Opinion
July 11, 1967
Appeal from a judgment of the Supreme Court, Chenango County, entered upon a decision, dismissing the complaint on the merits, rescinding a certain contract, directing the delivery of certain shares of stock to the respondent and awarding him damages in the sum of one dollar. In this action, the plaintiff sought to recover 300 shares of stock of Oneida Park, Inc. On April 30, 1962, the plaintiff and defendant Rinaldo entered into an agreement whereby Rinaldo sold to plaintiff 300 shares of stock of Oneida Park, Inc., comprising 50% of the shares of the corporation for $12,848.97, and whereby it was further provided that plaintiff must, within one month, cause loans to be made to the corporation in the amount of $87,151, provided Oneida Park, Inc., secured the loans at the option of the lender either by a mortgage of all of its lands in the Town of Cicero subject to the mortgage held by the Watertown Savings Bank, and such payment be guaranteed in writing by Charles R. Rinaldo, or by mortgage of all 600 shares of its corporate stock. The agreement also provided that the said capital stock be placed in escrow with Emil Colozzi for a reasonable time, or until the consummation of the agreement, whichever is sooner. On a prior appeal ( 20 A.D.2d 597, mot. for lv. to app. den. 14 N.Y.2d 487), this court reversed Special Term's award of summary judgment dismissing the complaint, finding triable issues of fact as indicated in our opinion. The evidence adduced on the trial establishes that the defendant Rinaldo was the owner of all the stock of Oneida Park Inc., which was in serious financial condition in the month of April, 1962, and that he was looking for loans to enable the corporation to carry on the development of certain lands in the Town of Cicero, and the construction of homes thereon. In furtherance of this purpose, he agreed to sell 50% of the stock of the corporation to the plaintiff for book value provided the plaintiff would lend the corporation an additional sum of $87,151.03. The agreement was executed on April 30, 1962, and the purchase price of the stock $12,848.97 was paid immediately, whereupon the stock was put in escrow with an escrow agent, Colozzi, pending the plaintiff's fulfillment of the rest of the agreement, namely, the loan of $87,151.03 within one month from the date of the agreement. On May 1, 1962, the plaintiff delivered checks to the corporation totaling $30,000 which were deposited on May 2, 1962. One of these checks in the sum of $3,000 was dishonored, and returned twice by reason of insufficient funds. At a meeting held on May 4, 1962, the defendant Rinaldo testified that the plaintiff had stated that he would make no more money available unless he had more than 50% of the corporate stock. The plaintiff denied making this statement, but the defendant Rinaldo is supported in this regard by the testimony of Albert Green and Donald Stiller who were present at the meeting. On May 30, 1962, plaintiff delivered uncertified checks to Colozzi in the amount of $57,151. The plaintiff testified that he had first inquired of Rinaldo's office for the purpose of delivering the checks to him, but was unable to locate him. Rinaldo testified that he had a conversation with Colozzi on May 31st and told him he would not accept uncertified checks after dishonor of the earlier check for $3,000, and that the checks were not tendered within the time specified in the agreement. Subsequently in 1962, the $27,000 delivered on May 1, 1962 was returned to plaintiff in exchange for his consent as one of the stockholders to a mortgage required by a Watertown bank. At the time the agreement was executed, the cash position of the corporation was approximately zero. In addition, the corporation had overdue accounts payable of $150,000, a note due on May 1, 1962 in the sum of $20,000, a note due June 2, 1962 in the sum of $82,500, and a note due June 22, 1962 in the sum of $75,000. The plaintiff denied having any knowledge of the financial condition of the corporation, but conceded that it was important to him to know the financial condition of the corporation prior to entering into the agreement and that he considered the solvency of the corporation as doubtful but could not recall the information which led him to believe that such solvency was doubtful. The trial court determined that the time for plaintiff to perform under the agreement expired at midnight, May 31, 1962; that no tender was made by plaintiff as provided in the agreement; that delivery of uncertified checks did not constitute