interim and year-end financial reports prepared by S & K to determine the maximum amounts it was willing to lend. From 1979 through 1982, S & K allegedly, inter alia, overstated Majestic Electro’s inventory and accounts receivable, and failed to disclose the inadequacy of Majestic Electro’s internal recordkeeping and inventory control.

When, in December 1982, a Majestic Electro subsidiary defaulted on its loan agreement, EAB caused the subsidiary’s inventory, in which it had a security interest, to be liquidated. It was then that EAB allegedly began to discover that S & K’s reports had seriously exaggerated the financial solvency of Majestic Electro. Indeed, between the time the complaint was filed and the submission of papers upon the motion to dismiss, Majestic Electro filed a petition in bankruptcy. EAB suffered substantial losses from the loans remaining unpaid.

EAB commenced this action in May 1983, seeking damages for those losses allegedly resulting from its reliance upon S & K’s reports. EAB specifically alleges negligence in that S & K, in performing auditing and accounting services for Majestic Electro, at all relevant times knew that EAB was Majestic Electro’s principal lender, was familiar with the terms of the lending relationship, and was fully aware that EAB was relying on the financial statements and inventory valuations certified by S & K. Moreover, it is alleged that representatives of EAB and S&K were in direct communication, both oral and written, during the entire course of the lending relationship between EAB and Majestic Electro, and, indeed, that representatives of EAB and S&K met together throughout this time to discuss S & K’s evaluation of Majestic Electro’s inventory and accounts receivable and EAB’s reliance thereon. The complaint also alleges a second cause of action, merely adding that defendants were “grossly negligent or recklessly indifferent” in performing professional services and that EAB was damaged as a result.

On S & K’s motion, Special Term dismissed the complaint holding that, absent a contractual relationship between the parties or an allegation of fraud, the complaint failed to state a cause of action. On appeal, the Appellate Division unanimously reversed and reinstated the complaint in its entirety. Focusing on the direct communications between the parties, the court held that contractual privity was not a prerequisite to liability inasmuch as S & K specifically knew that their reports would be relied upon by EAB for a particular purpose.

The Appellate Division granted S & K’s motion for leave to appeal to this court and certified the following question: “Was the order of this Court, which reversed the order of the Supreme Court, properly made?” Because EAB’s complaint and affidavit posit a direct nexus between the parties, to wit: the direct communications between them concerning EAB’s intended reliance upon S & K’s financial evaluation of Majestic Electro, the causes of action for negligence and for gross negligence or reckless indifference are adequately alleged. Accordingly, in European American, we now affirm and answer the certified question in the affirmative.

II

In the seminal case of Ultramares Corp. v Touche (255 NY 170), this court, speaking through the opinion of Chief Judge Cardozo more than 50 years ago, disallowed a cause of action in negligence against a public accounting firm for inaccurately prepared financial statements which were relied upon by a plaintiff having no contractual privity with the accountants. This court distinguished its holding from Glanzer v Shepard (233 NY 236), a case decided in an opinion also written by Cardozo nine years earlier. We explained that in Glanzer, an action in negligence against public weighers had been permitted, despite the absence of a contract between the parties, because the plaintiff’s intended reliance, on the information directly transmitted by the weighers, created a bond so closely approaching privity that it was, in practical effect, virtually indistinguishable therefrom. This court has subsequently reaffirmed its holding in Ultramares which has been, and continues to be, much discussed and analyzed by the commentators and by the courts of other jurisdictions. These appeals now provide us with the opportunity to reexamine and delineate the principles enunciated in both Ultramares and Glanzer. Inasmuch as we believe that a relationship “so close as to approach that of privity” (255 NY, at pp 182-183) remains valid as the predicate for imposing liability upon accountants to noncontractual parties for the negligent preparation of financial reports, we restate and elaborate upon our adherence to that standard today.

The doctrine of privity is said to have had its source in the classic enunciation of its rationale in Winterbottom v Wright (10 M & W109,152 Eng Rep 402). In that case, decided in 1842, the Court of Exchequer held that the defendant, who had failed to keep a mail coach in repair in violation of an agreement made with the purchaser, was not liable to another who suffered injuries while riding in the coach when it collapsed as a result of latent defects. The court ruled that no action could be maintained on defendant’s contract because the plaintiff was not a privy thereto. “Unless we confine the operation of such contracts as this to the parties who entered into them”, remarked Lord Abinger, “the most absurd and outrageous consequences, to which I can see no limit, would ensue.” (10 M & W, at p 114.) In concurrence, Baron Alderson added that (at p 115): “If we were to hold that the plaintiff could sue in such a case, there is no point at which such actions would stop. The only safe rule is to confine the right to recover to those who enter into the contract: if we go one step beyond that, there is no reason why we should not go fifty.” From Winterbottom, the privity doctrine developed into a general rule prevailing well into the Twentieth Century. (See, Note, Auditor’s Liability, 48 Alb L Rev 876, 880-885; Prosser and Keeton, Torts, at 668 [5th ed]; Bohlen, Fifty Years of Torts, 50 Harv L Rev 1225, 1232.)

By the time 90 years had passed, however, this court could note in Ultramares that the “assault upon the citadel of privity is proceeding in these days apace.” (255 NY, at p 180.) We acknowledged that inroads had been made, for example, where third-party beneficiaries or dangerous instrumentalities were involved. (Id., at p 181.) Indeed, we referred to this court’s holding in MacPherson v Buick Motor Co. (217 NY 382) where it was decided that the manufacturer of a defective chattel — there an automobile — may be liable in negligence for the resulting injuries sustained by a user regardless of the absence of privity — a belated rejection of the doctrine of privity as applied to the facts in Winterbottom. Nevertheless, regarding an accountant’s liability to unknown parties with whom he had not contracted, the considerations were deemed sufficiently dissimilar to justify different treatment.

