text:
    Felix Youssoupoff, Appellant, v. Joseph E. Widener, Respondent.
    Contract — sale — equity — sale of paintings with right to repurchase under stipulated conditions — action to compel acceptance of tender and reconveyance of paintings on ground contract was unconscionable — claim that defendant obtained paintings for inadequate price destroyed by finding that price was fair and adequate — findings not inconsistent when based on conflicting evidence — plaintiff bound by fully understood contract even though price was inadequate — contract not merely loan upon security — law of country where property was situated and contract was made applies — tender not construed as compliance with terms of contract where evidence and findings show it did not comply with conditions.
    1. Plaintiff, a Russian exile, sold and delivered to defendant certain valuable paintings subject only to the right to repurchase them in case the plaintiff “ finds himself in the position again to keep and personally enjoy these wonderful works of art.” In the event of redemption defendant was to have the right to again purchase the paintings should plaintiff wish to dispose of them within ten years. Within the time limited plaintiff tendered to defendant the amount required for redemption, which he had obtained upon his note and an agreement to deposit and pledge the paintings as security with the holder, who on default, might sell and dispose of them without notice. Defendant declined the tender on the ground that plaintiff was not exercising his right to repurchase in accordance with the express conditions limiting it. At the time plaintiff signed the contract of sale he was of full age, had legal advice and fully understood its terms, conditions, provisions and significance. In an action in equity to compel defendant to accept the tender and transfer the pictures on the ground that the contract, as construed by defendant, is unconscionable and should not be enforced according to its terms, because obtained by unfair and oppressive means, it being claimed that defendant obtained the paintings at an inadequate price by taking advantage of plaintiff’s need for ready money, the basis of such contention is destroyed by findings of fact that the amount paid was a fair, reasonable and adequate price for the pictures.
    2. A contention that these findings are inconsistent with other findings that a recognized leader in judging the value of great works of art had offered a larger sum for the paintings, cannot be sustained. Testimony of such an offer may be competent evidence of market value but is not conclusive and the trial justice might properly accept the opinions of other witnesses on this point. Finding of value is the result of conflicting testimony or inferences.
    3. But even if the pictures at the time defendant acquired them were worth more than he paid for them, plaintiff is still bound by his contract as made. The parties, with full understanding, came to an agreement as to the terms on which plaintiff would part with the pictures. There was no duress on the part of defendant. If he actually bought the pictures, he is entitled to enforce the bargain according to its terms. The courts will not set aside a bargain so made.
    4. An argument that a bargain so made is merely a loan upon the security of the pictures, disguised by the form of the written contract as a sale with an option to repurchase, cannot be upheld. The defendant was never willing to make a loan. The plaintiff understood that the defendant entered into the transaction only with a view to becoming the owner of the pictures. Actual intention coincides with the form and terms of the contract, and according to the law of England, where the contract was made and dated, and where the pictures were situated at the time of their transfer, the contract of sale, subject to a limited right of repurchase, must be enforced according to its terms and actual intent.
    5. An argument that under the law of Pennsylvania, where defendant resided, where he kept his collection of paintings and where any option to repurchase must be exercised, the contract between the parties would be conclusively presumed to be a mortgage, regardless of their actual intention and enforced only as a mortgage, does not help the plaintiff. The law of England, not the law of Pennsylvania, governs the transaction. The construction and legal effect of a contract for the transfer of, or the creation of a lion upon, property situated in the jurisdiction where the contract is made is governed by the law of that jurisdiction. The fact that defendant obtained the pictures with the intention of removing them to his home does not change the general rule where there is convincing evidence that both parties intended that the law of England should apply.

      6. Nor can it be successfully contended that since the provisions for the repurchase of the paintings in Pennsylvania were the only executory provisions of the contract, it should be construed according to the law of Pennsylvania where performance was to be made. The contract in effect is primarily a bill of sale of the paintings, and was so intended. The right to repurchase was merely an incident to ' the transfer.
    7. Nor may the terms of the contract be so construed that the tender made by the plaintiff of the amount paid by the defendant with stipulated interest may be regarded as a compliance of all the conditions of the contract. The evidence and findings establish that the plaintiff is not in a position to keep and personally enjoy these works of art. If regained by the plaintiff they are to be pledged with and remain in the possession of another collector. They may be enjoyed by the pledgee until the debt is due, may be sold by him or acquired by him if the debt is not paid at the stipulated date. Under these circumstances it is clear that the offer to repurchase the pictures and the tender of the purchase price did not comply with the conditions of the contract upon which.the parties had agreed.