a valid tender; that the escrow agent was not authorized to receive checks or funds on behalf of the defendant Rinaldo; that the causing of loans to be made to Oneida Park, Inc., totaling $87,151 was a condition precedent to delivery of the stock certificates to the plaintiff; that plaintiff failed to perform the condition, and having failed to perform his contractual obligations, he is not entitled to recover payment of the sum of $12,849 paid for the stock; that the pattern of events subsequent to the signing of the agreement entitled the defendant Rinaldo to treat the contract as breached. The plaintiff contends that the assignment of the stock certificates and his undertaking to procure loans were not interdependent, that time was not of the essence, and that he had substantially performed his agreement; that the provision for security was a prerequisite to his obligation to procure loans, and that rescission could, on no theory, be had without tender of the price paid. The record fully supports the conclusion of the trial court that time was of the essence, and that the time to perform under the agreement terminated at midnight, May 31, 1962. The delivery of the uncertified checks did not constitute a valid tender and it matters not whether the escrow agent was or was not authorized to receive the funds or checks on behalf of the corporation or the defendant Rinaldo. ( O'Connor v. Mechanics' Bank, 124 N.Y. 324; First Nat. Bank v. Clark, 134 N.Y. 368; Matter of Collyer, 124 App. Div. 16; Leask v. Dew, 102 App. Div. 529, affd. 184 N.Y. 599.) Under the circumstances, it cannot be said that the plaintiff substantially performed his obligations under the agreement. The language of the agreement providing for the stock to be placed in escrow, and the negotiations between the parties clearly indicate the intent of the parties that the assignment of the stock and the causing of loans to be made by the plaintiff to the corporation were interdependent. The defendant Rinaldo clearly had no intention of assigning the stock unless he received in return the purchase price and the loans required to be made. The purpose behind the entire transaction is shown by the record to be the obtaining of loans to prevent the bankruptcy of an insolvent corporation. Upon this record, it cannot be held that the giving of security was a prerequisite to the plaintiff's obligation to procure loans to the corporation. The agreement provides for the loans to be secured at the option of the lender by mortgages of the lands of the corporation guaranteed by Rinaldo or by mortgage of all 600 shares of the corporate stock. Under this agreement, the loans would first have to be procured and then secured as provided in the agreement. Further, at no time did the plaintiff request that such security be given prior to procuring the loans. The defendant, in his answer and counterclaim, alleges that the plaintiff, at the time he induced the defendant to enter into the agreement, had no intention of fulfilling his obligations under the agreement. The answer and counterclaim demanded judgment dismissing the complaint; rescinding and declaring null and void the agreement; directing the delivery of the stock held by Colozzi to the defendant Rinaldo; and damages in the sum of $150,000. Generally, a party seeking recession must restore, or offer to restore, whatever he has received by virtue of the agreement. The effect of a recession of an agreement is to put the parties back in the same position they were in prior to the making of the contract. ( Kammerman v. Curtis, 285 N.Y. 221; E.T.C. Corp. v. Title Guar. Trust Co., 271 N.Y. 124; 10 N.Y. Jur., Contracts, § 416.) He who seeks equity must do equity, and a court of equity is always reluctant to rescind unless the parties can be put back in status quo. ( Slater v. Slater, 208 App. Div. 567, affd. 240 N.Y. 557; Strand Bldg. Corp. v. Russel Saxe, 36 Misc.2d 339, affd. 19 A.D.2d 592.) The court may make a tender of restoration a condition of its judgment, and may, in its judgment, so adjust the equities between the parties, that unjust enrichment is avoided. (50 N.Y. Jur., Restitution, § 51.) Judgment modified, on the law and the facts, so as to add the provision that the delivery to defendant of the stock certificates therein directed to be delivered be conditioned upon defendant's repayment to plaintiff of the sum of $12,848.97, without interest, and, as so modified, affirmed, with costs to respondent. Gibson, P.J., Herlihy, Reynolds, Aulisi and Staley, Jr., JJ., concur in memorandum by Staley, Jr., J.