Although accountants might be held liable in fraud to non-privy parties who were intended to rely upon the accountants’ misrepresentations, we noted that “[a] different question develops when we ask whether they owed a duty to these to make [their reports] without negligence.” (Ultramares Corp. v Touche, supra, at p 179.) Disputing the wisdom of extending the duty of care of accountants to anyone who might foreseeably rely upon their financial reports, Cardozo, speaking for this court, remarked: “If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class. The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw may not exist in the implication of a duty that exposes to these consequences.” {Id., at pp 179-180.)

In Ultramares, the accountants had prepared a certified balance sheet for their client to whom they provided 32 copies. The client, in turn, gave one to the plaintiff company. The latter, relying upon the misinformation contained in the balance sheet, made loans to the accountants’ client who, only months later, was declared bankrupt. This court, refusing to extend the accountants’ liability for negligence to their client’s lender, with whom they had no contractual privity, noted that the accountants had prepared a report on behalf of their client to be exhibited generally to “banks, creditors, stockholders, purchasers or sellers, according to the needs of the occasion”. (255 NY, at pp 173-174 [emphasis added].) In reciting the facts, we emphasized that: “Nothing was said as to the persons to whom these [copies] would be shown or the extent or number of the transactions in which they would be used. In particular there was no mention of the plaintiff, a corporation doing business chiefly as a factor, which till then had never made advances to the [accountants’ client], though it had sold merchandise in small amounts. The range of the transactions in which a certificate of audit might be expected to play a part was as indefinite and wide as the possibilities of the business that was mirrored in the summary.” {Id., at p 174 [emphasis added].)

The accountants’ report was primarily intended as a convenient instrumentality for the client’s use in developing its business. “[0]nly incidentally or collaterally” was it expected to assist those to whom the client “might exhibit it thereafter”. {Id., at p 183.) Under such circumstances, permitting recovery by parties such as the plaintiff company would have been to impose a duty upon accountants “enforceable] by any member of an indeterminate class of creditors, present and prospective, known and unknown.” {Id., at p 184.)

By sharp contrast, the facts underlying Glanzer bespoke an affirmative assumption of a duty of care to a specific party, for a specific purpose, regardless of whether there was a contractual relationship. There, a seller of beans employed the defendants who were engaged in business as public weighers. Pursuant to instructions, the weighers furnished one copy of the weight certificate to their employer, the seller, and another to the prospective buyer. In reliance upon the inaccurately certified weight, the buyer purchased beans from the seller and, thereby, suffered a loss.

Explaining the imposition upon the weighers of a “noncontractual” duty of care to the buyer, this court held: “We think the law imposes a duty toward buyer as well as seller in the situation here disclosed. The [buyer’s] use of the certificates was not an indirect or collateral consequence of the action of the weighers. It was a consequence which, to the weighers’ knowledge, was the end and aim of the transaction. [The seller] ordered, but [the buyer was] to use. The defendants held themselves out to the public as skilled and careful in their calling. They knew that the beans had been sold, and that on the faith of their certificate payment would be made. They sent a copy to the [buyer] for the very purpose of inducing action. All this they admit. In such circumstances, assumption of the task of weighing was the assumption of a duty to weigh carefully for the benefit of all whose conduct was to be governed. We do not need to state the duty in terms of contract or of privity. Growing out of a contract, it has none the less an origin not exclusively contractual. Given the contract and the relation, the duty is imposed by law (cf. MacPherson v. Buick Motor Co., 217 N. Y. 382, 390).” (233 NY, at pp 238-239 [emphasis added].)

The critical distinctions between the two cases were highlighted in Ultramares, where we explained: “In Glanzer v. Shepard * * * [the certificate of weight], which wás made out in duplicate, one copy to the seller and the other to the buyer, recites that it was made by order of the former for the use of the latter * * * Here was something more than the rendition of a service in the expectation that the one who ordered the certificate would use it thereafter in the operations of his business as occasion might require. Here was a case where the transmission of the certificate to another was not merely one possibility among many, but the ‘end and aim of the transaction/ as certain and immediate and deliberately willed as if a husband were to order a gown to be delivered to his wife, or a telegraph company, contracting with the sender of a message, were to telegraph it wrongly to the damage of the person expected to receive it * * * The intimacy of the resulting nexus is attested by the fact that after stating the case in terms of legal duty, we went on to point out that * * * we could reach the same result by stating it in terms of contract * * * The bond was so close as to approach that of privity, if not completely one with it. Not so in the case at hand [i.e., Ultramares]. No one would be likely to urge that there was a contractual relation, or even one approaching it, at the root of any duty that was owing from the [accountants] now before us to the indeterminate class of persons who, presently or in the future, might deal with the [accountants’ client] in reliance on the audit. In a word, the service rendered by the defendant in Glanzer v. Shepard was primarily for the information of a third person, in effect, if not in name, a party to the contract, and only incidentally for that of the formal promisee.” (Ultramares Corp. v Touche, supra, at pp 182-183 [emphasis added].)

Several years subsequent to the decision in Ultramares, this court reiterated the requirement for a “contractual relationship or its equivalent” (State St. Trust Co. v Ernst, 278 NY 104, 111), and more recently, in White v Guarente (43 NY2d 356), such an equivalent was presented for our consideration. There, the accountants had contracted with a limited partnership to perform an audit and prepare the partnership’s tax returns. The nature and purpose of the contract, to satisfy the requirement in the partnership agreement for an audit, made it clear that the accountants’ services were obtained to benefit the members of the partnership who, like plaintiff, a limited partner, were necessarily dependent upon the audit to prepare their own tax returns. After outlining the principles articulated in Ultramares and Glanzer, this court observed that: “[T]his plaintiff seeks redress, not as a mere member of the public, but as one of a settled and particularized class among the members of which the report would be circulated for the specific purpose of fulfilling the limited partnership agreed upon arrangement.” (43 NY2d, at p 363 [emphasis added].) Because the accountants knew that a limited partner would have to rely upon the audit and tax returns of the partnership, and inasmuch as this was within the specific contemplation of the accounting retainer, we held that, “at least on the facts here, an accountant’s liability may be so imposed.” (Id., at p 358.) The resulting relationship between the accountants and the limited partner was clearly one “approaching] that of privity, if not completely one with it.” (Ultramares Corp. v Touche, supra, at p 183.)