      Youssoupoff v. Widener, 219 App. Div. 712, affirmed.
    (Argued June 16, 1927;
    decided July 20, 1927.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered February 2, 1927, unanimously affirming a judgment in favor of defendant entered upon a dismissal of the complaint by the court on trial at Special Term.

      Clarence J. Shearn for appellant.
    The equities of the case are such as to lead the court to construe the contract according to principles of equity rather than according to strict rules of law. (Whalen v. Stuart, 194 N. Y. 495; Stokes v. Stokes, 198 N. Y. 301.) According to the laws , of Pennsylvania, pursuant to which this instrument should be construed because, among other reasons, its substantial and main executory provisions were to be there performed, such an instrument is conclusively presumed to have been intended to be in the nature of a mortgage. (Fish v. D., L. & W. R. R. Co., 211 N. Y. 374; National Text

      Book Co. v. Connelly, 206 N. Y. 188; Manhattan Life Ins. Co. v. Johnson, 188 N. Y. 108.) Where personal property has been transferred in jurisdiction A, but at the time of the transfer it was contemplated that the property should forthwith be removed to jurisdiction B and there kept or used, the law of jurisdiction B must be applied in determining the nature of the transaction and the legal effect of the instrument by which the transfer was made. (Beggs v. Bartels, 73 Conn. 132; Matter of Legg, 96 Fed. Rep. 326; Cable Co. v. McElhoe, 58 Ind. App. 637; Title Guaranty & Surety Co. v. Witmire, 195 Fed. Rep. 41; Stern v. Drew, 285 Fed. Rep. 925; Matter of Hood Bay Packing Co., 280 Fed. Rep. 866; Matter of Mutual Motors Co., 260 Fed. Rep. 341; Matter of American Steel Supply Syndicate, Inc., 256 Fed. Rep. 876; Wood Mowing & Reaping Machine Co. v. Croll, 231 Fed. Rep. 679; Matter of Stoughton Wagon Co., 231 Fed. Rep. 676.) Under the law of Pennsylvania the transaction was a mortgage, and, accordingly, any provisions found in the instrument to fetter or clog the right of redemption are void. (Kerr v. Gilmore, 6 Watts, 405; Harper’s Appeal, 64 Penn. St. 315; Alleghany v. Casey, 79 Penn. St. 84; Haines v. Thomson, 70 Penn. St. 434; Huston v. Regn, 184 Penn. St. 419.) Under the law of England as well as that of the United States, under the circumstances disclosed by the facts found by the Special Term that are binding upon this court, a court of equity will avoid construing a contract so as to work a forfeiture. (Lawley v. Hooper, 3 Atk. 278; Fry v. Lane, L. J. 58 Ch. 113; Russell v. Southard, 53 U. S. 138; Wheeler v. Smith, 9 How. [U. S.] 55; International Harvester Co. v. Voboril, 187 Fed. Rep. 973; Gould v. Okeden, 4 Brown’s Parl. Cas. 198; Bulwer v. Astley, 1 Phillips Ch. 422; Waters v. Mynn, 14 Jur. 341; Douglas v. Culverwell, 4 De G., F. & J. 20.) According to the law of England, under the circumstances disclosed by the facts found by the Special Term that are binding upon this court, in order to avoid a forfeiture the proper construction to be placed upon the instrument is that it was in the nature of a mortgage. (Lawley v. Hooper, 3 Atk. 278; Bulwer v. Astley, 1 Phillips Ch. 422; Waters v. Mynn, 14 Jur. 341; Douglas v. Culverwell, 4 De G., F. & J. 20; Fee v. Cobine, 11 Ir. Eq. 406; Manlove v. Bruton, 2 Vern. 84; England v. Codrington, 1 Eden, 169; Horn v. Keteltas, 46 N. Y. 605; Dickinson v. Oliver, 195 N. Y. 238; Farmer v. Farmer & Son Type Founding Co., 83 App. Div. 218; Simon v. Schmidt, 41 Hun, 318; Draper v. Draper, 71 Hun, 349; Brown v. Bement, 8 Johns. 96; Russell v. Southard, 53 U. S. 138.) The representation in the contract of August 12,1921, that appellant would not exercise the right to repurchase unless financially able to “ keep and personally enjoy ” the paintings did not amount to a condition precedent either compelling or justifying a court of equity in forfeiting such right. (Williams v. Barkley, 165 N. Y. 48; Unterberg v. Elder, 211 N. Y. 499; Barker v. Pullman Co., 134 Fed. Rep. 70; Young v. Smith, L. R. 1 Eq. 180; Ex parte Dawes, L. R. 17 Q. B. D. 275; Bailey v. Lloyd, 5 Russ. Ch. 330; Dawes v. Treadwell, 18 Ch, Div. 354; Hammond v. Hammond, 19 Beav. 29; Walsh v. Trevanion, 9 L. J. Q. B. 458; Elwood v. Goldman, 217 N. Y. 585; Moran v. States Oil Co., 211 N. Y. 187; Broadway Realty Co. v. Lawyers Title Co., 226 N. Y. 335; Industrial Trust, Ltd., v. Todd, 180 N. Y. 215; Gillett v. Bank of America, 160 N. Y. 549.)

