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Merchant Factors Corp. v. Wolfson
Citations: 229 A.D.2d 352; 645 N.Y.S.2d 306; 1996 N.Y. App. Div. LEXIS 8000
Court: Appellate Division of the Supreme Court of the State of New York; July 25, 1996; New York; State Appellate Court
Judgment from the Supreme Court, New York County, modified the initial award to the plaintiff from $351,595.38 to $696,000, establishing May 12, 1992, as the cut-off date for the accrual of damages. The defendant, WKM, served as the accountant for E.Z. Sports and facilitated the plaintiff's engagement with E.Z. Sports through a Discount Factoring Agreement on August 23, 1990. WKM was found to have deviated from accepted accounting practices in providing financial statements for E.Z. Sports, which created a relationship of privity with the plaintiff. The court evaluated whether WKM's negligent preparation of financial statements was a proximate cause of the plaintiff's damages. Initially, the court ruled that the plaintiff could rely on the financial statements but later determined that the plaintiff should have recognized the potential for fraud by December 31, 1991. However, the court incorrectly interpreted reports from the plaintiff’s field examiner as evidence of awareness of fraud, when these reports simply recommended improvements in recordkeeping. The plaintiff only became aware of discrepancies in E.Z. Sports' invoicing on May 12, 1992, leading to the cessation of funding and reliance on financial statements from that date. The court concluded that damages should be calculated from May 12, 1992, rather than December 31, 1991, which resulted in the increased award to the plaintiff, reflecting additional funds advanced during the interim period. The decision was concurred by multiple justices.