Upon examination of Ultramares and Glanzer and our recent affirmation of their holdings in White, certain criteria may be gleaned. Before accountants may be held liable in negligence to noncontractual parties who rely to their detriment on inaccurate financial reports, certain prerequisites must be satisfied: (1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there must have been some conduct on the part of the accountants linking them to that party or parties, which evinces the accountants’ understanding of that party or parties’ reliance. While these criteria permit some flexibility in the application of the doctrine of privity to accountants’ liability, they do not represent a departure from the principles articulated in Ultramares, Glanzer and White, but, rather, they are intended to preserve the wisdom and policy set forth therein.

We are aware that the courts throughout this country are divided as to the continued validity of the holding in Ultra-mares. Some courts continue to insist that a strict application of the privity requirement governs the law of accountants’ liability except, perhaps, where special circumstances compel a different result. {See, e.g., the following cases where the courts have applied the “general” or “predominant” rule and denied recovery to nonprivy reliant parties: Shofstall v Allied Van Lines (455 F Supp 351 [ND 111] [no special relationship of any kind existed between plaintiff and the accountants]); Koch Indus. v Vosko (494 F2d 713 [10th Cir] [plaintiff was unknown to the accountant]); Stephens Indus. v Haskins & Sells (438 F2d 357 [10th Cir] [no liability for negligence to nonprivy parties — even those the accountant knew or should have known were relying on his audit]); Canaveral Capital Corp. v Bruce (214 So 2d 505 [Fla App] [no liability to nonprivy parties absent fraud or gross negligence]). On the other hand, an increasing number of courts have adopted what they deem to be a more flexible approach than that permitted under this court’s past decisions. A brief examination of some decisions of those courts is instructive.

In Ryan v Kanne (170 NW2d 395 [Iowa]), the court rejected the accountants’ contention that a strict privity doctrine governed accountants’ liability for negligence. Recovery was permitted where the audit report was used as the accountants had contemplated, by a known nonprivy party, to whom one of the accounting partners personally explained the report at meetings they both attended. In Larsen v United Fed. Sav. & Loan Assn. (300 NW2d 281 [Iowa]), the same court permitted recovery by a nonprivy party who had actually paid for the accountant’s appraisal, and was specifically designated on the appraisal itself as the one for whose benefit it was being prepared.

Likewise, in Shatterproof Glass Corp. v James (466 SW2d 873 [Tex Civ App]), where the court held that the accountants were under a duty to exercise due care toward the third party who had loaned money to the accountants’ client in reliance on the financial statements, it was noted that the accountants knew that their reports would be issued to and relied upon by a particular creditor. Moreover, the accountants had furnished information directly to the third-party creditor as authorized by their client and, indeed, they had charged their client a separate and additional amount for rendering such services. Similarly, in Coleco Indus. v Berman (423 F Supp 275 [ED Pa]), the nonprivy parties who relied upon the financial statements had, in fact, chosen the accountants, explained to those accountants the role they were to play in the ongoing transactions, and had direct dealings with them. The court concluded that the “lack of strict privity” should not preclude a negligence claim against the accountants. The relationship existing between the accountants and the nonprivy parties was found to be “‘so close as to approach that of privity, if not completely one with it.’ ” {Id., at p 309.)

In Seedkem, Inc. v Safranek (466 F Supp 340 [DC Neb]), the court declined to apply Ultramares “rigidly” to preclude a suit in negligence by a reliant nonprivy party. There, it was observed, the accountant’s own notes to the financial statements specifically identified plaintiff, recognizing it as a party in privy with the accountant’s client, a principal creditor thereto, and responsible for the client’s incorporation in the State. Under somewhat analogous facts, the court in Rusch Factors v Levin (284 F Supp 85 [DC RI]) permitted liability where the accountant had actually prepared balance sheets for the nonprivy party, with the “end and aim” of influencing that party to extend credit to the accountant’s client.

In all of the foregoing cases, the courts found the facts amenable to the imposition of accountants’ liability under the principles of Ultramares-Glanzer or extended those principles to permit a more liberalized application. To the extent that the holdings in those cases are predicated upon certain criteria — to wit, a particular purpose for the accountants’ report, a known relying party, and some conduct on the part of the accountants linking them to that party — they are consonant with the principles reaffirmed in this decision. To the extent, however, that those cases were decided upon the ground that Ultramares should not be followed and, instead, a rule permitting recovery by any foreseeable plaintiff should be adopted, the law in this State, as reiterated today, is clearly distinguishable.

in

In the appeals we decide today, application of the foregoing principles presents little difficulty. In Credit Alliance, the facts as alleged by plaintiffs fail to demonstrate the existence of a relationship between the parties sufficiently approaching privity. Though the complaint and supporting affidavit do allege that Andersen specifically knew, should have known or was on notice that plaintiffs were being shown the reports by Smith, Andersen’s client, in order to induce their reliance thereon, nevertheless, there is no adequate allegation of either a particular purpose for the reports’ preparation or the prerequisite conduct on the part of the accountants. While the allegations state that Smith sought to induce plaintiffs to extend credit, no claim is made that Andersen was being employed to prepare the reports with that particular purpose in mind. Moreover, there is no allegation that Andersen had any direct dealings with plaintiffs, had specifically agreed with Smith to prepare the report for plaintiffs’ use or according to plaintiffs’ requirements, or had specifically agreed with Smith to provide plaintiffs with a copy or actually did so. Indeed, there is simply no allegation of any word or action on the part of Andersen directed to plaintiffs, or anything contained in Andersen’s retainer agreement with Smith which provided the necessary link between them.

