Case Name: KELLY v. ROOT
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1902-07-08
Citations: 77 N.Y.S. 431
Docket Number: 
Parties: KELLY v. ROOT.
Judges: 
Reporter: West's New York Supplement
Volume: 77
Pages: 431–435

Head Matter:
(74 App. Div. 499.)
KELLY v. ROOT.
(Supreme Court, Appellate Division, First Department.
July 8, 1902.)
1. Reformation of Instruments—Evidence—Sufficiency.
Plaintiff agreed to purchase defendant’s stock in a corporation, and gave his notes therefor. Afterwards he asked to have the agreement reduced to writing, and defendant gave him a note to his attorney. Plaintiff himself called on the attorney, and gave him a memorandum of the contract, which was thereupon executed. It did not appear that defendant had made any suggestion whatever to the attorney. Plaintiff and his wife both testified that there was an agreement, not incorporated in the written contract, that he should not be obliged to pay the notes if the business did not pay, but did not testify that he communicated such condition to the attorney, and their testimony was contradicted by defendant. 'Melé, that plaintiff was not entitled to a reformation of the written contract.
2. Sales — Agreement — Construction — Collateral Security—Rights of Seller.
An agreement for the sale of corporate stock recited that the purchaser had deposited the stock with the seller as security for the purchase- . money notes, and provided that the seller should not “dispose of, hypothecate, or pledge said stock, or any portion thereof, in any manner whatsoever.” iHeld that, on the purchaser’s default in one of the notes, the seller was entitled to have a formal assignment of the stock executed to him, so as to enable him to realize on the stock.
Hatch, J., dissenting.
Appeal from special term, New York county.
Action by Daniel J. Kelly against Charles T. Root. From a judgrñent dismissing the complaint on the merits, and finding for the defendant on a counterclaim (75 N. Y. Supp. 163), plaintiff appeals. Affirmed.
Argued before VAN BRUNT, P. J., and HATCH, PATTERSON, INGRAHAM, and EAUGHEIN, JJ.
C. J. Sheam, for appellant.
William G. McKnight, for respondent.

Opinion:
LAUGHLIN, J.
The action was brought to reform a written agreement on the ground of mutual mistake. On the 15th day of September, 1899, the plaintiff was the business manager of the American Queen, a corporation organized under the laws of West Virginia, having its principal office in the city of New York, and engaged in- the publication of a monthly magazine called the "American Queen." The capital stock of the corporation consisted of 10,000 shares of preferred stock and 10,000 shares of common stock, of the par value of $10 each. The plaintiff was a large owner of this stock, and the defendant owned 4,626 shares of the common stock and 4,950 shares of the preferred stock. It was agreed that the defendant should sell his stock to the plaintiff for the sum of $5,000. In fulfillment of this agreement the plaintiff delivered to the defendant his five promissory notes, for $1,000 each, all bearing date on that day, and falling due in 12, 18, 24, 30, and 42 months, respectively. The certificates of stock held by the defendant were surrendered, and new certificates issued in the name of the plaintiff, which were delivered to the defendant as collateral security for the payment of the notes. The understanding was that payments of $500 might be made on the notes at any time, and that upon each payment the defendant should surrender to the plaintiff 514 shares of the common stock and 550 shares of the preferred stock. Subsequently the plaintiff desired to have the agreement formally reduced to writing by an attorney. The defendant acceded to his request in this regard, and gave the plaintiff a letter to Mr. White, who was defendant's attorney. The plaintiff called on the attorney and gave the information, from which a formal agreement, dated October 18, 1899, was drafted, which was signed by the parties. It does not appear that the defendant made any suggestion to the attorney with reference to- the agreement. The plaintiff testified concerning his interview with the attorney, "I asked Mr. White to draw up a contract, and gave him such memoranda as I thought was necessary to make it up." The agreement as thus prepared and signed is the one sought to be reformed. The plaintiff contends that it was the understanding between, him and the defendant that, if the magazine did not pay, he would not be obliged to pay the notes, and he desires to have the agreement reformed by incorporating a provision to that effect. The plaintiff testifies that such was the agreement, and in this he is corroborated by his wife, but he does not testify that he communicated that part of the agreement to the attorney. The testimony of the plaintiff and his wife in this regard is controverted by the defendant. This is the only testimony bearing on that issue.
Whether the plaintiff's apparently absolute liability was to become unenforceable in the event that the magazine was not a financial success thus became a question of fact, which the trial court has determined in favor of- the defendant. It appears that the plaintiff paid $500 on one note and $i,ood on another, when, according to his own testimony, the magazine was not on a paying basis. In this state of the testimony, and in view of the fact that the plaintiff gave the sole information upon which the agreement was prepared, and subsequently signed it, after hurriedly reading or glancing over it, it is manifest that the court would not have been warranted in reforming the agreement.
It appears that the formal contract in writing does not embody the entire contract of the parties, according to the undisputed testimony; but the provisions omitted were for the benefit of the defendant, and were not put in issue. According to the defendant's testimony, he was not to hold the plaintiff upon the notes for any deficiency if the assets of the corporation were not sufficient to pay the same; but this was not the agreement as contended for by the plaintiff, and the plaintiff made no request to amend his complaint by demanding a reformation of the contract in accordance with the testimony of the defendant.
It appears that the plaintiff defaulted in the payment of the note maturing March 15, 1901; and the defendant, in his counterclaim, alleges' that the plaintiff failed-to make a complete delivery of the stock as collateral, in that no assignment of the stock, in blank or otherwise, was made to the- defendant, and the defendant- demanded-that the plaintiff be ordered and adjudged to indorse and properly assign the certificates remaining in the defendant's hands as collateral to the notes remaining unpaid. The formal agreement of October 18, 1899, recites that the plaintiff has deposited the stock in question with the defendant as collateral security for the payment of the notes, but it was therein expressly agreed that the defendant should not "dispose of, hypothecate, or pledge said stock, or any portion thereof, in any manner whatsoever." The plaintiff contends that in consequence of this provision the defendant is not entitled to dispose of the stock, even after default in payment of the notes. The trial court has decided otherwise, and has found that this clause was designed to operate before and not after default. In this we» concur. The plaintiff having defaulted, it is manifest that it was the understanding and intention of the parties that the defendant might have recourse to the pledged stock for payment of the indebtedness. It is evident that, without a formal assignment by the plaintiff, the defendant will be unable to dispose of the stock. The decree requiring the plaintiff to execute such assignment was therefore warranted. This will enable the defendant to give good title to a purchaser of the stock, and he will be under obligations to account to the plaintiff for any surplus of the proceeds of the sale.
It follows, therefore, that the judgment should be affirmed, with costs. All concur, except HATCH, J., who dissents'.