      Nathan L. Miller and H. Bartow Farr for respondent.
    The law of England and not the law of Pennsylvania governs the transaction of August 12, 1921. (First Nat. Bank of Toledo v. Shaw, 61 N. Y. 283; Wilson v. Lewiston Mill Co., 150 N. Y. 314; Stumpf v. Hallaban, 101 App. Div. 383; 185 N. Y. 550; Ohl v. Standard Steel Sections Co., 179 App. Div. 637; International Text Book Co. v. Connelly, 206 N. Y. 188; Fish v. D., L. & W. R. R. Co., 211 N. Y. 374; Grand v. Livingston, 4 App. Div. 589; 158 N. Y. 688; Hooley v. Talcott, 129 App. Div. 233; Wayne County Savings Bank v. Low, 81 N. Y. 566; Staples v. Nott, 128 N. Y. 403; Union Nat. Bank v. Chapman, 169 N. Y. 538.) According to the law of England under the circumstances disclosed by the findings, the transaction is a sale and not a mortgage and the conditions are valid. (White v. Hoyt, 73 N. Y. 505; Trustees of East Hampton v. Vail, 151 N. Y. 463; Marden v. Dorthy, 160 N. Y. 39; Joy v. Birch, 4 Cl. & F. 57; Saxton v. Hitchcock, 47 Barb. 220; Whitney v. Townsend, 2 Lans. 249; Alderson v. White, 2 DeGex & Jones, 97; Gossip v. Wright, 32 L. J. Ch. 648; Williams v. Owen, 5 Mylne & Craig, 303; Shaw v. Jeffery, 13 Moore’s P. C. 432; Goodman v. Grierson, 2 Ball & Beatty [Ir. Ch.], 274.) The provision in the agreement that the privilege of repurchase will be exercised only in case the plaintiff is in the position again to keep and personally enjoy the pictures is a condition upon his exercise of the privilege. (Hollis Stores, Ltd., v. Timmis, 2 Ch. 202; Weston v. Collins, 34 L. J. Ch. 353; Keer v. Purdy, 51 N. Y. 629; Friederang v. Aldo Company, Inc., 199 App. Div. 127; Adams v. Gillig, 199 N. Y. 314; Dawe v. Morris, 149 Mass. 188.)
   Lehman, J.

The plaintiff on August 12, 1921, signed a contract in the city of London which reads as follows:

“ Prince Youssoupoff has this day sold and delivered to Mr. Widener his two well-known Rembrandt portraits of a man and a woman which are illustrated and described in the Bode catalogue, for the price or sum of One hundred thousand pounds (£100,000), and has received the full purchase money. Title to the said pictures has passed to Mr. Widener and he accepts delivery of the same.

, Mr. Widener recognizes that Prince Youssoupoff would not have parted with these wonderful pictures for any consideration had it not been for the unhappy plight which has fallen upon him and his countrymen due to the dreadful revolution in Russia, and recognizing the very-proper and deep-seated wish of Prince Youssoupoff to repossess himself of these pictures in case the present terrible conditions in Russia should readjust themselves within a reasonable time, Mr. Widener grants to Prince Youssoupoff the right and privilege to be exercised on or before January 1, 1924 and not thereafter, of repurchasing these pictures at the purchase price, one hundred thousand pounds (£100,000) plus eight per cent. (8%) interest from this date to the date of repurchase; the repurchase to be made in the City of Philadelphia and the pictures to be redelivered to Prince Youssoupoff upon payment of the full purchase money.