By sharp contrast, in European American, the facts as alleged by EAB clearly show that S & K was well aware that a primary, if not the exclusive, end and aim of auditing its client, Majestic Electro, was to provide EAB with the financial information it required. The prerequisites for the cause of action in negligence, as well as in gross negligence, are fully satisfied. Not only is it alleged, as in Credit Alliance, that the accountants knew the identity of the specific nonprivy party who would be relying upon the audit reports, but additionally, the complaint and affidavit here allege both the accountants’ awareness of a particular purpose for their services and certain conduct on their part creating an unmistakable relationship with the reliant plaintiff. It is unambiguously claimed that the parties remained in direct communication, both orally and in writing, and, indeed, met together throughout the course of EAB’s lending relationship with Majestic Electro, for the very purpose of discussing the latter’s financial condition and EAB’s need for S&K’s evaluation. Moreover, it is alleged that S & K made repeated representations personally to representatives of EAB, on these occasions, concerning the value of Majestic Electro’s assets. It cannot be gainsaid that the relationship thus created between the parties was the practical equivalent of privity. The parties’ direct communications and personal meetings resulted in a nexus between them sufficiently approaching privity under the principles of Ultramares, Glanzer and White to permit EAB’s causes of action.

Finally, disposition of the second cause of action alleged in Credit Alliance need not detain us long. The cause of action for fraud repeats the allegations for the negligence cause of action and merely adds a claim that Andersen recklessly disregarded facts which would have apprised it that its reports were misleading or that Andersen had actual knowledge that such was the case. This single allegation of scienter, without additional detail concerning the facts constituting the alleged fraud, is insufficient under the special pleading standards required under CPLR 3016 (b), and, consequently, the cause of action should have been dismissed. (Cf. Dworman v Lee, 83 AD2d 507, affd 56 NY2d 816; see also, Federation Chems. v Chemical Constr. Corp., 31 AD2d 799, affd 27 NY2d 564.)

Accordingly, in Credit Alliance both causes of action should be dismissed, the order of the Appellate Division reversed, with costs, and the certified question answered in the negative. In European American, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Chief Judge Wachtler and Judges Meyer, Simons, Kaye, Titone and Boomer concur; Judge Alexander taking no part.

In Credit Alliance Corp. v Andersen & Co.: Order reversed, etc.

In European Am. Bank & Trust Co. v Strauhs & Kaye: Order affirmed, etc.

      . Plaintiffs’ affidavit was submitted in opposition to Andersen’s motion to dismiss under CPLR 3211. (See, Rovello v Orofino Realty Co., 40 NY2d 633.) The allegations therein, together with those contained in the complaint which they supplement, are, of course, assumed to be true for the purposes of this appeal. (See, Becker v Schwartz, 46 NY2d 401, 408.)

      . In pertinent part, the complaint states: “Andersen knew, should have known or was on notice that the 1977 certified financial statement was being utilized by L. B. Smith in order to induce companies such as plaintiffs to engage in financial transactions with L. B. Smith and to induce such companies to make credit available to L. B. Smith. Andersen knew, should have known, or was on notice that the 1977 certified financial statement was being shown to plaintiffs for such purposes.” (Emphasis added.) The same allegations are made regarding the 1979 statements.

      . In support of plaintiffs’ cause of action predicated on fraud, the complaint states in part: “Andersen knew or recklessly disregarded facts known to them which indicated that those documents were materially misleading as described above. Andersen knew or was on notice of such facts by virtue of the information which came to its attention or which was reasonably available to it during its audits of L. B. Smith. As the auditor of L. B. Smith, Andersen was required to make a full investigation into the market value of L. B. Smith’s inventory, the reasonableness and propriety of the method of depreciation utilized, the adequacy of the allowances for doubtful accounts, and uncertainties concerning L. B. Smith’s future status as a going concern.”

      . EAB’s verified complaint, in pertinent part, alleges the following: “In performing auditing and accounting services for Majestic Electro, defendants knew of EAB’s lending relationship with Majestic Electro, and by reason of direct oral and written communication with EAB, its officers and employees, knew at all relevant times herein that EAB was relying upon the services performed by them in reviewing interim and year-end financial statements and in rendering unqualified professional opinions thereon, and in particular in valuing the inventory hypothecated and accounts receivable assigned to EAB as collateral for loans. Defendants knew or should have known that EAB was relying upon defendants to perform the professional services rendered with the integrity, competence, and standard of care required by the accounting profession.” (Emphasis added.)
      In its affidavit in opposition to S & K’s motion to dismiss, EAB elaborated (see, n 1, supra) with, inter alia, the following allegations:

        “By reason of meetings that were had between representatives of EAB and defendants Strauhs & Kaye during the entire course of the lending relationship previously described, Strauhs & Kaye were well aware of EAB’s identity as Majestic Electro’s principal lender and the terms of the lending relationship and were furthermore fully aware of EAB’s reliance on Strauhs & Kaye’s certifications for determining the permissible amounts of loans under the Security Agreements.
      “For the duration of the EAB lending relationship with Majestic Electro, up until about December 1982, defendants Strauhs & Kaye made repeated representations to members of EAB’s staff, in written and in oral form, concerning the value of Majestic Electro’s inventory and accounts receivable. I emphasize that the said representations were not made through representatives of Majestic Electro, but were made directly by Messrs. Strauhs and Kaye to representatives of EAB at various board of directors meetings of Majestic Electro. It was solely on the basis of such representations that EAB determined the maximum amount of loans that could be made to Majestic Electro in accordance with the terms of the Security Agreements.” (Emphasis added.)

