48 N.Y.S. 1083 | N.Y. App. Div. | 1897
This action is brought to recover the balance of a sum of money deposited by the plaintiff with the defendant and which the defendant promised to pay. The acknowledgment of a deposit and promise is contained in a written instrument, dated June 2, 1890, to which the Consolidated Electric Storage Company (the plaintiff) was party of the first part, the Brush Electric Company, party of the second part, and the Atlantic Trust Company (the defendant) party of the third part. The obligations of the various parties to each
The defendant does not claim that the whole amount of the $215,000 has been paid under the contract. The answer of the defendant denies the deposit by the plaintiff of any money with the defendant, conceded the execution of the instrument referred to in the complaint and sets up as a counterclaim facts which the defendant insists justify a judgment for the reformation of the contract, and asks for a judgment reforming the contract and a money judgment in favor of the defendant against the plaintiff for $74,390.31. The court below sustained the defendant’s counterclaim, reformed the instrument sued on, and gave judgment for the defendant against the plaintiff for the sum of $95,426.12, and from that judgment the plaintiff has apjiealed.
Before examining the right of the plaintiff to recover any judgment against the defendant upon this contract, we should first ascertain whether or not the judgment of the court below reforming the contract and awarding judgment in favor of the defendant against the plaintiff can be sustained. The principle upon which courts of equity reform contracts in writing is well settled. It is not based upon any power of the court to make a contract between the parties which they have not made, or to relieve a party from a contract which subsequently turns out to be disastrous. The whole object of the exercise of this jurisdiction is to make a writing express what the parties really intended that it should express, and the power is never exercised, unless it clearly appears that the parties to the written agreement had made a verbal agreement which it is understood should be reduced to writing, but, when so reduced to writing, did not correctly represent the real agreement which had been made between the parties. The facts upon which relief is granted must show either, first, that after the verbal agreement was made, through a
No jurisdiction to reform a contract exists upon showing that a party executing it misconceived the extent of his liability, or made a contract which subsequently has proved to be an unfortunate one. There must be positive proof of the existence of a verbal agreement, to carry into effect which the writing was prepared and executed, and that such writing does not express the agreement, either from a mutual mistake as to its contents or effect, or a mistake as to its contents and effect by one party, where its execution was induced by the misrepresentation or fraud as to its contents, or as to its legal effect by the other. These principles are so well settled and have been so often applied that it is hardly necessary to cite authorities in support of them. As was said by Judge Gray, in delivering the opinion of the court in Avery v. Equitable Life Assurance Society (117 N. Y. 458): “An agreement between parties is presumed to contain what they intended and to comprise their whole sense of the subject-matter, and, therefore, when it is made to appear that, by a mutual error, the contract varies from their intent, or that, by some fraudulent practices, there has been a suppression, or omission, or insertion of material matter, which would operate as a surprise or a fraud upon a party, ground for relief is made. So, too, equity will relieve where there has been a misrepresentation of some important fact, by which a party is misled to his disadvantage, or so entrapped as that an undue advantage is gained over him. * * * The design and purpose of equity being to reconstitute an agreement between parties, where some positive proof shows that it is not, in material respects, in truth, such as was intended by them.” And, as was said in the American and English Encyclopaedia of Law (Vol. 15, p. 651), “the evidence, to justify the reformation of a written instrument, must be clear, strong and satisfactory, and it must be made apparent that the instrument was executed under a
