Case Name: Bertha Smith, Appellant, v. Gustav E. Kissel, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1904-03
Citations: 92 A.D. 235
Docket Number: 
Parties: Bertha Smith, Appellant, v. Gustav E. Kissel, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 92
Pages: 235–241

Head Matter:
Bertha Smith, Appellant, v. Gustav E. Kissel, Respondent.
Contract to share in the profits of a purchase of real property — oral agreement by one party to give his interest therein to the other, who assumed the incumbrances on the property — enforced against the party transferring his interest and against his undisclosed assignee.
John B. Smith, who had contracted to purchase certain premises tor $140,000, $15,000 to be paid in cash and $125,000 by a mortgage upon the premises, made a proposition to one Kissel that if the latter would procure the amount of the cash payment, by obtaining a loan on the security of a second mortgage upon the property, the purchase should be made for their joint account as copartners. Kissel accepted the proposal and procured the loan.. The property was thereupon conveyed to Smith and he executed to the grantors a first mortgage for $125,000 and a second mortgage to secure the loan procured by Kissel.
Thereafter Smith, for private reasons of his own, conveyed the property to one. of Kissel’s clerks. Subsequently an action was brought to foreclose the second mortgage, which was held by Kissel’s brother. Smith thereupon went to Kissel and informed him that the foreclosure of the second mortgage was embarrassing him, and that if Kissel would take care of the mortgages, Smith would, in' consideration thereof, release him from any claim of any interest in the profits realized upon the sale of the premises. Kissel, in reliance upon Smith’s promise, paid off the incumbrances upon the property and subsequently sold it at a profit.
Prior to the arrangement between Smith and Kissel, by which Smith terminated his interest in the contract, Smith assigned his interest therein, but Kissel had no notice thereof.
Held, that the arrangement between Smith and Kissel, by which the former released his interest in the property, was based upon a valuable consideration, and was binding upon Smith’s assignee.
Appeal by the plaintiff, Bertha Smith, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 6th day of July, 1903, upon the decision of the court, rendered after a trial at the New York Special Term, dismissing the plaintiff’s complaint upon the merits.
O. Elliott Minor, for the appellant.
Richard L. Sweezy, for the respondent.

Opinion:
Ingraham, J.:
The action was brought for an accounting.
The complaint alleged that on the 16th of July, 1896, one John B. Smith purchased certain property in the city of Hew York for the price of $140,000, of which $15,000 was to be paid in cash upon delivery of the deed, and the balance by execution and delivery of a bond secured by a mortgage upon the property; that Smith, being desirous of raising $15,000 with which to make the cash payment, applied to the defendant to loan him the money; that the defendant stated that he would procure a loan of that sum to be secured by a second mortgage upon the property, and in consideration of the defendant procuring such loan, the defendant demanded of Smith that he be allowed to join with Smith in the purchase and sale of the said property as his partner in reference thereto, and that the rents and profits to be derived therefrom should be equally divided between them; that the defendant subsequently secured a loan of the money, which was secured by a bond and mortgage on the property, and that in consideration thereof "it was agreed by and between said John B. Smith and the defendant that said purchase should be for their joint and partnership account, and that they should be equally interested therein, and should divide the profits and proceeds, thereof realized from a sale by them or either of them of said property equally, share and share alike." '
The answer denies these allegations and alleges that the said Smith applied'to the defendant for a loan of $15,000 to enable him to complete the purchase of certain property described in the complaint; that upon procuring the said loan said Smith agreed to enter into a contract to purchase said property, which purchase should be for the joint account of said Smith and defendant; that the defendant agreed to said proposal and procured the said loan, whereupon Smith entered into a contract to purchase the property; that on or about July 17, 1896, the property was conveyed to Smith, Smith executing to the grantors a first mortgage to secure the payment of $125,000, a part of the purchase price; that the loan procured by the defendant of $15,000 was used to pay the amount required to be paid in cash upon the completion of said purchase, and that this amount of $15,000 was secured by a second mortgage upon the premises, which was payable on or before July 17, 1897; that on or about January 21 or 22, 1897, Smith conveyed the premises. to a clerk in the employ of the defendant; that subsequent to said conveyance Smith endeavored to find a purchaser for the premises without success, until some time in February or March, 1897, when Smith stated to the defendant that he was unable to procure a purchaser for the premises, and he then and there agreed to dissolve the said joint interest and account existing between Smith and the defendant and agreed that the premises should be the sole property of the defendant, the defendant to pay the amount of $15,000, the loan procured by the defendant for Smith and that there should be no further accounting as to the rents of the property that had been received by Smith or the defendant, or on account of the agreement to divide the profits.
