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Gow v. Ward

Supreme Court of New York, Appellate Division

May 12, 1911

WILLIAM GOW, Appellant,
v.
ARTEMAS WARD, Respondent.

Page 594

APPEAL by the plaintiff, William Gow, 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 17th day of March, 1911, denying the plaintiff's motion for discovery and inspection of certain books, papers and documents.

COUNSEL

Anson Beard, for the appellant.

Charles E. Rushmore, for the respondent.

DOWLING, J.:

This appeal is from an order denying an application for a discovery and inspection of certain books, papers and documents relating to the business of the former firm of Ward & Gow, whereof plaintiff and defendant for some sixteen years prior to October 24, 1907, had been members. On that date, as set forth in the complaint, the firm which had conducted a large and successful advertising business and was the owner of valuable privileges and contracts extending over a long term of years, had assets of at least $2,500,000 which would have suffered a large depreciation in case of a forced sale thereof. Plaintiff at that time was individually the owner of a large number of shares in the Borough Bank of Brooklyn and in the International Trust Company of New York. Both plaintiff and the firm were largely indebted to various persons. In the financial panic which was then existent, plaintiff was in serious financial straits and was being so pressed for payment of his indebtedness that bankruptcy or insolvency was imminent, both to plaintiff and to the firm. Defendant, having been called upon to assist both plaintiff individually and the firm in avoiding the impending insolvency, is charged to have stated to plaintiff that some action should be taken to temporarily protect the firm from becoming involved in the personal obligations of plaintiff, as a receivership of the firm, or the forced sale of its assets would be ruinous both to the plaintiff and to it; and

Page 595

defendant suggested that legal advice be sought to ascertain what action could be properly taken to protect both plaintiff and the firm. Plaintiff alleges as a fact that if the firm assets had then been sold, they would not have realized enough to pay either his or the firm's debts, and that only by continuing business could they be paid. Acting upon the advice of counsel and upon the representation of defendant that the arrangement would be a temporary one only, plaintiff signed two papers, one of which was a consent to a dissolution of the firm and the other an assignment of all his interest therein to defendant. These he claims to have signed upon defendant's representation that the purpose of their execution was to protect the business and contracts of the firm from a receivership and to prevent the sacrifice of its assets at forced sale; to enable the business of the firm to continue; that the obligations of plaintiff and the firm might be paid, and that plaintiff would retain his one-half interest in the firm, its earnings, contracts and assets, subject to the payment of all obligations, firm and personal, from the profits of the business. Defendant is also charged to have represented that such papers, when signed, would not divest plaintiff of his interest in the firm, but that defendant would conduct its affairs for the joint benefit of plaintiff and himself; that the former's share of the profits would be used to pay his personal debts and that he could trust defendant to carry out the agreement on account of their long business and social relations. Plaintiff further claims that he was laboring under great mental strain and thus was the more easily induced to believe defendant's representations and follow his advice and that of counsel. He charges that he relied upon these representations and statements, believing them to be true, and that by his actions both his obligations and those of the firm would be met; that he relied on the defendant's promise to conduct the business for their joint benefit; and that he would not have signed the papers unless he had been informed by defendant that such act was for the best interests of his creditors and those of the firm. He claims not to know the consideration named in the papers signed by him, but he denies receiving any consideration whatever for the execution thereof. He does set forth, however, that defendant

Page 596

assigned certain stock of the Hollis Park Company and the Westfield Real Estate Company, of which they were joint owners, to him to be used in helping to defray plaintiff's personal obligations under the agreement, and this stock he turned over to the Borough Bank with the other property owned by him; the half interest in said stock thus transferred originally cost $115,000, but at the time in question it is alleged to have had no market value. Thereafter on November 8, 1907, defendant induced plaintiff to sign a further instrument assigning his interest in the firm by the representation that it was necessary to assist in carrying out the original agreement, and that it had no effect different from the papers theretofore signed. Plaintiff claimed that all these representations were made by defendant in order that he might thereafter claim that he was the sole owner of the firm's assets, business, contracts and profits, to the exclusion of the plaintiff and his creditors. A demand for a share of the profits and for accounting has been refused by defendant. The relief prayed for in brief is that the papers signed on October twenty-fourth and November eighth be adjudged null, void, of no force and effect, and be surrendered for cancellation; that it be determined that plaintiff is the half owner of all the property of the firm and that defendant received the same for the equal benefit of plaintiff and himself; and that defendant account to plaintiff for his management of the business. Thus far the complaint. It will be seen that it does not proceed upon any theory of inadequacy of consideration. It denies the receipt of any consideration whatever. It asserts the existence of an agreement by which defendant was ostensibly to take over all plaintiff's interest in the firm, but in reality was only to hold that interest for plaintiff's benefit until the financial stress was over and until, out of the earnings of the firm, its debts and those remaining due by plaintiff individually had been discharged. It contains no allegation whatever of any misrepresentation or concealment by defendant of the firm's assets or liabilities, or as to the condition of plaintiff's or defendant's personal accounts with the firm. It charges the making of a representation as to the effect of plaintiff signing certain papers, and a promise by defendant of what he would do with the interest thus nominally conveyed.

Page 597

From his petition for the order in question, however, it appears that an order for the examination of defendant before trial having been made, it was thereafter modified by limiting its scope to the circumstances surrounding the making of the papers in question, the purpose of the modification being to permit an examination of defendant as to the matters which may tend to show that plaintiff has a right to an accounting from defendant and to preclude him from going into an accounting upon said examination. It then appeared that further papers were signed by plaintiff on November 10 and 26 and 27, 1907, but the materiality of these to the present issue does not sufficiently appear. Plaintiff now claims that because certain of the papers executed by him recited a consideration, among others, of $150,000 overdrafts by plaintiff, and because as defendant has testified that he had only drawn $15,000 from the firm profits, plaintiff's drafts therefor could not have exceeded $165,000, which he avers was at least $500,000 less than he was entitled to draw. He further claims that he does not know the contents of the book accounts, ledgers, journals and other records of the firm and that he desires to examine them to prove how much he was entitled to draw as profits from 1891 to 1907 and that such sum was far in excess of the amount named as the consideration for the assignment, and that there was no consideration therefor. But the petition does not change the cause of action alleged in the complaint, which does not seek relief by reason of any inadequacy of consideration for the transfer, but because of the absence of any consideration whatever and predicates the right to recover upon an express agreement that the transfer of plaintiff's interest in the firm was but a temporary expedient, defendant to use it only as a means of protecting plaintiff, the firm and the creditors of both from unnecessary loss and perhaps financial ruin, and agreeing that plaintiff was still his equal partner in all respects. Upon that issue the examination of the firm's books is not material in any way. There is no claim that defendant ever misrepresented to plaintiff the facts shown by the books or referred to them in any way. Plaintiff upon the record has parted with all interest in the firm and cannot be reinstated therein until his cause of action has been judicially declared to

Page 598

be well founded. When that time arrives he will be entitled to an accounting. Until then he has no right thereto, nor can this be granted him indirectly by such an inspection and discovery as is now proposed. ( Moore v. ...


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