It is also clearly established that the mere fact that one party to an agreement has, through inadvertence, failed to notice a stipulation contained therein, which was not induced by any fraud or misrepresentation on behalf of the other contracting party, is no ground for the reformation of a contract by striking out or materially altering the clause imposing the liability. As was said by the Court of Appeals in the case of Moran v. McLarty (75 N. Y. 29): “ The plaintiff’s testimony does not contradict this instrument, as it only shows his intention. He states that he only read it over partially, but with full opportunity to examine its contents he failed to observe the guaranty which was contained in the same, and after this he voluntarily signed and executed the assignment. It was his own fault and negligence that he did not notice the guaranty, and for this the defendant or her attorney, who transacted the business on her behalf, were not responsible. A careful attention on the part of the plaintiff at the time would have avoided the difficulty and relieved him from liability. For the inadvertence of the plaintiff in not examining the assignment and not giving such attention as was required, the defendant should not suffer, as a fair presumption may be indulged that neither she nor her attorney had any intention to leave out the guaranty. There was no mutual mistake, and the plaintiff cannot maintain the action.” These principles being thus established, we are to examine the testimony and see whether there is any evidence to show that this written instrument sued on through mistake fails to show the real contract as it was made between the parties. Let us see from the testimony introduced by the defendant, upon which it bases its claims for judgment, just what contract was agreed to be made between these three parties who executed this instrument in question; and just here it will be well to note that two of the parties, who had much to do with the making of this agreement, are dead—Mr. Belknap, who, according to the testimony of the defendant, figured conspicuously in the whole negotiations, and Mr. Osborne, the attorney for the plaintiff, who assisted in preparing the instrument in question, and who was present at its execution by the defend-
It appeared from the evidence that on March 28,1889, the Brush Electric Company had given an option to Messrs. Bracken & Waite, of New York, for an exclusive license to operate under certain United States patents therein specified, upon the payment of certain royalties to the Brush Electric Company. That option provided that Messrs. Bracken & Waite, if it was accepted, were to give to the Brush Electric Company satisfactory personal security, and that the terms of the agreement, to be entered into in accordance with the option, should be carried out. On April 10, 1890, Messrs. Bracken & Waite entered into an agreement with Robert Lenox Belknap which recited that certain persons, acting in the interest of Belknap, were to organize a company to be known as the Consolidated Electric Storage Company, and provided that Bracken & Waite should assign and transfer to such company to be organized their contract or agreement known as the Brush option. The company, in full consideration of the conveyance to it of the said option, was to issue and deliver to Bracken & Waite all of the capital stock, amounting to $3,000,000, Bracken & Waite agreeing to return and deliver to the Atlantic Trust Company of New York, or their nominee, 110,000 shares of the said capital stock in trust, to be delivered by said trustees as herein or otherwise provided. The remaining 10,000 shares in the hands of Bracken & Waite shall thereupon become and be the sole and exclusive property of Bracken & Waite. The agreement also provided that Belknap should furnish to the Atlantic Trust Company, as trustee, immediately upon the demand of Bracken & Waite, all the moneys and securities required to be paid or secured to the Brush Electric Company and by virtue of and in pursuance of the terms of said option or agreement of the 28th day of March, 1889; and that all of said moneys and the said security are to be furnished by the party of the second part (Belknap) promptly on the dates and in conformity with all the conditions set forth in said option or agreement, and that, in conformity therewith, the party of the second part (Belknap) agreed to furnish security to the Brush Electric Company, pursuant to the terms of the said option or agreement, in the sum of $165,000.
It is not disputed but that the defendant had knowledge of all these negotiations between the parties, the transfer to the plaintiff of the Brush patent, and the obligation assumed by Belknap or the traction company, of which he was president, to the plaintiff; and that, in pursuance of this proposition of Belknap’s, or the traction company, of which he was president, to the defendant, the latter agreed to furnish the security required by the Brush license. The Brush Company and the plaintiff having agreed to the form of the license which was executed, it was proposed that the defendant should guarantee the performance by the plaintiff of the obligations of the plaintiff as provided for by the license. When that question was submitted to the Brush Company, that company refused to accept a contract made by the defendant as guarantor, they being advised by their counsel that the defendant was not competent to enter into such an obligation, as it had no power under its charter to guarantee such an obligation. That objection by the counsel for the Brush Company was communicated to the defendant, and seems to have
“ Atlantic Trust Company,
“ William Street, N. T.:
“ Gentlemen.— Herewith please find our note at six months for two hundred and fifteen thousand dollars ($215,000), with interest Please place the same to the credit of our account, and oblige,
" Yours truly,
“ R. L. BELKNAP,
“ President."