Upon the trial it appeared that on the 17th day of July, 1896, Smith received a deed of the property and executed to the vendor a purchase-money mortgage to secure the sum of $125,000, a part of the purchase price, and at the same time executed a second mortgage to Charlotte A. Kissel to secure the sum of $15,000 which became due on July 17, 1897; that this money was paid to Smith to enable him to complete his purchase of the property; that subsequently Charlotte A. Kissel died, whereupon her executors transferred the said mortgage to B-udolph H. Kissel on February 9, 1897. On January 22, 1897, Smith and wife conveyed the 'premises in question to Bashford, a clerk in the employ of the defendant, and it was conceded that that was a conveyance for the benefit of defendant, Smith testified that from the 1st of December, 1896, to the 1st of January, 1897, he had collected all the rents of the property and that subsequently the defendant sold the property. The plaintiff then rested, whereupon the defendant testified that he had no knowledge that the plaintiff had any interest in the contract or the property until the commencement of the action; that some time early in 1896 Smith applied to the defendant for a loan of $15,000 to make a cash payment for' the purchase of this property; that Smith stated to the defendant that if the defendant would procure that loan he (Smith) could sell the property within six months, Would attend to the management and sale of the property and would divide with the defendant the profits that he received in the transaction, and that at that time Smith wrote the defendant a letter which was introduced in evidence, as follows:
"My Dear Sir.— In consideration of your procuring $15,000 from Charlotte A. Kissel to contribute towards the purchase of the Grace Church property, (13th to 14th Streets), I will divide with you all profits.
" Yours very truly,
. "J. B. SMITH."
He also testified that Smith and the defendants had interviews from time to time in relation to the sale of the property at which Smith stated that he was doing his utmost to sell it;, that these.interviews continued until January, 1897, when Smith came to the office of the defendant and said that for private reasons he wanted this property pu t in the hands of some one else; that one of the defendant's clerks would do; that he wanted the property transferred at once'— within twenty-four hours — whereupon the defendant called up an attorney, and 'the property was conveyed by Smith,to Bashford, one of the defendant's clerks ; that Smith still continued his efforts to procure a purchaser for the property. After this second mortgage became due proceedings were commenced to foreclose it, and while that action was pending, some time in February or March, 1898, Smith came to the defendant and said that he was in trouble; that the 'defendant was having the mortgage forecloséd.. To this the defend-. ant replied that the mortgage belonged to his brother and that he was conducting his own affairs, to which Smith replied, " Well, you can control it," to which the defendant said, " That is possible; I can control it by paying it." Smith said, " What are you doing this for ? Y ou: have got everything that you can get by a foreclosure, and what do you want to keep on for? Why do you want to keep on ? You have got everything; you have got the title in your own name. You have controlled this mortgage, and, if you foreclose it, what are you doing it for ? I have had' a great deal of trouble, and it will only add further harm and trouble. This thing is all ended," to which the defendant replied, " I am doing it to get an undisputed title to this property, because now I have to bear the burden. You are out of it, and under those circumstances I want to be sure of my title," to which Smith said, " How can you be more sure of your title than you are now ? Yon own the thing; you own the mortgage. I can't do anything more, and why don't you stop ? " That Smith further said that he would call it square if the defendant " will take care of the mortgage." That the defendant reminded Smith of the fact that the burden was coming along; that it was a very great one; that this first mortgage of his became due in six months, that the second mortgage was due, and then said to Smith: "You can't do anything here. You tell me yourself that you have no money, that you are insolvent; " that " under those circumstances this is no longer a joint account," and Smith replied: " That is perfectly true. I don't want any more interest in the thing, but there is no necessity of anything between us; you have got it now;" that Smith then abrogated the contract which was only a verbal one between the parties, and the defendant accepted the abrogation in consideration of his letting Smith off from further annoyance, the defendant to take-care of the mortgages; that the mortgages were taken care of by the defendant, and Smith took no further interest in the property until the suit was commenced; that at the time of this conversation there was no negotiation pending for the sale of the property. After this contract the defendant entered into negotiations for the sale of the property and subsequently made a contract with the purchaser to sell the property for $165,000. To complete that contract the defendant paid the second mortgage of $15,000 and also the first mortgage for $125,000, and then procured a new mortgage upon the property for $100,000, paying, the difference in cash, and also paying the charges, commissions for obtaining the loan and unpaid taxes; that he advanced $32,000 in cash to put the thing through and received the difference between the amount that he had procured on the property and the purchase price of the property in a seéond mortgage upon the property made by the purchaser ;'that he made these payments entirely relying upon the agreement with . Smith, that Smith released all claim against the agreement to divide the profits, and without knowledge of any assignment by Smith to the plaintiff, treating the whole transaction as a complete abrogation of the agreement between himself and Smith to divide any of the profits realized upon this transaction.