This privilege is a purely personal one granted to Prince Youssoupoff in recognition of his love and appreciation of these wonderful pictures. It is not assignable nor will it inure to the benefit of his heirs, assigns or representatives and Prince Youssoupoff represents that this privilege of repurchase will be exercised only in case he finds himself in the position again to keep and personally enjoy these wonderful works of art. It is therefore agreed that if the repurchase should be made by Prince Youssoupoff, it will be made only under and subject to conditions to be at that time properly stipulated, that the title to the said pictures then acquired by Prince Yousóupoff will be subject to the right in Mr. Widener or his representatives to take back the pictures upon the payment to Prince Youssoupoff or his representatives of the gross sum which Prince Youssoupoff has paid to Mr. Widener in case Prince Youssoupoff or his representatives should .at any time within ten (10) years after the date of the said repurchase wish to dispose of the same, which right may be enforced by Mr. Widener against any party into whose possession the pictures^ may have come in any manner in contravention to the reserved right of Mr. Widener.

Mr. Widener will of course take every precaution to preserve and protect these wonderful works of art, but if for any reason they should be damaged or destroyed or Mr. Widener not be in a position to carry out the resale of the same on or before January 1, 1924, no personal liability shall attach to him in the premises.

“ In Witness Whereof this paper having been previously executed by Mr. Widener and left with his representative in London, has also been executed by Prince Youssoupoff and delivery made between the parties at London this 12 day of August, 1921.

“ (Sgd) PRINCE F. YOUSSOUPOFF.”
Signed in the presence of:
(Sgd) O. T. Rayner
“ 9 Kings Bench Walk Inner Temple
'1 London E. C. 4.”

The plaintiff received and accepted a counterpart of the agreement which had been executed by the defendant in Pennsylvania and sent by him to his agent in London. The pictures described in the contract were at that time delivered to the defendant’s representative in London and removed to defendant’s residence in Pennsylvania. The plaintiff received the agreed price or consideration of £100,000.

In December, 1923, the plaintiff tendered to the defendant in the city of Philadelphia, Pennsylvania, the sum of $520,334, which was then equivalent in money of the United States to £100,000 plus interest at the rate of 8% per annum from August 1st, 1921, until the date of the tender, and the plaintiff demanded that defendant deliver to him the paintings referred to in the complaint. At the same time the plaintiff tendered a written stipulation that the title to the pictures vyill be subject to the right in Mr. Widener or his representatives to take back the pictures upon the payment to Prince Youssoupoff or his representatives of the gross sum which Prince Youssoupoff has paid to Mr. Widener in case Prince Youssoupoff of his representatives should at anytime within ten years after the date of said repurchase wish to dispose of the same, which right may be enforced by Mr. Widener against any party into whose possession the pictures may have come in any manner in contravention to the reserved right of Mr. Widener.”

The money tendered to the defendant was obtained by the plaintiff from C. S. Gulbenkian upon his note for the sum of $551,275 payable one year after date, with interest at six per cent per annum. As security for the payment of the note, the plaintiff agreed that the Rembrandt paintings should be deposited and pledged with the holder of the note. It was stipulated that upon any default in the payment of the note the holder might without notice of any land to the plaintiff sell and dispose of the pictures so pledged. The holder was expressly authorized to become the purchaser and absolute owner of said oil paintings or either of them free from any claims, trusts and rights or equities of redemption.”

The defendant declined the tender and refused to transfer the pictures to the plaintiff.' In effect the defendant’s reply to the plaintiff’s demand is that the defendant is the absolute owner of the pictures under the contract of sale, subject only to the right of the plaintiff to repurchase the pictures in accordance with the terms contained in the contract. That right is, by its terms, to be exercised only in case the plaintiff finds himself in the position again to keep and personally enjoy these wonderful works of art.” It may not be exercised for the purpose of enabling the plaintiff to transfer the pictures to another. The plaintiff is not exercising his right to repurchase in accordance with the express conditions limiting that right, or, at least, so the defendant claims.

The plaintiff has brought this action in equity to compel the defendant to accept the money tendered to him, and to transfer the pictures. He disputes the defendant’s contentions as to the construction and legal effect of the written contract, and he urges that, if so construed, it would be unconscionable and should not be enforced according to its terms, because obtained by unfair and oppressive means. At the trial there was, on some points, a conflict of testimony, but all the findings are supported by sufficient, and indeed, in most instances, compelling evidence. Judgment in favor of the defendant followed as logical conclusion from these fin dings.

