Case ID: ny-super-ct_37/html/0297-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Monell, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THE CENTRAL NATIONAL BANK, Plaintiff and Appellant, v. LEONARD D. WHITE AND OTHERS, DEFENDANTS AND RESPONDENTS.
    I. Discovert oe books and papers.
    1. PracticaVsubstitute for.
    
    1. When production of books can be compelled by subpoena duces tecum,, the provision of the Code allowing the examination of parties to the action has practically become a substitute for the mode of discovery prescribed by the Revised Statutes.
    But
    
      a. This practical substitute does not obtain in cases of corporations, for they cannot be compelled to produce their books by a subpoena duces tecum.
    
    3. What not an answer to an application for a discovery by a corporation.
    
    1. It is no answer that the books contain entries which the corporation claims to home been falsely and deceptively made by one of its officers (who is a defaulter in respect of the transactions evidenced by said entries, and who has absconded) which entries, if unexplained, would exonerate the applicant for discovery from liability, and which can only be explained by the testimony of such officer, and that the discovery sought was of such false and deceptive entries, when the applicant had in his dealing with the officer a right to assume that he was acting under the authority of the corporation.
    H. Corporation.—Subpoena duces tecum.
    1. A corporation cannot be compelled, through the medium of a subpoena duces tecum, to produce its books.
    Before Monell, Ch. J., Curtis and Speir, JJ.
    
      Decided May 2, 1874.
    • Appeal by plaintiff from an order for discovery of books.
    The action is for money received by the defendant to the use of the plaintiff.
    
      The complaint alleges six separate canses of action. They are identical, expept in time and amount.
    The first is as follows:
    “ And the plaintiffs say, upon information and belief, that on or about May 18, 1868, the said defendants received the sum of six thousand dollars, the money of the plaintiffs, to the use of the plaintiffs, and they say that the said defendants have not repaid the same, nor any part thereof, and that the said de-. fendants are therefore indebted to the plaintiffs in said sum of six thousand dollars, with interest from May 18, 1868.”
    The answer, after a general denial, averred as follows:
    “And for a further and separate.defense, the said defendants allege that that they received from William H. Sanford several sums of money as security for services to be rendered, and responsibility to be incurred by them.
    “Thatthe defendants performed services, and incurred responsibility upon the security of the said several sums, and sustained loss upon the responsibility so incurred to an amount exceeding the sums so received by them, which sums herein mentioned are the same mentioned in the said complaint.”
    The defendants moved for a discovery of the plaintiff’s books.
    The petition for the discovery alleged that William H. Sanford was a former cashier of the plaintiffs, and who, as the plaintiffs aver, while acting as such cashier, wrongfully and dishonestly received and appropriated to his own use, money and other property belonging to and in the possession of the plaintiff to a large amount, and that the moneys so paid by him to the defendants were a portion of the moneys so wrongfully received and appropriated by him.
    The petition then alleges “that all the moneys paid by said Sanford to your petitioners as security, as in their said answer stated, were paid by checks drawn by said Sanford upon the plaintiff, and that said checks were all paid by the plaintiff upon presentation, and your petitioners verily believe, and therefore aver, that the said plaintiff, that is to say. its president and director, or some of them, were well informed of the drawing and payment of said checks, as above alleged, and that the same were paid from time to time with their knowledge and assent.
    “ Tour petitioners further show, that the said plaintiff has in its possession, or under its control various books of record and account, which contains various entries relating to the said checks and the payment thereof by plaintiff, that is to say: ”
    Then follows a list of several books, and the petition concludes with the usual allegations.
    The plaintiffs, in answer to the petition allege, that “ Sanford, their cashier, absconded in July, 1869. That certain of the books and accounts, of which a discovery was sought, were kept under the immediate direction of Sanford, and contained his original entries.”
    “ That it was discovered that Sanford was a defaulter to a large amount, which defalcation had been concealed by false entries in said books and accounts.”
    The plaintiffs then alleged ££ that the delivery by said Sanford to defendants of plaintiffs’ said moneys, was, so far as is known, effected by his drawing in his official capacity as cashier, a regular cashier’s check upon plaintiffs, in favor' of defendants, for each sum of said moneys. That defendants took such cashier’s checks from said Sanford, indorsed the same, drew the plaintiffs’ money thereon, and applied it to pay said Sanford’s indebtedness to them for said losses in gold and stocks, and that Sanford thereupon, in every instance, concealed and covered up his said misappropriation of said moneys by means of said false and deceptive entries, as hereinbefore stated. And deponent says, that the discovery and inspection which defendants now seek, is a discovery of said false and deceptive entries, except so far as their application relates to the cashier’s checks themselves, and the said Sanford’s individual account, and his checks drawn against the same, which last plaintiffs have been at all times ready and willing to produce and discover.”
    But the plaintiffs say that they believe it is not possible for them to prove by competent evidence the said false and defective entries, unless they shall be able to call, “ and shall call ’ ’ said Sanford to prove the same. And they are advised that it would be contrary to justice to compel them to discover such false and deceptive entries when the proof of their falsity can be obtained only by the evidence of said Sanford.
    The motion was granted, and the plaintiffs were ordered to make discovery as follows :
    
