Case Name: Jacques C. Cohn, Respondent, v. Sidney P. Hessel and Others, Appellants, Impleaded with Elias Schattman
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1904
Citations: 95 A.D. 548
Docket Number: 
Parties: Jacques C. Cohn, Respondent, v. Sidney P. Hessel and Others, Appellants, Impleaded with Elias Schattman.
Judges: 
Reporter: Appellate Division Reports
Volume: 95
Pages: 548–552

Head Matter:
Jacques C. Cohn, Respondent, v. Sidney P. Hessel and Others, Appellants, Impleaded with Elias Schattman.
Examination of firm books by a partner who alleges that he was induced by a fraudulent inventory to sell his interest therein to a new firm—manner of examination of the books of the old and of the new firm.
Jacques C. Cohn, Sidney P. Hessel and Elias Schattman were copartners doing business under the name of Schattman, (John & Hessel. September 6, 1901, an agreement was entered into by which the firm of Schattman, Cohn & Hessel was dissolved and the firm of Hessel, Bains & Co. was formed to continue its business. The result of the agreement was that Cohn and Schattman withdrew from the old firm and sold their interests to the reorganized firm at a specified valuation.
In an action brought by Cohn to set aside the agreement upon the ground, principally, that Hessel, acting for himself and for the other members of the reorganized, firm, failed to include certain property of the old firm in the inventory, upon the basis of which the settlement was made, it was
Held, that Cohn was entitled to inspect the books of the old firm from January 1, 1901, and the books of the new firm for the month of September, 1901;
That the order permitting the inspection properly required the books and papers of the old firm to be deposited with a referee within ten days, there to remain for a period of six weeks;
That the books of the new firm should not be deposited with the referee, but that the inspection and discovery should be permitted at the place of business of the new firm;
That as Cohn did not desire to pay the expense of a chartered accountant to aid him in making the inspection, such inspection and discovery should be made in the usual manner, to wit, by Cohn, his attorney, clerks and assistants.
Ingraham, J., dissented.
Appeal by the defendants, Sidney P. Hessel and others, 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 20th day of April, 1904, directing the said defendants to give to the plaintiff a discovery and inspection of certain books, documents, and records, and permission to take copies.
Nathan Ottinger, for the appellants.
Samuel N. Guggenheimer, for the respondent.

Opinion:
Laughlin, J.:
The plaintiff, the defendant Schattman and the defendant appellant Hessel were copartners doing business under the name of Schattman, Cohn & Hessel. On the 6th day of September, 1901, an agreement was made in writing between the defendant Schattman as party of the first part, the plaintiff as party of the second, and the three appellants as parties of the third part in and by which the firm of Schattman, Cohn & Hessel was' dissolved and it was recited that the firm of Hessel, Sains & Co., composed of the appellants, was to be formed and the assets of the former firm were to be transferred to the latter, which was to assume all the liabilities of the former as shown upon the copartnership books and to hold the outgoing partners harmless therefrom. The terms of the new copartnership were not specified in this agreement; but to all intents and purposes, except as to the share or interest of the respective partners, it was an agreement by which two partners left the firm and their places were taken by two others, the firm undergoing, the necessary change of name, but the business continued without interruption. It was in effect a sale of the interest of the outgoing members to the reorganized firm upon a specified valuation. This , action is brought to set aside that agreement' upon the ground that the plaintiff was induced to make it by false and fraudulent representations of his partner, the appellant Hessel, acting for himself and for the other appellants, with respect, to the financial condition of the firm and the value of plaintiff's interests made with the knowledge and consent of the other appellants. The principal claim of the plaintiff seems to be that certain property of the copartnership "was thus fraudulently concealed and not included in an inventory which was the basis upon which the settlement was made. The order permits an inspection of the copartnership books of the plaintiff's former firm from the 1st day of January, 1901, and of certain copartnership books of the new firm covering entries made for the month of September, 1901. The appellants opposed the granting of the order upon the ground that the partnership books of the old firm had been transferred to them and that, therefore, the liberal rule with reference to permitting a partner to have an inspection and discovery of the firm books (Bearns v. Burras, 86 Hun, 258; Howlett v. Hall, 55 App. Div. 614) is not applicable, ¡and upon the further ground that the court had no jurisdiction at the instance of the plaintiff to order a discovery and inspection of the new firm books. The fallacy of the argument in behalf of the appellants lies in the fact that if the respondent's contention be sustained, then, the old partnership was never legally dissolved, the new partnership never acquired the business and the members of the new firm would be deemed to have held the property and conducted the business ex-maleficio and would be accountable as such. In this view it would seem that the plaintiff, according to his prima facie • case, has an interest in the books of the new as well as of the old firm, and it appearing presumptively that; for the purpose of inducing the agreement, copartnership property of great value was fraudulently and without his knowledge omitted from the inventory, and subsequently entered upon the records of the new firm, he is entitled to an inspection and discovery of 'both. The charge of fraud, however, is denied and, therefore, in affording the respondent an oppor tunity to procure evidence with which to enable him. to establish his cause of action, due regard should be had toi the rights of the appellants, and the inspection and discovery should be had with as little inconvenience as possible to them. The order requires that .the books and papers be deposited with a referee within ten days, there to remain for the period of six weeks. In so far as the inspection and discovery relates to the books of the old firm it does not appear that this will be a hardship to the appellants because it is not shown that those books are now in daily use, but it is manifest that the current books of the new firm cannot be taken from their place- of business without serious inconvenience, and, therefore, the order should be modified by requiring the inspection and discovery to be permitted at the place of business of the appellants, provided they file a consent thereto, under the supervision of the referee during the period specified.
The appellants further contend that the application was made in bad faith and for the purpose oE acquiring, for ulterior purposes, knowledge concerning the customers of the new firm and the business transacted by it. The court, evidently with a view to protecting the appellants against the injury apprehended in this regard, directed that the inspection be conducted by the plaintiff with the aid of a chartered accountant selected by the court and designated in the order, and that the appellants pay the charges of the accountant. The appellants claim that this expense should be borne by the respondent, but the respondent does not desire the services of the accountant and, therefore, should not be compelled to bear the expense. All of the provisions of the order with reference to the chartered accountant should be stricken out and a provision inserted permitting the inspection and discovery in the usual manner by the respondent, his attorney, clerks and assistants.
The order should be modified as already indicated, and as thus modified affirmed, without costs.
Van Brunt, P. J., Patterson and McLaughlin, JJ., concurred; Ingraham, J., dissented.