      . See, e.g., New Castle Siding Co. v Wolfson (63 NY2d 782,784); Dworman v Lee (56 NY2d 816, affg 83 AD2d 507); White v Guarente (43 NY2d 356, 363); State St. Trust Co. v Ernst (278 NY 104, 111).

      . See, e.g., Note, Auditor’s Liability, 48 Alb L Rev 876; Comment, The Citadel Falls? — Accountants’ Liability, 59 St John’s L Rev 348; Gormley, The Foreseen, The Foreseeable, and Beyond — Accountants’ Liability to Nonclients, 14 Seton Hall L Rev 528; Besser, Privity? —An Obsolete Approach to Liability of Accountants to Third Parties, 7 Seton Hall L Rev 507; Fiflis, Current Problems of Accountants’ Responsibilities to Third Parties, 28 Vand L Rev 31; Comment, Auditor’s Third Party Liability: an Ill-Considered Extension of the Law, 46 Wash L Rev 675; Comment, Auditor’s Responsibility for Misrepresentation, 44 Wash L Rev 139; Note, Potential Liability of Accountants to Third Parties for Negligence, 41 St John’s L Rev 588; Levitón, Accountants’ Scope of Liability for Defective Financial Reports, 15 Hastings U 436; see also, Restatement (Second) of Torts § 522.

      . See, e.g., the following where recovery absent privity was disallowed: Aeronca, Inc. v Gorin (561 F Supp 370 [SDNY]); Briggs v Sterner (529 F Supp 1155 [SD Iowa]); Shofstall v Allied Van Lines (455 F Supp 351 [ND 111]); Koch Indus. v Vosko (494 F2d 713 [10th Cir]); Stephens Indus. v Haskins & Sells (438 F2d 357 [10th Cir]); Investment Corp. v Buchman (208 So 2d 291 [Fla App], cert dismissed 216 So 2d 748 [Fla]); C.I.T. Fin. Corp. v Glover (224 F2d 44 [2d Cir]); Jordan v Madison Leasing Co. (83 Civ 2515 [SWK] [SDNY]); cf. Ernst & Ernst v Hochfelder (425 US 185,214, n 33); Blue Chip Stamps v Manor Drug Stores (421 US 723, 748).

        See also, e.g., the following where recovery was allowed despite the absence of privity: Haddon View Inv. Co. v Coopers & Lybrand (70 Ohio St 2d 154,436 NE2d 212); Spherex, Inc. v Grant & Co. (122 NH 898, 451 A2d 1308); Larsen v United Fed. Sav. & Loan Assn. (300 NW2d 281 [Iowa]); Seedkem, Inc. v Safranek (466 F Supp 340 [DC Neb]); Merit Ins. Co. v Colao (603 F2d 654 [7th Cir], cert denied 445 US 1017); Coleco Indus. v Berman (423 F Supp 275 [ED Pa]); Bonhiver v Graff (311 Minn 111, 248 NW2d 291); Aluma Kraft Mfg. Co. v Fox & Co. (493 SW2d 378 [Mo App]); Rhode Is. Hosp. Trust Natl. Bank v Swartz, Bresenoff, Yavner & Jacobs (455 F2d 847 [4th Cir]); Shatterproof Glass Corp. v James (466 SW2d 873 [Tex Civ App]); Ryan v Kanne (170 NW2d 395 [Iowa]); Rusch Factors v Levin (284 F Supp 85 [DC RI]).

        See generally, Public Accountants — Liability, Ann., 46 ALR3d 979.

      . See, Prosser and Keeton, Torts §§ 93, 96 (5th ed); Savings Bank v Ward (100 US 195, 203); MacPherson v Buick Motor Co. (217 NY 382, 392); Westerhold v Carroll (419 SW2d 73, 76-77 [Mo]).

      . Indeed, as a member of the limited partnership and as a specifically intended beneficiary of the partnership’s contract with the accountants, the limited partner might well have been considered actually in privity with the accountants. (See, Aeronca, Inc. v Gorin, 561 F Supp 370, 379, n 21 [SDNY]; Quintet Corp. v Citibank, 589 F Supp 1235; Calamari v Grace, 98 AD2d 74, 82;
        cf. Home Mut. Ins. Co. v Broadway Bank & Trust Co., 53 NY2d 568, 575; Ultramares Corp. v Touche, 255 NY 170, at pp 180-181.)

      . In addition to White v Guarente (43 NY2d 356), this court has most recently applied the Ultramares-Glanzer principles in Dworman v Lee (56 NY2d 816, affg 83 AD2d 507 — recovery denied to plaintiffs who conceded they were merely members of the public relying on financial reports prepared by the accountants) and New Castle Siding Co. v Wolfson (63 NY2d 782 — plaintiff made loans as a mere general creditor of a corporation which had hired the accountants).

      . Indeed, certain jurisdictions have unequivocally adopted and applied an unrestricted “foreseeability” rule. (See, e.g., Citizens State Bank v Timm, Schmidt & Co., 113 Wis 2d 376,335 NW2d 361; H. Rosenblum, Inc. v Adler, 93 NJ 324,461 A2d 138; see generally, Note, Auditor’s Liability, 48 Alb L Rev 876, criticizing this extension of the accountant’s legal duty.) A greater number appear to have adopted a rule requiring that the reliant party or his limited class be either known or actually foreseen by the accountants. (See, e.g., Spherex, Inc. v Gratit & Co., 122 NH 898,451 A2d 1308; Aluma Kraft Mfg. Co. v Fox & Co., 493 SW2d 378 [Mo].) Inasmuch as this latter rule, deriving from the Restatement (Second) of Torts § 552, does not include an additional requirement for conduct on the part of the accountants linking them to the noncontractual party or parties, we decline to adopt it.


text:
    The People of the State of New York, Appellant, v Willie James Johnson, Respondent. The People of the State of New York, Appellant, v Lillian M. Tyler, Respondent.
    Argued May 31, 1985;
    decided July 9, 1985

      POINTS OF COUNSEL

      Howard R. Relin, District Attorney (Melvin Bressler of counsel), for appellant in the first above-entitled case.
    The jury could properly infer, from the surrounding circumstances, that defendant knew the check he possessed was forged. (People v Green, 53 NY2d 651; People v Harris, 306 NY 345; People v Jones, 257 App Div 5; People v Benzinger, 36 NY2d 29; People v Barnes, 50 NY2d 375; People v Bonifacio, 190 NY 150; People v Kennedy, 47 NY2d 196.)

