Case Name: Henry C. Copeland, Respondent, v. Walston H. Brown, Individually, and as Receiver of the Firm of Brown, Howard and Company, and Charles Peterson, Defendants, Impleaded with Clinton Beckwith, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1902
Citations: 73 A.D. 423
Docket Number: 
Parties: Henry C. Copeland, Respondent, v. Walston H. Brown, Individually, and as Receiver of the Firm of Brown, Howard and Company, and Charles Peterson, Defendants, Impleaded with Clinton Beckwith, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 73
Pages: 423–427

Head Matter:
Henry C. Copeland, Respondent, v. Walston H. Brown, Individually, and as Receiver of the Firm of Brown, Howard and Company, and Charles Peterson, Defendants, Impleaded with Clinton Beckwith, Appellant.
Inspection of partnership boohs and papers—when it should be granted to a partner.
In an action brought to determine a controversy concerning one-third of the interest which the defendants Peterson, Beckwith and Quackenbush, composing the firm of 0. Peterson & Co., had in the firm of Brown, Howard & Co., it appeared that Beckwith represented the interest of his copartners in the firm of Brown, Howard & Co., and that he and Quackenbush had assigned to Peterson one-tliird of such interest. The plaintiff claimed under an assignment from Peterson given as security for an antecedent debt, while the defendant Beckwith claimed that the assignment by himself and Quackenbush to Peterson of the one-third interest in question was made at a time when the latter was heavily indebted to the firm of Brown, Howard & Co., and was made on the express understanding and agreement that Peterson would dispose of the interest so assigned for cash and would turn over the proceeds to Beck-with, and that in fraud of the rights of Beckwith, Peterson failed to make such disposition of the assignment.
Upon a motion made by Beckwith for an inspection before trial of the books of C. Peterson & Co., the moving papers alleged that the books were in the custody and control of Peterson, and that the latter refused to allow Beckwith to inspect them, and that such an inspection would disclose the indebtedness of the defendant Peterson to the firm of Brown, Howard & Co. at the time when the assignment was made to Peterson.
Meld, that the motion for an inspection should be granted;
That the purchaser for value of a chose in action takes subject to all equities existing between the parties and also subject to latent equities existing in favor of third persons, and if a third person has a superior equity it is not essential that notice of the same should be given to the purchaser in order to protect the rights of such third party;
That the real issue between the plaintiff and Beckwith was as to which one of them had the prior equity; that the existence of an indebtedness from Peterson to Brown, Howard & Co. was an important fact in support of Beckwith’s claim that the assignment to Peterson xvas conditional, and that as it appeared that an inspection of the books was essential to establish this fact he should be allowed to make such an inspection before trial;
That the rights of partners to inspect the firm books are equal and that one .partner may not lawfully deprive the other partner of such right;
That it was error for the court to deny the motion on the ground that an inspection of the books was only essential to the defendant Beckwith for an account- ' ing and should, therefore, not be ordered until he had established his right to such an accounting.
Appeal by the defendant, Clinton Beckwith, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 13th day of March, 1902, vacating an order for the inspection of the firm books of 0. Peterson & Company, composed of the defendants Peterson and Beckwith and one Quackenbush.
M. J. McKenna, for the appellant.
L. Laflin Kellogg, for the respondent.

Opinion:
Hatch, J.:
It appeal's from the averments of the complaint that the defendants Peterson, Beckwith and Quackenbush were copartners in several firms, prior to the year 1890, under various names. The defendant Beckwith represented the interests of himself and partners in the firm of Brown, Howard & Co., which firm was one of the contractors for the building of the new Croton aqueduct. This last-named firm was dissolved and the assets were distributed under stipulation between the parties made on the 28th day of June, 1900. Of Beckwith's share there were retained by the defendant Brown, as receiver, $15,216.11, pursuant to a written stipulation between the plaintiff and Beckwith to await the determination as to the ownership thereof between the defendants Beck-with, Peterson and the plaintiff Copeland. After such stipulation, the plaintiff brought this action, claiming this sum of money by virtue of an assignment made to him by Peterson as collateral security for a loan. Some seven years prior thereto, Beckwith and Quackenbush had made an assignment to Peterson of one-third of the interest represented by Beckwith in the firm of Brown, Howard & Co. In his answer to the complaint, defendant Beckwith avers, that this assignment to Peterson was made at a time when the latter was heavily indebted to the firm of Brown, Howard & Coi and was so made on the express understanding and agreement by Peterson that he would dispose of the interest so assigned for cash and turn over the proceeds to Beckwith; that in fraud of the rights of Beckwith, the defendant Peterson failed to dispose of such interest so assigned for cash, but on the contrary retained the same in his. possession and more than seven years afterwards assigned it to the plaintiff as security for personal loans theretofore made to him by the Riverside Bank. The controversy, therefore, which this case presents relates to the priority of right in and to this fund by virtue, of Peterson's assignment to the plaintiff and the violation of the agreement by which the proceeds of the assignment to Peterson was to be paid to the defendant Beckwith pursuant to the agreement when the assignment was made. Such is the issue presented by the pleadings in the action.