This note and letter were received by the defendant company, and the traction company was credited in its general account with the defendant with the smn of $215,000. There can be no doubt that this was a discount of the note and that thereupon the defendant became indebted to the traction company in the sum of $215,000 and became the owner of its note or obligation secured by the collateral security mentioned. The traction company then drew its check upon the defendant dated on the same day and inclosed such check in a letter to the defendant as follows:
“ Atlantic Trust Company,
“ William Street, N. T.:
“ Gentlemen.— Herewith please find our check on yourselves for two hundred and fifteen thousand dollars ($215,000), for which you will please issue your certificate of deposit in the name of the United Electric Traction Company, and oblige,
“ Tours truly,
“R. L. BELKNAP,
“ President."
That check was received by the defendant, inclosed in this letter, and on the back of the check the defendant indorsed, " Received payment. Atlantic Trust Company.” In pursuance of this direction in this letter, and subsequent to the receipt of the check, the defendant issued its certificate of deposit, dated on the same day, which recited that the Atlantic Trust Company had received from the United Traction Company the sum of $215,000, in current funds, upon which the said trust company would allow interest at the
In the face of this proceeding, made necessary to carry out the device suggested by Belknap, by which the defendant could execute an instrument which would be accepted by the plaintiff and the Brush Company 'as a compliance with the obligation of the traction company to furnish the security, it is difficult to see how there could have been any misunderstanding as to the nature of that agreement. Here it was stated that the trust company did not have power under its charter to execute the agreement guaranteeing the performance by the plaintiff: of its obligation to the Brush Company, and a substitute for that guaranty was proposed which the Brush Company and the plaintiff would accept. That substitute required the making of a note by the traction company, who were hound to furnish that money under the agreement with the plaintiffs, and upon which agreement the plaintiffs’ stock had been issued; the discount of such note by the trust company ; the payment of the proceeds of such discount by the traction company to the trust company, who were to issue for it a certificate of deposit, payable to the traction company upon demand or upon five days’ notice; and tire holding of the money represented by this certificate of deposit by the trust company, as trustee, as money to be applied to the payment of any amount due to the Brush Company. That this arrangement was not a mere form, or was not understood by the parties to be a mere form, is perfectly apparent from the fact that it would be as illegal for the trust company to make such an agreement as a mere form of guaranty as it would to make a simple contract of guaranty. The substantial objection was tliat the defendant had not power under its charter to make an agreement of guaranty. It could lend its money to the traction company, and the traction company could use the money as a guaranty fund to protect the Brush Company. Whatever was the arrangement as between Belknap and his company and the trust company, the substantial agreement, so far as it affected the plaintiff and the Brush Company, was that it should not be an agreement of guaranty, but a deposit of money, the property not
This arrangement thus having been made, by which a guaranty satisfactory to the Brush Company and the plaintiff was provided for, counsel for'the Brush Company and the plaintiff met to prepare the agreement and carry it into effect, and the contract in suit was the result. That contract embodied in terms the arrangement that had been made between the plaintiff and the defendant. It is true that in addition to the provisions as to the deposit and the payment of the money due to the Brush Company from this trust fund held by the defendant, which had been furnished by the traction company, the balance of that trust fund, after payment of the amounts due to the Brush Company, were to be repaid to the plaintiff ; but that money belonged to the plaintiff, under the agreement between Belknap and the plaintiff’s assignor of the option, and which the traction company had assumed to carry out. Belknap expressly bound himself to furnish this money to the plaintiff in consideration of the plaintiff’s issue to him of its capital stock; and of that fact the defendant had full knowledge, it having in its possession a copy of the contract between Belknap and the assignors of the option. But with the exception of this provision, the form of the contract appears to be exactly in accordance with the proposition made by Belknap to the defendant and accepted by it.