It is quite apparent that the real consideration for Smith's release of this interest in the property was the agreement by the defendant to release Smith from any obligation that he was under in relation to the mortgages then upon the property and by which the defend ant assumed these obligations and agreed to furnish the money necessary to protect the property. When the agreement for the division of the profits was made Smith owned the property. He subsequently conveyed it to the defendant's clerk, and the fact that shortly afterwards judgment, was entered against Smith explains this conveyance. Undoubtedly this conveyance would not change the legal obligation of the defendant to account to Smith for any profits subsequently realized in the disposition of the property; but when Smith came to the defendant and stated that he could do nothing further in relation to it; that the foreclosure of the mortgage for $15,000 was embarrassing him and requested the defendant to take care of the mortgages, and in consideration thereof that he would release the defendant from all claim for any interest in the profits,- the defendant accepting that in good faith, and subsequently paying off the mortgages upon the property, the consideration for Smith's release.of his interest in the profits was the obligation assumed and carried out by the defendant of providing the money necessary to pay the incumbrances upon the property and his subsequently paying off these mortgages, was certainly a valuable consideration for Smith's release of his right to any portion of the profits. There was no possible defense by Smith to the foreclosure of the mortgage for $15,000. The defendant has assumed no obligation as to it, and if that foreclosure had been carried out and the property sold, it is quite clear that Smith would have had no further interest in the transaction. Smith had been unable to effect a sale of the property, and there were then no profits to which he would have been entitled; and there is not the slightest evidence to show that at the timé of this transaction there was any offer for the property, or negotiations for its sale. Assuming that this account of the transaction by the defendant'was true, there was a perfect valid agreement by' which Smith's interest in- the property was discharged, and the defendant acting .upon that agreement, discharging Smith from all liability upon his obligations, terminated Smith's relation to the property and any fights that he would have under his agreement with the defendant. There was no obligation upon the defendant to make these large payments that -were neces- ' gary to pay the mortgage on the property, and he paid these mortgages relying upon Smith's agreement to abrogate their understand ing as to the division of the profits. Upon the performance by-defendant of. this agreement Smith's right to any future interest in the profits was at an end.
The plaintiff produced an assignment of Smith's right under this agreement with the defendant datecj. April 2, 1897. This was some time before the arrangement between Smith and the defendant by which Smith terminated his interest in the contract. The evidence is clear that the defendant had no knowledge of this transfer. The plaintiff gave him no notice of it and the defendant continued to treat Smith as the principal and relying upon Smith's undertaking made these payments and relieved Smith from his obligations upon the mortgages. There can be no question but that in the absence of knowledge of the assignment the plaintiff was justified in treating Smith as the person entitled to whatever rights there were under the contract, and the plaintiff, therefore, is bound by the act of Smith, her assignor, in releasing the defendant from any obligation under the contract in relation to the profits to be realized from the sale of this property. It is true that Smith denies that he made this agreement with the defendant, but the court has found in favor of the defendant upon satisfactory evidence, and we are not justified in interfering with the findings by the trial court. It is quite clear that by this agreement Smith, for a valuable consideration, released the defendant from any obligation to account for the subsequent profits realized from a sale of the property, and that this agreement being found, the court below was right in dismissing the complaint.
It follows that the judgment appealed from must be affirmed, with costs.
Van Brunt, P. J., O'Brien, McLaughlin and Hatch, JJ., concurred. _ '*
Judgment affirmed, with costs.