The defendant Beckwith seeks an inspection of the books of the-firm of Peterson, Quackenbush and the defendant, and he avers in his petition that the books of such firm were kept in the custody and control of the defendant Peterson; that Beckwith has not and never has had the possession of these books, and that Peterson refuses to let Beckwith see them. It is further averred in the petition, in substance and effect, that an inspection of these books will disclose the indebtedness of the defendant Peterson to the firm of Brown, Howard & Co. at the time when the assignment was made by Beckwith and Quackenbush to Peterson, and that an inspection of such books is essential and necessary to the defendant Beckwith in order that he may properly prepare for the trial of the'action. It is evident from the averments of the petition and the issues raised by the pleadings that the defendant Beckwith can only succeed in -defeating plaintiff's rights to the money by showing the existence of an indebtedness at the time when the firm made the assignment to Peterson, as one of the steps necessary to be established in order -to furnish a basis for the assertion of the claim that the assignment made to Peterson was a conditional assignment, and that when the moneys were realized therefrom by virtue of the conditions Beckwith became entitled to have and receive the money. It seems to bo well settled that even in the case of a purchaser for value of a chose in action he takes it subject to all equities existing between the parties, and also to latent equities existing in favor of third persons; and if such third person has a superior equity it is not essential that notice of the same should be given to the purchaser in order to protect the rights of such third party. (Central Trust Co. v. West India Imp. Co., 169 N. Y. 314; Fairbanks v. Sargent, 104 id. 108.)
In the present case the plaintiff does not stand in the position of a purchaser for value, as he took the assignment as security for an antecedent debt. It is, therefore, evident that if Beckwith prove the conditional character of the assignment of the firm to Peterson it is quite possible that he may be able to establish a superior equity over the plaintiff to the fund in question. It seems clear that one of the steps in substantiation of this claim is the establishment of the indebtedness of Peterson at the time when the assignment was made to him. It is apparent from the averments of the petition that the books are essential in order to show' such fact. Beckwith has as much right to the possession of the books as has Peterson; he was a partner in the firm, and it has always been the well-recognized rule that the rights of partners to have an inspection of the books of the firm are equal, and one partner may not lawfully deny the right of such inspection or deprive the other of access thereto. (Kelly v. Eckford, 5 Paige, 548 ; Stebbins v. Harmon, 17 Hun, 445 ; Allen v. Stead, 11 N. Y. Supp. 536.)
As it is clear that an inspection of the books is necessary for Beck-with to prepare for trial, he has the legal right to such opportunity and may not be deprived of it by the refusal of a copartner having the manual custody of the books to allow it.
The learned court in deciding this motion seems to have based his decision upon the ground that the books were only essential to the defendant Beckwith for an accounting, and that as an accounting would not be taken until the right of the defendant thereto was established, he was not entitled to a present inspection of the books, but might become so entitled after the establishment of liis claim. We think this view ignores the real issues between the parties; that issue is, who, has priority of right and the superior equity to the fund in question, and such determination must be based upon a consideration of the circumstances and agreement of the parties when the respective assignments were made. One very pertinent element in such consideration is the existence, if it be a fact, of the indebtedness of Peterson to the firm when he received the assignment. Such condition, it is quite likely, can either be proved or disproved by the books. Indeed it would seem as if they were absolutely essential upon such issue, for if the indebtedness in fact existed the hooks will disclose it. This is not for the purpose of an accounting between the parties, but is the presentation of affirmative proof bearing upon the subject-matter presented by the issue raised by the pleadings. An inspection of the books was, therefore, properly ordered. It is claimed by the respondent that the defendant Beckwith has been guilty of negligence. The affidavits, however, sufficiently explain the difficulty of procuring service upon Peterson, who lived at Lockport, in the western end of the State, and of the inability of the petitioner to make personal service upon him of the demand for an inspection of the books. The jiroof is sufficiently explicit and satisfactory to excuse any delay in making the motion.
It follows that the order should be reversed, with ten dollars costs and disbursements, and the motion to vacate he denied, with ten dollars costs.
Patterson, O'Brien, Ingraham and McLaughlin, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.