In reviewing this jrdgment, we consider, of course, only the findings made at Special Term and affirmed by the Appellate Division. We will summarize those which may have direct bearing upon the questions presented upon this appeal.

The conversations or correspondence, which resulted in the contract of August 12th, 1921, began in the previous June. Prior to that time the plaintiff and the defendant had never met. The plaintiff, Prince Youssoupoff, had resided in Russia prior to the Bolshevist Revolution. He came of a noble family which until the Revolution had enjoyed wealth, which was almost without limit, and great power. In the spring of 1919 he was compelled to flee from Russia. He was able to bring along the two paintings by Rembrandt, which according to the findings are “ unique and irreplaceable works of art * * * not excelled in quality by any portraits ever painted by Rembrandt.” He also brought along two smaller and less important paintings by the same •master, and some family jewels. All the rest of the vast possessions of the family were confiscated. Only the property he brought from Russia whs available to meet his various needs. Out of his resources he was supporting' his wife and daughter as well as his mother and father, and he was contributing to the support of many Russian refugees. He was, indeed, devoting his entire time and energy to the work of relieving the distress of these refugees. In the summer of 1921 the family jewels were in pawn, and the two great paintings by Rembrandt were pledged in London for the sum of £44,000. Prince Youssoupoff regarded these paintings as an available means of obtaining more money to meet his needs, which were then pressing.

The defendant Widener was at that time traveling abroad. He was a resident of Pennsylvania, a wealthy and experienced business man and the owner of a great collection of paintings and other works of art. Numerous paintings by Rembrandt were already in his collection. Financial conditions generally and conditions in the art world in particular were greatly depressed. Mr. Widener, in spite of the depression in financial conditions, could raise the money for the purchase of these great paintings by Rembrandt for his collection. The paintings were heirlooms in Prince Youssoupoff’s family. He was greatly attached to them. He was desirous of retaining them for his own use, but his needs were great. So the correspondence between Prince Youssoupoff and Mr. Widener began, and it was Prince Youssoupoff or bis friends who sought out Mr. Widener.

In July, 1921, while these pictures were still pledged in London for the loan of £44,000, Mr. Widener, accompanied by Prince Youssoupoff and bis agent, a man of business experience, visited the storehouse, where the pictures were deposited, and inspected them. At that time Prince Youssoupoff, as the result of previous correspondence, knew that Widener was interested in the pictures only as a possible purchaser. Driving back to his hotel in a taxicab with Prince Youssoupoff and his business agent, Mr. Widener offered to pay £100,000 for the pictures referred to in the complaint and Prince Youssoupoff emphatically refused that offer. He then stated that the lowest price for which he would sell the paintings referred to in the complaint would be £200,000. He had indeed refused an offer of £150,000 for them made by an agent of Sir Joseph Duveen only five months before, while the market for such works of art was no less depressed. Mr. Widener stated to Prince Youssoupoff that if he entered into a transaction with plaintiff it would only be on account of his sympathy with him and his admiration for Prince Youssoupoff’s work in aiding Russian refugees.

Discussions were continued on the same day at the hotel between Prince Youssoupoff’s agent and Mr. Widener. As a result of these discussions Mr. Widener sent to Prince Youssoupoff a document which the latter signed whereby Prince Youssoupoff purported to “ agree upon receipt of one hundred thousand pounds from Mr. Joseph Widener within one month from to-day to sell to him my two well-known Rembrandt portraits.— Reserving the option of purchasing them both from him on or any time before January first, 1924, for the same sum plus eight per cent, interest from date of purchase.” Mr. Widener had not at that time agreed to accept the pictures upon those terms. At most, the evidence and findings show that he had indicated an intention to do so if upon his return to his home, which was then imminent, he found it convenient to raise the sum of £100,000, and that it was understood that he would notify Prince Youssoupoff soon after his return here whether he had been able to do so. Mr. Widener did return home, and on July 25th, 1921, he sent Prince Youssoupoff a letter inclosing the contract which Prince Youssoupoff signed on August 12th. There was no pretense in the letter that the proposed contract embodied terms previously agreed upon or constituted an acceptance of the option given by Prince Youssoupoff. The letter stated that if the inclosed copy of Agreement of Sale is acceptable to you, I will ask you to cable Widener, Philadelphia, Contract Acceptable Youssoupoff, when I will arrange for my personal and confidential representative, Mr. Arthur Sully, 159 New Rond Street, to pay the money and take delivery.” After receipt of the letter and inclosed contract, Prince Youssoupoff sent Mr. Widener a cable reading in substance: Contract satisfactory Youssoupoff. Three days thereafter the transaction was consummated, the contract was signed, Prince Youssoupoff delivered the pictures- and received the agreed consideration.