      James S. Hinman for respondent in the first above-entitled case.
    I. The evidence adduced at trial was insufficient, as a matter of law, to sustain a finding that Willie James Johnson knew, at the time the check was presented to the cashier, that the check had been forged. (People v Green, 53 NY2d 651; People v Fiorentino, 197 NY 560; People v Leyra, 1 NY2d 199; People v Nowakowski, 221 App Div 521; People v Kennedy, 47 NY2d 196; People v Harris, 306 NY 345; People v Benzinger, 36 NY2d 29; People v Jones, 257 App Div 5.) II. Affirmance of the order of the court below will not preclude convictions, upon proper evidence, for criminal possession of a forged instrument. (People v O’Neill, 79 AD2d 429; People v Carcuro, 35 AD2d 608; People v Rivers, 83 AD2d 978, 56 NY2d 476; People v Petty, 14 AD2d 16; People v Love, 100 AD2d 975, 62 NY2d 808.)

      Howard R. Relin, District Attorney (Melvin Bressler of counsel), for appellant in the second above-entitled case.
    The jury came to the logical and supportable conclusion, based on the evidence, that defendant knew the check she negotiated was forged. (People v Green, 53 NY2d 651; People v Kennedy, 47 NY2d 196; People v Wachowicz, 22 NY2d 369; People v Benzinger, 36 NY2d 29; People v Barnes, 50 NY2d 375; People v Bonifacio, 190 NY 150.)

      Edward J. Nowak, Public Defender (Howard K. Broder of counsel), for respondent in the second above-entitled case.
    I. The proof offered at trial was legally insufficient to show that Ms. Tyler knew that the instrument was forged. (People v Stahl, 53 NY2d 1048; People v Green, 53 NY2d 651; People v Love, 100 AD2d 975, 62 NY2d 808; People v Colvin, 97 AD2d 972, 61 NY2d 762; People v Barnes, 50 NY2d 375; People v Castillo, 47 NY2d 270.) II. The trial court committed reversible error in refusing to grant defense counsel’s request for a missing witness charge with respect to the People’s failure to call Frances Leva, the person who allegedly cashed the check for Lillian Tyler. (People v Dillard, 96 AD2d 112; People v Wright, 41 NY2d 172; People v Brown, 34 NY2d 658; People v Rodriguez, 38 NY2d 95; People v Taylor, 98 Misc 2d 163; People v Valerius, 31 NY2d 51.)
   OPINION OF THE COURT

Jasen, J.

The common issue presented on these appeals is whether the jury in each case had a sufficient evidentiary basis upon which to find, beyond a reasonable doubt, that defendant knowingly possessed a forged instrument.

On July 2,1982, defendant, Willie James Johnson, presented a check in the amount of $254.78 to a cashier employed by Star Market to pay for a $30.06 bill for groceries. The check was made payable to one Ronald Doty, and drawn against an account maintained by Flower City Building Services, Inc. The check was presented with a Star Market customer check cashing card which had been issued to Ronald Doty. At the time the check was presented to the cashier, it bore the signature of “Raymond F. Levitt”, as maker on behalf of Flower City Building Services, Inc., and was indorsed on the reverse side of the check in the name of “Ronald Doty”. In order to receive cash to return to Johnson, the cashier went to the service counter where she handed the check and the check cashing card to the head cashier. The head cashier recognized the check as one for which an “alert” had been received by the store a few days earlier, instructed the cashier to detain defendant, and called the police and the assistant store manager. Defendant indicated to the assistant store manager that the check was his. Defendant repeatedly denied that this conversation with the assistant store manager ever occurred. While the assistant store manager attempted to detain defendant, defendant left the store. The assistant store manager followed defendant out of the store and identified him to the police.

At trial, it was established that the instrument in question was one of a number of blank checks which had been taken from the Flower City corporation during a burglary several years prior to 1982. No person named Raymond F. Levitt had ever worked for the Flower City corporation. Ronald Doty testified that he had not worked at the Flower City corporation, and had no knowledge regarding the check which was made payable to his order. Doty had reported his Star Market customer check cashing card missing prior to defendant’s attempt to pass the check in question. Although Johnson had been positively identified by the cashier and assistant store manager as the individual who attempted to pass the instrument in question, defendant, testifying on his own behalf, advanced a theory of mistaken identity.

The facts in People v Tyler are not in dispute. Defendant, Lillian M. Tyler, was employed by Abraham Enterprises, Inc., from June 1981 to October 8,1981. During this period of employment, Tyler knew and worked with Cecelia A. Martella at Abraham Enterprises. On September 23,1981, Martella became seriously ill. She entered the hospital on September 28, 1981 and was released on October 4,1981. Martella never returned to work at Abraham Enterprises after September 23, 1981. On September 24, 1981, Abraham Enterprises issued a payroll check to the order of Cecelia A. Martella in the amount of $163.77. The payroll check was placed in the company safe in accordance with general practice. Tyler had access to this safe, which remained unlocked during working hours. Martella never received the payroll check dated September 24, 1981, although another check from the safe was delivered to Martella by the company through Martella’s daughter.

