People ex rel. Bartels v. Borgstede — 169 A.D. 421

Majority

p. 421

The People of the State of New York ex rel. Henry Bartels, Respondent, v. John G. Borgstede, as President, and Frederick H. Wefer, as Secretary and Treasurer, of the Ferncliff Cemetery Association, a Membership Corporation, and Ferncliff Cemetery Association, Appellants.

Second Department,

October 22, 1915.

Headnote

Corporation—examination of corporate books by director—when director may be aided by attorney or accountant.

Although a director of a corporation may be aided by an accountant or an attorney in making an inspection and examination of the corporate books, ■ where its accounts are intricate and complicated, he cannot entirely delegate this duty to professional accountants.

Hence, the mere fact that a corporation has closed its town office and removed its books to another office about twenty miles distant, does not authorize a director to delegate his official right and duty, as such, to an audit company, and to subject the corporate books to an unlimited examination by such company’s employees.

Appeal by the defendants, John G-. Borgstede, as president, and others, from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of Kings on the 9th day of August, 1915, directing that a peremptory writ of mandamus issue requir- . ing defendants forthwith to allow the American Audit Company of New York, through its representatives (the said company having been designated by the relator), to examine and inspect, with the right to copy, all the books of account of the Ferncliff Cemetery Association, together with the vouchers upon which payments therein set forth have been made.

George H. Taylor, Jr., for the appellants.

Clarence A. Appleton [Herman Elfers with him on the brief], for the respondent.

Relator, a director of the Ferncliff Cemetery Association, has obtained a writ of peremptory mandamus requiring the president and treasurer of the corporation to exhibit for examination the books of the corporation to the American Audit Com

p. 422

pany as relator’s agent. Such a writ does not lie except to carry out a clear right that has been denied. The personal right of a director to inspect and éxamine the corporation books is unquestioned; and because such corporate accounts may be often intricate and complicated, an accountant or an attorney at law may aid the. director in this investigation. (People ex rel. Clason v. Nassau Ferry Co., 86 Hun, 128 .) From the first defendants admitted this. However, the exercise of this right became inconvenient when the cemetery company closed its town office, in the borough of The Bronx and removed its books to the,cemetery office at Woodlands in the town of Greenburgh, Westchester county, which involved a railroad journey of less than twenty miles from New York. This, however, did not authorize the relator to delegate his official right and duty as director to the American Audit Company, and to subject the corporate books to the unchecked scrutiny of the audit company’s employees. Where such inspection is internal, being in the line of a director’s official acts, such scrutiny is a duty because of the trust reposed in the director’s fiduciary office and responsibility. (Thomp. Corp. [2d ed.] § 4520.) But such a broad right cannot be entirely turned over to professional accountants acting alone, who have not this responsibility, and over whom there is not the same judicial control. When defendants offered to exhibit the books to relator “ assisted by any one person whom he may designate,” they stated their legal duty (People ex rel. McInnes v. Columbia Bag Co., 103 App. Div. 208 ), and in such a proceeding were not obliged to turn over the corporate books to the audit company, as might possibly be required in a hostile proceeding for discovery, or under the power of visitation.

It is true that in such investigation by stockholders on whom rests no duty to look at the books, they have been allowed to appoint an agent. (State of Louisiana ex rel. Martin v. Bienville Oil Works Co., 28 La. Ann. 204 .) This was also permitted to the 1,300 dissatisfied members of a trade union, who obviously could'ñót personally examine the society accounts. (Norey v. Keep, L. R. [1909] 1 Ch. 561.) But even there the examining accountant had in advance to undertake that the data obtained should'only be used for infoiming his clients.

p. 423

While a director may properly use professional aid to familiarize himself with the accounts, still it is the director, as a corporate official, who himself makes the search through the corporate books. In cases like that at bar, his responsibility cannot be left wholly to a firm of accountants.

The order is, therefore, reversed, with ten dollars costs and disbursements, and the relator’s application denied, with ten dollars costs.

Jenks, P. J., Carr, Stapleton and Mills, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and relator’s application denied, with ten dollars costs.