At the time Prince Youssoupoff signed the contract, he fully understood its terms, conditions and provisions and their significance. He had indeed received legal advice as to the contract from counsel of his own choosing. He did not like to accept its terms; indeed he protested against it to Mr. Widener’s representative in London before signing the contract. Nevertheless he did sign it, because his need of £100,000 was pressing. In this action he seeks relief from its terms, now that he can secure greater advantages by contract with other parties.

The plaintiff’s claim for relief rests in large part upon the contention that the defendant Widener has obtained the plaintiff’s property at an inadequate price, by unconscionably taking advantage of the plaintiff’s need of ready money. The basis of such contention is destroyed by the findings of fact that £100,000 was a “ fair, reasonable and adequate price for the pictures at any time,” and “ in July and August 1921 was not less than the fair market value of the pictures.” It is said, however, that these findings are inconsistent with the findings that Sir Joseph Duveen had offered the sum of £150,000 for the same paintings in February, 1921, when the market for such works of art was no less depressed than in July and August. This court has at times pointed out the doubtful value of an offer for an article as evidence of its market value. (Hine v. Manhattan Railway Comrpany, 132 N. Y. 477.) Here the findings do, it is true, negative many of the objections which ordinarily might be raised to such evidence. According to these findings Sir Joseph Duveen is the recognized leader in his profession or business * * * and he is a thoroughly competent judge of the value of great works of art.” His offer was “ based on his judgment of the value of the paintings to a dealer such as himself.” He had seen the pictures and “was anxious to acquire them at the price offered.” He was “ endeavoring to purchase them for his own account at the lowest possible price, with the expectation of being able to resell them at a profit in the regular course of business.” An offer made under such circumstances by a dealer of such reputation may perhaps be competent evidence of market value. Indeed, it would undoubtedly be regarded as very persuasive evidence by most laymen. Nevertheless, even if it be accepted as persuasive evidence, it is certainly not conclusive. It rests only upon opinion, and the opinion of the most expert may be at times mistaken. Though offered as a witness by the plaintiff, Sir Joseph Duveen was not, on the witness stand, questioned about his opinion of the value of the pictures at the time Mr. Widener negotiated for them, and the trial justice might properly accept, as he did, the opinions of other witnesses on this point. The findings are, therefore, in no wise inconsistent. Finding of value is the result of the balancing of conflicting testimonjr or inferences.

Even if, however, the pictures at the time the defendant acquired them by payment of £100,000 had been worth £150,000, the plaintiff would still be bound by his bargain as made. Prince Youssoupoff was thirty-eight years of age, and understood the meaning of the contract he signed. He had the benefit of the advice of an experienced business man and of his own lawyer. His needs compelled him to raise money. The pictures were available means for obtaining it. Prince Youssoupoff was attached to them. He desired to use them only as security for a loan. He hoped that he could, in such event, redeem them upon a change in his fortunes. Mr. Widener was never willing to loan money on the security of the pictures. He desired only to add them to his collection. For that purpose he offered £100,000. Prince Youssoupoff might perhaps have refused to sell at any price if he could have raised the money he urgently needed without a sale. He did refuse to sell for that price unless the sale was coupled with a reservation which would give him some opportunity to obtain them again for his own use. Mr. Widener offered a contract with a very limited right in Prince Youssoupoff to repurchase the pictures. Prince Youssoupoff accepted that contract, though unwillingly. Regardless of whether the pictures were worth more or less than the price paid, the parties, with full understanding, came to an agreement upon the terms on which Prince Youssoupoff would part with the pictures. There was no duress on the part of Mr. Widener. He had done nothing to add to the plaintiff’s condition of distress. He was not willing nor under any obligation to relieve the plaintiff’s distress, except upon his own terms. If the pictures were worth no more than the sum paid to the plaintiff, as the court has found, then Mr. Widener’s terms were generous; if the pictures were worth more than that price, the defendant may, on account of plaintiff’s exceptional position, have obtained an exceptional bargain. If, however, the defendant actually bought the pictures, he is entitled to enforce that bargain according to its terms. The courts will not set aside a bargain so made. (Miles v. Dover Furnace Iron Co., 125 N. Y. 294; Story on Equity Jurisprudence [3d Eng. ed.], section 244; 2 Pomeroy on Equity Jurisprudence [4th ed.], sections 926, 948.)