On October 3,1981, Tyler entered the Quality Liquor Store in Rochester. Tyler approached the service counter and refused the assistance offered by store clerk Dina Balzani, preferring to await the assistance of Frances Leva who was unavailable at that time. Balzani testified that she knew Tyler, as Tyler had previously passed checks with insufficient funds. Tyler cashed the payroll check made payable to, Martella by handing the check to Frances Leva. The check, when presented to Leva, had already been signed in the name of “Cecelia A. Martella” and bore the handwritten telephone number of Abraham Enterprises. A pint bottle of vodka was purchased with the check and defendant received the change. Defendant did not testify at trial.

Lillian Tyler was convicted, in Monroe County Court, of criminal possession of a forged instrument in the second degree. (Penal Law § 170.25.) The Appellate Division, Fourth Department, relying solely upon People v Green (53 NY2d 651), reversed the judgment of Monroe County Court, and dismissed the indictment. Willie James Johnson was convicted in Monroe County Court of criminal possession of a forged instrument in the second degree (Penal Law § 170.25), as well as attempted grand larceny, criminal possession of stolen property and criminal impersonation. The Appellate Division, Fourth Department, also in sole reliance upon People v Green (supra), reversed the judgment of Monroe County Court insofar as it convicted defendant of criminal possession of a forged instrument in the second degree, dismissed that count of the indictment, and otherwise affirmed the judgment. Leave to appeal in each case was granted by a judge of this court. For the reasons that follow, we now reverse in each case.

An essential element of the offense of criminal possession of a forged instrument is knowledge by the defendant that the instrument is forged. (Penal Law § 170.25; People v Everhardt, 104 NY 591, 595 [Earl, J.]; People v Colmey, 116 App Div 516, 517; People v Ghiggeri, 138 App Div 807; United States v Carll, 105 US 611, 613.) Some courts, presuming a rational relationship between the fact proved — possession — and the fact presumed — knowledge of forgery — hold that the mere unexplained possession or negotiation of a forged instrument is itself a circumstance from which knowledge of its falsity may be presumed. (See, Hagar v State, 71 Ga 164; White v Territory, 1 Wash 279, 24 P 447; McGhee v State, 183 Tenn 20, 189 SW2d 826; Tarwater v State, 209 Ark 687, 192 SW2d 133; Hatton v Commonwealth, 294 Ky 740, 172 SW2d 564; State v Maxwell, 151 Kan 951, 102 P2d 109; State v Phillips, 127 Mont 381, 264 P2d 1009; see, Bailey & Rothblatt, Defending Business and White Collar Crimes § 29.26 [2d ed].) This court, following legislative intent (Penal Law §§ 15.15, 170.25), has implicitly rejected the rebuttable presumption approach toward establishing defendant’s knowledge of forgery. (People v Green, 53 NY2d 651, supra; but see, People v Rathbun, 21 Wend 509, 518.) The mere negotiation or utterance of a forged instrument cannot, of itself, establish a presumption that defendant had knowledge of the forged nature of the instrument. (See, State v Waterbury, 133 Iowa 135, 110 NW 328; State v Runnion, 122 W Va 134, 7 SE2d 648.) Had the Legislature intended to presume knowledge of forgery upon a showing of mere possession of a forged instrument under Penal Law § 170.25, it would have so provided. (See, e.g., Penal Law §§ 170.71, 165.55 [2].)

Our decision in People v Green (53 NY2d 651, supra) underscores the legislative determination that knowledge of the forged nature of the instrument will not be imputed to a person solely by reason of possession or presentation of said instrument. In Green, we held that there was insufficient proof, as a matter of law, to sustain the conviction of defendant for criminal possession of a forged instrument. This determination reflects the view that where there is absolutely no evidentiary showing of how or where the instrument came into defendant’s possession, and there exists a stipulation that the indorsement was not in defendant’s handwriting, any finding that defendant knew that the instrument was forged could have been premised on no more than speculation. (People v Green, supra, at p 652.) Green is not dispositive of the cases on appeal, but merely presents one set of circumstances which will not, as a matter of law, permit a finding that defendant had guilty knowledge of forgery.

Guilty knowledge of forgery may be shown circumstantially by conduct and events. (People v Von Werne, 41 NY2d 584, 590.) The “moral certainty test”, utilized where proof of the entire case depends upon circumstantial evidence (see, People v Benzinger, 36 NY2d 29, 32), has no application where the circumstantial evidence relates to only one element of the offense (People v Von Werne, supra, citing People v Sabella, 35 NY2d 158, 168; People v Bonifacio, 190 NY 150; see also, People v Barnes, 50 NY2d 375, 380). The only question now before this court is whether defendant in each case had knowledge of the forged nature of the possessed instrument. Thus, this court, viewing the totality of the evidence in a manner most favorable toward the People, must determine whether the jury in each case had a sufficient evidentiary basis upon which to find defendant’s knowledge of the forged character of the possessed instrument beyond a reasonable doubt.

It is well established that recent and exclusive possession of the fruits of a crime, if unexplained or falsely explained, will justify the inference that the possessor is the criminal. (People v Galbo, 218 NY 283, 290.) As this court recently explained in People v Baskerville (60 NY2d 374, 382-383), if a defendant is found in exclusive possession soon after the crime and there is no evidence that he may have received the contraband from an accomplice, or possession is unexplained or falsely explained, the inference may be drawn that defendant had knowledge that the possessed property was stolen. (See also, People v Batten, 31 NY2d 737, affg 40 AD2d 549, 550.) However, while the possession of the forged instrument fixes the identity of the offender, there remains the question of the nature of his or her offenses. (People v Galbo, supra, at p 290.) The lesson of Galbo and Baskerville is that where varying, yet consistent, inferences of guilt may be drawn from circumstantial evidence, the jury must have some factual basis upon which to determine which guilty inference is the true one. As Judge Cardozo aptly noted in People v Galbo (supra, at p 294), “[sjmall things may turn the scale. But something there must be.” In each of the cases before us today, the jury verdict of guilt as to possession of a forged instrument was supported by an adequate factual basis.

