Court Opinion

ID: 5777779
Source: CourtListenerOpinion
Date Created: 2022-01-12 17:44:46.613009+00
Date Added: 2024-06-11T08:41:54.932554
License: Public Domain

MoGivern, J. (dissenting).
Firstly, nowhere in the record
is the “ legend ” of any accountant, as stated by the majority, to the effect that “ the statement reflected the entries in the corporate books, but no verification beyond that was certified ”. But I do find a legend to the effect that “ The above balance sheet and supporting Schedules A-l to A-7 inclusive are subject to comments contained in the Letter of Transmittal and notes to financial statement which are an integral part of this report ’ ’. And I further find the letter of transmittal of the “ Report of Accounts” bears the ominous warning: “ The scope of our examination did not include independent confirmation of assets and liabilities, and our review of operations was limited to the procedures necessary for the preparation of this report.
*115‘ ‘ In view of the limitations on the scope of our examination, we cannot express an opinion on the accompanying balance •sheet and the related statement of operations.” Such a statement would have made Little Bed Biding Hood suspicious.
Secondly, I find nothing in the record to support the majority’s conclusion “ He likewise agreed that the accountants’ report would he final ”. The petitioner never agreed to accept any report blindfolded. At issue was nearly $400,000. In Matter of Sherman (2 A D 2d 662) there was a contract that the accountants’ calculation was to be final and binding (not so in the instant case) and even there, this court said that did not apply to palpable errors. Of course, a rule of reason applies. In Matter of Waldman v. Eldorado Towers (25 A D 2d 836) a shareholder in a close corporation had been excluded from information concerning the assets of the corporation and this court said: “ Assuming good faith (and no facts indicating petitioner’s had faith are alleged) this would entitle him to an inspection (Matter of Steinway, 159 N. Y. 250; 11 N. Y. Jur., Corporations, §§ 137,149). Moreover, the offer by the corporation to buy petitioner’s stock itself is a valid ground for petitioner’s request, since he would be entitled to ascertain the stock’s value for himself before selling (Matter of Smilkstein v. Smilkstein & Sons, 32 Misc 2d 882 (Hopkins, J.); Matter of Bankers Trust Co. v. Rosenhirsch Co., 20 Misc 2d 792, 794 (Loreto, J.); Matter of Pearson v. Formrite Corp., 223 N.Y.S. 2d 15 (Meyer, J.); Ann., Corporate Records — Inspection— Purpose, 15 ALR 2d 11, 42-45).”
Moreover, although it is conceded that the agreement of May 22, 1944 provided the price of his stock was to he hook value, that is precisely what the letter of transmittal (April 9, 1970) assured him the accountants would not confirm. “ Book value is determined by deducting liabilities from assets ”. (Cf. 7 White, New York Corporations [12th ed.], § 7.26.) And the letter of transmittal categorically asserted “ The scope of our examination did not include independent confirmation of assets and liabilities ”. And in accordance with Aron v. Gilman (309 N. Y. 157) petitioner still had a right, particularly in a close corporation, to determine for himself the underlying validity of the figures and the accuracy of the book value as represented. In that case, the court said (p. 160): “ At least two principles seem to emerge from the better reasoned authorities: (1) the book entries must he correct and complete, and not made to defeat an outstanding claim, and (2) accepted accounting principles should not he entirely disregarded (see Steinbugler v. Atwater & Co., 289 N. Y. 816).”
*116Lastly, and in any event, the obligation of fair dealing imports the obligation of good faith in the execution of all written agreements. (See 10 N. Y. Jur., Contracts, § 203.) Thus, I conclude the learned Justice at Special Term was correct the first time; I would reverse the order appealed from and direct the respondent to submit its books and records for inspection by the petitioner purchaser and answer the petition.
Capozzoli, J. P., and Markewich, J., concur with Steuer, J.; McGtvern, J., dissents in an opinion.
Judgment, Supreme Court, New York County, entered on October 16, 1970, affirmed. Respondent shall recover of appellant $50 costs and disbursements of this appeal.