It is said, however, that a bargain so made is merely a loan upon the security of the pictures, disguised by the form of the written contract as a sale with an option to repurchase. If in fact the parties to the transaction intended a loan or advance, a court of equity will disregard the form in which the transaction is clothed and permit the borrower to redeem the security though he cannot comply with the strict terms of the contract upon which he might repurchase ” it. (Lawley v. Hooper, [1745] 3 Atkyns, 278; Gossip v. Wright, 32 L. J. Chancery, 648; affd., 21 L. T. 271 [reviewing earlier cases]; Russell v. Southard, 53 U. S. 139; Horn v. Keteltas, 46 N. Y. 605.) Undoubtedly where a transfer is made of property upon an expressed consideration which is grossly inadequate and below the market value of the property transferred and the transfer is made subject to a right of defeasance, though called a right to “ repurchase,” by repayment of the amount received with interest, inference may ordinarily be drawn that the parties intended only a loan. (Williston on Contracts, sections 771-773.) The real transaction is, in such cases, the advance of moneys. The property is transferred with intention and expectation that it will be held only until redeemed at a fixed date. If by failure to redeem on the date fixed, or in strict accordance with the terms of the contract, the original owner loses his right to redeem, the result is a forfeiture and the transferee has obtained more than it was the intention of the parties he should receive or than he has paid for. If it was intended only that he should look to the property as security for repayment, then the courts of equity will not enforce the terms of a contract by which, through the misfortune of another, he becomes the owner of the property. (3 Pomeroy’s Equity Jurisprudence, section 1194.)

That is not the case here. As we have pointed out, the defendant was never willing to make a loan. The plaintiff understood that the defendant entered into the transaction only with a view to becoming the owner of the pictures. The defendant indeed refused to make a loan, and by the contract which was made the plaintiff was under no personal obligation to repay to the defendant the amount received upon the transfer of the pictures. The parties never intended that the pictures should be transferred in order to secure the defendant for money advanced if the plaintiff should not repay it. The purpose of the agreement was to transfer to the defendant the full ownership and enjoyment of the pictures unless the plaintiff repurchased them within the stipulated time and upon the stipulated terms. The right in the plaintiff to repurchase was not a right of complete defeasance of the transaction. If the plaintiff repaid to the defendant the amount he had received, the defendant would still retain some rights to the pictures, in case the plaintiff decided to resell them thereafter. These considerations collectively distinguish this case from those where the courts have construed the contract, in accordance with the intention of the parties, as a loan and mortgage. Here actual intention coincides with the form and terms of the contract, and according to the law of England, where the contract was made and dated, and where the pictures were situated at the time of their transfer, the contract of sale, subject to a limited right of repurchase, must be enforced according to its terms and actual intent. (Alderson v. White, 2 De Gex & Jones, 97; Gossip v. Wright, 32 L. J. Ch. 648.) Similar result has been reached under the law of many, if not all, of the jurisdictions of the United States.

It is said, however, that under the law of Pennsylvania, where Mr. Widener resided, where he kept his collection of paintings and where any option to repurchase must be exercised, the contract between the parties hereto would be conclusively presumed to be a mortgage, regardless of the actual intention of the parties, and enforced only as a mortgage. The courts below have made no finding to that effect. We have not analyzed the testimony or the Pennsylvania decisions introduced in evidence to determine whether they would support such a finding. We hold that the law of England and not the law of .Pennsylvania governs this transaction.

The general rule is well' established that the construction and legal effect of a contract for the transfer of, or the creation of a lien upon, property situated in the jurisdiction where the contract is made is governed by the law of that jurisdiction. (Goetschius v. Brightman, 245 N. Y. 186.) Various grounds, however, are urged upon which it is said that this case presents an exception to the general rule. We dispose of them briefly.

The instrument is executed by both parties and is the contract of both parties. Therefore, the rule occasionally applied that the construction and legal effect of instruments, which are the act and deed of one person only, such as powers of attorney, etc., may be governed by the law of the maker’s domicile (Knights Templars & Masonic Mut. Aid Association v. Greene, 79 Fed. Rep. 461) has no application here.