In Tyler, the jury could find, beyond a reasonable doubt, that defendant had knowledge that the instrument in her possession was forged. We have previously recognized that proof of “how or where” the instrument came into defendant’s possession is probative on the issue of defendant’s knowledge of forgery. (People v Green, 53 NY2d 651, 652, supra; People v Galbo, supra, at p 294.) Here, the evidence adduced at trial indicates that defendant had unrestricted access to the company safe in which Martella’s payroll check was held. All payroll checks were generally held in the company’s safe, and in fact, Martella’s unindorsed check was so held. Martella never received this check. Defendant’s unexplained and exclusive possession of the fraudulently indorsed check shortly after this particular check had been stolen (People v Baskerville, supra) and unrestricted access to the unindorsed check before Martella could receive it (United States v DeJohn, 638 F2d 1048, 1054; Cotton v United States, 409 F2d 1049, cert denied 396 US 1016) constitute factors upon which a jury could find “how or where” defendant came into possession of the forged instrument.

The foregoing chain of evidence is strengthened by the fact that Martella never had the opportunity to personally indorse the check. Martella’s payroll check was issued to her September 24, 1981, one day after she had permanently left Abraham Enterprises for reason of serious illness. The check was held in the company safe, to which defendant had unrestricted access, and never received by Martella. Martella was hospitalized from September 28 to October 4. Defendant and Martella were coworkers at Abraham Enterprises. Where a person has unrestricted access to an unindorsed check, and shortly after issuance of the check has exclusive possession of the now forged check, while concomitantly aware of the intended payee’s inability to personally indorse the instrument, the jury is entitled to find that defendant had knowledge of the forged nature of the instrument in her possession. (See, United States v Cowden, 545 F2d 257, 263-264.) In stark contrast to Green, the jury in Tyler was presented with an evidentiary basis to find that defendant had control of the instrument, and that defendant had knowledge of the intended payee’s lack of opportunity or ability to personally indorse the check. Defendant’s guilty knowledge may be inferred from such factors.

In Johnson, there was a sufficient basis upon which to find, beyond a reasonable doubt, that defendant had knowledge of the forged nature of the instrument in his possession. In response to an inquiry from the store manager, Johnson made an affirmative claim of ownership of the instrument. Upon presentment of the Star Market check cashing card with the forged check, Johnson affirmatively identified himself as the payee in order to secure negotiation and concomitantly made a representation as to the genuineness of the indorsement. Defendant falsely denied making such affirmations. Moreover, the check cashing card and the check both contained signatures which the jury could compare and from their dissimilarity impute guilty knowledge to defendant. These factors, considered with exclusive possession of the forged instrument, have been held sufficient to give rise to the inference of defendant’s knowledge of forgery. (United States v Evans, 436 F2d 1305.) Unlike Green, we are here presented with a sound evidentiary basis which, viewed in its totality, permits a finding of defendant’s knowledge of forgery.

Accordingly, the order of the Appellate Division in each case should be reversed, and each case remitted to the Appellate Division for consideration of the facts.

Chief Judge Wachtler and Judges Meyer, Simons, Kaye, Alexander and Titone concur.

In each case: Order reversed and case remitted to the Appellate Division, Fourth Department, for further proceedings in accordance with the opinion herein.

       “170.25 Criminal possession of a forged instrument in the second degree.
      “A person is guilty of criminal possession of a forged instrument in the second degree when, with knowledge that it is forged and with intent to defraud, deceive or injure another, he utters or possesses any forged instrument of a kind specified in section 170.10.
      “Criminal possession of a forged instrument in the second degree is a class D felony.”


text:
    In the Matter of William C. Brennan, Jr., a Justice of the Supreme Court, Eleventh Judicial District.
    Decided September 10, 1985
   OPINION OF THE COURT

Per Curiam.

On July 25, 1985 this court was notified of a Federal indictment returned to the United States District Court for the Eastern District of New York naming William C. Brennan, Jr., a Justice of the Supreme Court of the State of New York, in and for the Eleventh Judicial District, as a defendant on charges, among others, of bribe receiving in four separate cases in which indictments had been returned to Supreme Court, Queens County, charging the defendants in those cases with, among other crimes, attempted murder, assault, criminal possession of a weapon, criminal sale of a controlled substance, criminal possession of a controlled substance and promoting gambling. Acting pursuant to NY Constitution, article VI, § 22 (f), (g) and Judiciary Law § 44 (8) (b), (c), the court immediately suspended Justice Brennan from office, with pay, and advised him that he could on or before August 16, 1985 present to it his reasons or arguments why suspension should not be continued, and whether suspension, if continued, should be with or without pay.

Justice Brennan, by his attorneys, then moved for the continuation of the suspension with pay. The notice of motion was accompanied by an affidavit of his attorney, informing the court that trial of the Federal indictment is scheduled to commence on November 18, 1985, and that Justice Brennan consented to remain on suspension until the charges pending against him had been resolved but requested that the continued suspension be with pay.

The charges against Justice Brennan are that he betrayed the public trust vested in him as a judicial officer, and probable cause to sustain those charges has been found by the Federal Grand Jury that indicted him. The issue before us is not of his innocence (which is presumed) or guilt, but whether in the face of the cloud created by the number and seriousness of the charges against him his pay should be continued during the period of his suspension. It is the determination of the court that Justice Brennan be suspended without pay, effective immediately and until the further order of this court.

Chief Judge Wachtler and Judges Jasen, Meyer, Simons, Kaye, Alexander and Titone concur in Per Curiam opinion.

On application of Honorable William C. Brennan, Jr., and on review of his submission, made pursuant to this court’s July 25, 1985 notice, with respect to this court’s July 25,1985 suspension of Justice Brennan from his office of Justice of the Supreme Court of the State of New York, Eleventh Judicial District, it is determined, on consideration of continuation of the suspension, that the suspension shall be continued, without pay, effective immediately and until further order of this court.