      First. Copies of checks drawn upon the plaintiff by William H. Sanford, individually, during the years 1867, 1868 and 1869, and list of all checks drawn upon said plaintiff during the said years by William H. Sanford, as cashier of the plaintiff, and which were paid by Sanford to the defendants, or which are made, payable to the order of the defendants, or bear the defendant’s indorsement or stamp, the list to furnish the numbers, dates, amounts, names of payees and indorsers of said checks respectively.
    
      Second. Copies .of the stubs of the checks so drawn by the cashier of the plaintiff upon the plaintiff during the years 1867, 1868 and 1869, to the order of the defendants, or which bear their indorsement or stamp.
    
      Third. Copies of any entry or entries of or relating to the amount or date, or date of payment by the plaintiff, of any or either of the checks hereinbefore referred to as having been paid by William H. Sanford to defendants, contained in the plaintiff’s cashier’s check-book or books, and third teller’s ledger or ledgers. 
      Fourth. A copy of the individual account of Sanford with the plaintiff during the years 1867, 1868 and 1869, as contained in the ledgers of the plaintiff.
    
      Fifth. A copy of the account and the several items thereof, for the years 1867, 1868 and 1869, known as or called the cashier’s account, as contained in the ledgers of the plaintiff.
    
      Sixth. A copy of any entry or entries in the book or books of minutes of the proceedings of the board of directors of the plaintiff, during the years 1867, 1868 and 1869, relating in any manner to said Sanford.
    The plaintiffs appealed.
    
      Martin & Smith, attorneys, and Aug. F. Smith, of counsel for appellant, urged :—I.
    A discovery is not a matter of strict right, but rests in discretion (Code, § 388 ; 2 Ren. Stat. 199, § 21; Bowne v. Cribb, 20 Wend. 682).
    II. The court will not grant a discovery, where the discovery will tend to deceive (See Van Zandt v. Cobb, 12 How. Pr. 544). This court has said, “It (a discovery) could not be exercised for inequitable purposes, or to create or promote litigation ” (Wood v. De Figaniere, 1 Robt. 681, 686 ; see also, Bailey v. Dean, 5 Barb. 297 ; Abery v. Williams, 1 Vern. 27).
    III. It would be inequitable to give to these defendants a discovery of the credit side of the cashier’s account, composed of fraudulent entries, made by or under the direction of Sanford, the cashier, when it appears that these defendants took from the cashier checks signed by him, as cashier, to make good to themselves losses by stock speculations, when they knew, from the fact that the checks were cashier’s checks, that they were taking the money of the bank. To give such a discovery is, in substance, to give to confederates in the wrong of the cashier, power to use the false entries made by their confederate, as the evidence to complete, and carry out, a fraud begun bythe delivery and acceptance of the cashier’s checks.
    IV. The order should be modified so as to exclude the credit side of the cashier’s account from the discovery, and also such entries in other books as were carried to such credit side.
    
