Corr v. Hoffman

• Decision Date: 12 May 1931
• Citation: 256 N.Y. 254,176 N.E. 383
• Parties: CORR v. HOFFMAN et al.
• Court: New York Court of Appeals Court of Appeals

256 N.Y. 254

176 N.E. 383

CORR

v.HOFFMAN et al.

Court of Appeals of New York.

May 12, 1931.

Action by Peter H. Corr against George F. Hoffman and another. From a judgment of the Appellate Division (229 App. Div. 852, 243 N. Y. S. 801) affirming a judgment of the Special Term entered on the report of a referee in favor of defendants, dismissing the complaint on the merits, and rendering judgment for named defendant on his counterclaim, plaintiff appeals.

Affirmed.

See, also, 219 App. Div. 278, 219 N. Y. S. 656; 128 Misc. Rep. 713, 220 N. Y. S. 65.Appeal from Supreme Court, Appellate Division, First Department.

Thomas E. O'Brien and Robert A. Huddleston, both of New York City, for appellant.

Henry W. Hardon and Edward S. Malone, both of New York City, for respondents.

LEHMAN, J.

In September, 1901, the plaintiff, Peter H. Corr, and the defendant George F. Hoffman entered into a written agreement ‘to become copartners together in the art and trade of manufacturing, buying, selling and vending rope, twine, hammocks, etc., which said copartnership shall continue from the date of these presents for and during and to the full end and term of three years next ensuing.’ The copartnership so formed maintained a principal office in Philadelphia and a branch office in New York City under the firm name of Hoffman-Corr Manufacturing Company. At the expiration of the term of three years, it was continued by mutual consent, without new articles. From that time the copartnership was terminable at will, but, so long as it continued, the mutual rights and obligations of the partners remained as defined in the written contract, except in so far as particular provisions of the written articles might thereafter be modified by agreement or might be intended to apply only during the original fixed term of three years.

At the time the copartnership was formed, George F. Hoffman was a resident of Philadelphia. There he had been a member of a firm which had conducted a similar business. He owned or controlled whatever remained of the business of that firm, and he intended to continue that business in partnership with the plaintiff. The plaintiff resided in New England, where he conducted a different business. It was agreed in the written contract that Hoffman ‘is to supervise and direct the affairs of the said business,’ and that Corr ‘is to have nothing whatever to do with the management of the business.’ Profits and losses were to be shared equally, but Hoffman, as managing partner, was to receive the sum of $10,000 as a salary to be charged as an expense against the net profits of the business. The contract recites that Hoffman ‘delivered in as stock and money the sum of Fifty Thousand Dollars,’ and that Corr ‘has likewise delivered the sum of Fifty Thousand Dollars' to be used in the partnership business. No further sum was to be contributedby Corr, unless mutually agreed to in writing by and between the parties, but Hoffman might ‘at his discretion contribute a sum greater than Fifty Thousand Dollars.’

Under Hoffman's management, the business grew and prospered. Both partners, enrichedby its success, were satisfied to leave unchanged the terms of the copartnership contract, except that in 1918 they agreed upon a modification intended to provide for the payment of larger compensation to Hoffman, free from income tax. Corr continued to repose complete confidence in Hoffman. At times he directed inquires to Hoffman as to some details of the business; perhaps occasionally he was consulted by Hoffman. At the close of each year he received a statement of account which purported to show the condition of the partnership affairs and the annual profits and losses. He had access to the books of the partnership, and the bookkeeper gave him such information as he requested. Corr, after opportunity to examine these annual statements, accepted them, and the profits and losses, as shown on the statements, were equally shared by the partners. Out of these profits Corr made additional contributions to the firm capital. Hoffman's contributions to the firm capital were much larger. The annual statement showed the capital contribution of each partner, and, in accordance with the terms of the partnership contract, 6 per cent. upon such contribution was allowed to each partner.