The counsel for the Brush Company and the plaintiff then prepared the agreement in question. It was the agreement which both companies were willing to accept as a compliance by the traction company with the obligation to the plaintiff. It was sent to Cleveland, O., to be executed by the Brush Company. On its return it was executed by the plaintiff, and was then taken by counsel for the Brush Company to the defendant to be executed. There was present at that time, also, the counsel for the plaintiff company. That contract was there presented to the president of the defendant. A meeting of the executive committee of the defendant company having been called, to whom the contract was submitted, it was
In all this there is not the slighest evidence that this plaintiff or the Brush Company, or any one representing either of them, made any representation as to the contents of this agreement, except that the execution of the agreement would be a satisfactory compliance with Belknap’s or the traction company’s obligation to provide the money necessary to make the payments, and that it was a satisfactory arrangement in place of the personal guaranty provided for in the agreement. Belknap’s explanation to the company, even assuming that the plaintiff was bound by what he said, fell far short of a representation as to the obligation of the defendant under the agreement or any misrepresentation as to its terms; nor was there the slightest evidence to show that this agreement did not fairly carry out the proposition made by Belknap and assented to by the defendant. As before stated, it was expressly understood that the Brush Company refused to accept the defendant as a guarantor, and the agreement was devised to take the place of such a guaranty by the defendant; and that agreement involving the loan by the trust company to the traction company of this sum of $215,000, and its holding that sum in trust as a guaranty for the execution to the trust company of the obligations of the plaintiff, some disposition had to be made of the balance of the fund after the Brush Company had been secured. The disposition made by the agreement was that it should be returned to the corporation which was entitled to it (the plaintiff), the trust company having loaned it to the traction company, and the traction company having, in discharge of its obliga
As was said in the case of Moran v. McLarty (supra), "The plaintiff’s testimony does not contradict this instrument as it only shows his intention. He states that he only read it over partially, but with full opportunity to examine its contents he failed to observe the guaranty which was contained in the same, and after this he voluntarily signed and executed the assignment. It was his own fault and negligence that he did not notice the guaranty, and for this the defendant or her attorney who transacted the business on her behalf were not responsible. A careful attention on the part of the plaintiff at the time would have avoided the difficulty and relieved him from liability. For the inadvertence of the plaintiff in not examining the assignment and not giving such attention as was required the defendant should not suffer, as a fair presumption may be indulged that neither she nor her attorney had any intention to leave out the guaranty. There was no mutual mistake and the plaintiff cannot maintain the action.” Upon this evidence there can be no doubt but that the Brush Company and the plaintiff intended and insisted upon having this provision in the contract. They had no intention of executing the contract without including it, and there was, therefore, no mutual mistake. No statement having been made by any one to the defendant that this agreement did not contain such a provision, or that the ultimate disposition of this trust fund was not to go to the plaintiff, or was to go in any other direction, there was no fraud to justify the reformation of the contract. By this judgment of the court below the contract is turned into a simple guaranty by the trust company, and it was adjudged that there was a mutual mistake as to what the instrument in question should contain, and this, in the face of the undisputed evidence that the Brush Company refused to accept a contract of guaranty, and this instrument was drawn up to take the place of such a contract. Thus, a court of equity has reformed this agree
We think, therefore, that the judgment, so far as it reformed the contract, was erroneous and it must be reversed.
We come back to the right of the plaintiff to recover upon the contract as it exists in the form in which it was executed, and it seems to me that there can be but one answer to that question. The contract in express terms provides that the defendant will pay any sum of money not needed to secure the Brush Company to the plaintiff. The evidence shows that the contract between the Brush Company and the plaintiff has been terminated, and the Brush Company makes no claim to the balance of this trust fund remaining with the trust company. As to the balance of such trust fund the contract provides that the defendant will pay it to the plaintiff, and I can see no reason why that contract should not be enforced. It is not claimed that there was not a valid consideration for this contract. The whole case shows that there was. The original proposition from Belknap to the defendant was that for all of the advances made by the trust company to the traction company the trust company should receive six per cent interest, and the note given to the trust company by the traction company provided for the payment of such interest. In addition to that, other notes were to be given after each payment by the trust company, which other notes were to bear six per cent interest, and these notes were given as the various payments were made. The trust company was to allow four per cent interest on the balance remaining due upon this certificate of deposit, but the difference between such interest and the interest that they were to receive upon the discount of the notes, and the interest that they were to receive for the payments which they had actually made, was a sufficient consideration for their executing the agreement. In addition to that they received 2,000 shares of the general and common stock of the traction company at the par value of $50,000, and that stock was delivered to it with the express statement that it was delivered in order to make it an inducement “ to your company to make this arrangement and to make them interested in the pecuniary success of the enterprise of this company.”
Van Brunt, P. J., Williams and Patterson, JJ., concurred; O’Brien, J., dissented.
Judgment reversed, new trial ordered, costs to appellant to abide event.