      Edwards & Odell, attorneys, and Hamilton Odell, of counsel for respondents, urged:—I.
    It is not denied that this account contains evidence relating to the merits of the defense herein. Mor that such evidence is material, and will (at least) tend to establish that defense. Mor that the account is in the possession of the plaintiffs. Mor that the evidence which it contains cannot be procured except by a discovery of the account. Under such circumstances a discovery is matter of right (Hoyt v. American Ex. Bk., 1 Duer, 652 ; Lefferts v. Brampton, 24 How. Pr.258; Union Co. v. Metropolitan Co., 3 Daly, 171 ; Case v. Banta, 9 Bosw. 595). Or, if regarded as discretionary, the discretion will be exercised in favor of the petitioners, not only for the reasons above stated, but also as matter of common justice, inasmuch as the controversy is between individuals on the one hand and a corporation on the other. For the defendants may be examined before trial. And upon such examination they may be compelled, by subpoena duces tecum, to produce and exhibit their books, papers and accounts (Central Nat. Bk. v. Arthur, 3 Sweeny, 144). But there can be no examination of the corporation, or of its officers, before trial (Goodyear v. Rubber Co., 48 Barb. 522). Mor can its books be brought into court, at any stage of the case, by subpoena (La Farge v. La Farge Ins. Co., 6 Duer, 680 ; Bank of Utica v. Hillard, 5 Cow. 419). Mor can other parties obtain access to them—or inspection óf them—except by this proceeding for a discovery.
    II. The plaintiffs object to the discovery asked for, because they say—(1.) Their books are unreliable— untruthful—full of false and fraudulent entries. (2.) That such entries cannot be proven to be false and fraudulent except by the testimony of one man, whom they are unwilling to call, because they are unwilling to trust him as a witness. As presented in the affidavit of Mr. Coles, Judge Sedgwick properly treated all this as the mere opinion of a man who had “no original knowledge” of the matters to which he assumed to testify. But assuming it to be1 strictly true, it affords no answer to the motion. (1.) It was the plaintiffs’ duty to see that their books were kept correctly. (2.) These false entries were made from time to time, through a period of two years and upwards. (3.) It is fairly inferable from the affidavit of Mr. Coles, that during all that time no examination was made by plaintiffs of “said books, and of Ms (Sanford’s) account with the bank.” (4.) It is not pretended that the discovery of these false entries was attended with •any difficulty whatever. It might have been made at any time before had not the plaintiffs been guilty of gross neglect of duty. (5.) The defendants are "in no way connected with the alleged falsification of the books, and are not to be held responsible for, or made to suffer on account of, the plaintiff’ neglect. (6.) The only answer which is admissible to an application of this sort is a denial of the possession or control of the books, &c., of which discovery is sought (Southart v. Dwight, 2 Sandf. 672; Hoyt v. American Exchange Bank, 1 Duer, 652).
    III. A denial of this petition will amount to an exclusion of the evidence which the plaintiffs’ books contain. If it is pertinent and material to the defendants’ case, they are entitled to have it (Morrison v. Sturges, 26 How. Pr. .178). If for any reason it is incompetent, that objection should be made and decided at the trial, when the merits of the whole case are put before the court.
   By the Court.—Monell, Ch. J.

There has been a strict compliance with the statute and rules of court in the statements contained in the defendants’ moving papers; and the application is brought within the usual principles governing the discovery of books and papers.

In cases where the production of books can be compelled by subpoena duces tecum, the provision of the Code allowing the examination of parties to the action has practically become a substitute for the mode prescribed by the Revised Statutes.

But an action by or against a corporation is not among the cases where a subpoena duces tecum would be effectual to compel the corporation to bring its books into court (La Farge v. La Farge Ins. Co., 14 How. Pr. 26).

The only defense to this motion is that it is inequitable and unjust to compel the plaintiffs to discover the books kept by their defaulting, cashier, containing entries of false and deceptive credits, which, if unexplained, will exonerate the defendants from liability, and which cannot be explained except by the testimony of such cashier.

It is necessary in these applications that the books of which a discovery is demanded contain material evidence, which cannot be obtained in any other way, and those are the governing tests. If the demand is by a plaintiff, it must appear that the evidence will prove or aid in proving his cause of action ; if by a defendant, it must go in support of his defense. In either case, if the evidence is material, it must necessarily, to a greater or less degree, be detrimental to the adverse party; and it could, therefore, be always urged that a party ought not to be required to furnish his adversary with the weapons of attack or defense, especially as it would throw upon such party the necessity of explaining, or relieving himself from the effect of such evidence.

But I cannot perceive that any principle of equity or justice is violated by adhering to the common rules which control these applications. Discoveries of the nature sought in this case are quite usual. The evidence contained in the plaintiffs’ books "is material to the defendants ; and it is no answer to the application to say thaf the books contain entries which the plaintiffs can only explain by the testimony of their cashier.

The defendants, dealing with the plaintiffs, had a right to assume that the cashier was acting.under the plaintiffs’ authority; and, therefore, the entry of any of the transactions was the act of the plaintiffs. Upon that assumption, the entries are competent as evidence in the defendants’ favor, and unexplained, they are material. Of course, if, as was suggested, the good faith of the defendants is successfully impugned, these assumptions cannot prevail.

The inequity, if any exists in this case, grows out of the alleged difficulty in explaining the entries of the defaulting cashier. But that is a difficulty that surrounds more or less every case, and must be looked upon as a misfortune, and not as affording a reason for defeating the established right of a party.

An exception cannot be made in favor of a corporation. If it was competent to require the production of their books by a subpoena duces tecum, their contents relating to the transactions between these parties might be received as proper evidence against the plaintiffs. But as such production cannot be compelled in that way, resort must be had to an order for their discovery ; but the order will have no greater or other effect than to bring the evidence within the reach of the party seeking it. Its competency, sufficiency or materiality are questions afterwards to be disposed of.

I think the order should be affirmed, with costs.

Cuetis and Speir, JJ., concurred.