The profits of the business were not steady. They were somewhat speculative in their nature. They arose during the hectice years of the World War. They declined in the following years, and in some years there was a net loss in the conduct of the business. The plaintiff accepted without objection the annual statements of account, in good years as in bad years; but in 1925 a growing distrust and suspicion of his partner and some of the principal employees of the firm, a doubt whether he had received an equal share of the profits earned in past years, led the plaintiff to investigate the affairs of the copartnership and to examine its books. Then he brought this action against his partner, George F. Hoffman, and against his partner's brother, Frank E. Hoffman, the manager of the New York office of the firm. He charges in his complaint that they had wrongfully diverted and misappropriated partnership funds, and, by fraudulent records and entries in the firm books and accounts, had concealed such diversion and misappropriation; and he asks for a dissolution of the partnership, an accounting of all moneys received by the defendants, or either of them, in connection with the business of the partnership, and a direction that they shall make restitution of all moneys or assets ‘misapplied, misappropriated or diverted from said partnership.’

The plaintiff was entitled, even without proof or allegation of fraud or wrongdoing, to a partnership accounting, unless the receipt and acceptance of the annual ‘statements of account’ and the adjustment of the shares of the partners in the profits and capital of the firm constituted annual accountings or statements of account by the partners. Anticipating a claim that, by accepting, without objection, these statements, he had precluded himself from thereafter asserting that they did not correctly reflect the condition of the firm business, the plaintiff alleges in his complaint that he had received from time to time from the defendants statements of accounts purporting to be perfect, just, and true, and that he had relied upon them to his damage and detriment, ‘although said statements of accounts were in many respects false and fictitious, imperfect and untrue.’

The complaint was amplified by two bills of particulars which set forth in detail the matters in which the plaintiff claims that he was defrauded by the defendants. In their answers the defendants denied all allegations of fraud and wrongdoing, and the defendant George F. Hoffman asserted in a counterclaim a right to purchase the plaintiff's share in the partnership business by virtue of a clause contained in the original written contract of copartnership for a fixed term. The issues were referred to a referee ‘to hear and determine.’

It is not entirely clear whether in his complaint the plaintiff sought to impeach accounts stated between the parties on the ground of fraud or whether he maintained that no accounts had been stated. For the purposes of this appeal, the distinction is immaterial. There has been an exhaustive and careful trial by the referee in regard to every charge contained in the complaint and in the bills of particulars, regardless of whether the charge was of misappropriation or of fraudulent concealment of the condition of the business by fictitious entries in the books, reflected in the annual accounts rendered. The books of the partnership were produced and examined with the help of accountants and auditors. The charges of alleged diversions, made by the plaintiff in his pleadings or at the trial, have been tried out as completely as they could be upon a new accounting.

The referee in his opinion exhaustively analyzed the evidence. Further analysis now would serve no purpose. In unequivocal terms the referee in his opinion exonerated the defendants from every charge of fraud or misappropriation or diversion of the moneys or assets of the corporation. ‘There is no ground whatever in this case,’ the referee said, ‘for the charges that have been levelled against these defendants. Books of account in considerable volume, and records in great number, have been produced and laid bare to the plaintiff on this trial. The plaintiff has has substantially all the benefits of an accounting. I find that the plaintiff was kept informed from year to year and, indeed, frequently discussed between the yearly period, all matters of the partnership about which he saw fit to inquire. The charges of conspiracy are groundless.’

The evidence did, nevertheless, show that the books were in some respects inaccurate, and, in that sense, false, and so the referee found. At times, payments which were in themselves proper and lawful were entered in the books in a manner which concealed their real nature. Bonuses paid to employees of the branch office in New York were entered in as an expense of the ‘cordage department’ of the home office in Philadelphia. Investments in Liberty bonds and United States Treasury certificates were entered as ‘book accounts' receivable, and the interest and profits of such investments were entered as ‘discounts.’ The defendant George F. Hoffman and his bookeeper explained the reasons why many of the entries were made in a form which might be characterized as misleading. Their explanation satisfied the referee of the good faith of the defendants, and that the plaintiff was not harmed by these entries. The plaintiff still maintains that the result, and, perhaps, the purpose, of these entries was to increase improperly other disbursements and expenses of the copartnership business and to conceal the true situation from the plaintiff. We have examined...