The fact that Mr. Widener obtained the pictures with the intention of removing them to his home, does not change the general rule. It is true that it has been held in some States that where property, transferred by contract in one jurisdiction, must be removed to another jurisdiction in order to carry out the purpose of thé contract, the construction and effect of the contract may be governed, in accordance with the intention of the parties, not by the law of the jurisdiction where the contract was made and where the property was then situated, but by the law of the jurisdiction to which the property was removed thereafter and where the parties intended that it should be permanently located. (Beggs & Co. v. Bartels, 73 Conn. 132.) We need not now consider whether upon a similar state of facts we should reach a similar conclusion. If under such' circumstances exception to the general rule may be created, that may be done only for the purpose of carrying out a presumed intention of the parties. Here the parties have given convincing evidence that the parties intended that the law of England should apply. We may not by a fictitious inference of other intention change an instrument which the parties intended should be a contract of sale into a mortgage which they never intended.

Finally, it is said that since the provisions for the repurchase of the paintings in Pennsylvania were the only executory provisions of the contract, we should construe the contract according to the law of Pennsylvania where performance was to be made. (International Text Book Co. v. Connelly, 206 N. Y. 188.) The contract in effect is primarily a bill of sale of the paintings, and was so intended. The right to repurchase was merely an incident to the transfer. The transfer of title was completed simultaneously with the signing of the contract. The parties certainly did not intend the law of Pennsylvania should apply to the transfer of property completed in England by contract made and dated there and by delivery accepted 'there. Under the law of England, full ownership was then transferred to the defendant, subject only to a condition that plaintiff should have a limited right to repurchase in Pennsylvania. Since full ownership had then been transferred to the defendant, and the plaintiff no longer held an equity of redemption, he might regain the pictures only by exercising his option of repurchase in accordance with the provisions of the contract. If we assume that the parties intended that the law of Pennsylvania should apply to the provisions giving an option of repurchase, and construe those provisions accordingly (Hamlyn & Co. v. Talisker Distillery, [1894] Appeal Cases, 202), we must begin construction upon the basis, fatal to plaintiff’s claim, that these provisions apply to property of which the defendant is the full owner and in which the plaintiff has no equity of redemption.

Defeated in his contentions that the contract should not be enforced in accordance with its express terms, the plaintiff still contends that the terms of the contract should be so construed that the tender made by the plaintiff of the amount paid by the defendant with stipulated interest might be regarded as a compliance of all the conditions of the contract. The plaintiff “ represents ” in the contract that “ the privilege of repurchase will be exercised only in case he finds himself in the position again to keep and personally enjoy these works of art.” The evidence and findings establish that the plaintiff is not in a position to keep and personally enjoy these works of art. The works of art if regained by the plaintiff are to be pledged with and remain in the possession of another collector. They may be enjoyed by the pledgee until the debt is due, may be sold by him or acquired by him if the debt is not paid at the stipulated date. The plaintiff contends that these circumstances are irrelevant on the ground that his “ representation ” of future intention is not equivalent to a condition or covenant, and that all the other conditions of the contract have been met according to the letter of the contract. The intent of the parties is plainly expressed. It may not be defeated by a forced or technical construction of isolated words. Beyond question the parties understood that the plaintiff’s right to repurchase the pictures might be exercised only if by a turn of the wheel of fortune he became able to keep and personally enjoy them. If he did repurchase them he might not within ten years dispose ” of them. The plaintiff has not the means to repurchase the pictures for his own enjoyment, or to repay to C. S. Gulbenkian the amount he has tendered to the defendant. He has in writing offered the pictures for sale while still in the defendant’s possession. If the plaintiff is able to obtain them from the defendant, the terms of the pledge to Mr. Gulbenkian would make it possible for Mr. Gulbenkian to sell them to others or to obtain title to them himself. Under these circumstances it is clear that the offer to repurchase the pictures and the tender of the purchase price did not comply with the conditions of the contract upon which the parties had agreed.

The judgment should, therefore, be affirmed, with costs.

Cardozo, Ch. J., Pound, Crane, Andrews, Kellogg and O’Brien, JJ., concur.

Judgment affirmed, etc.


source: Caselaw Access Project

author: Lehman, J.

license: Public Domain

text:
    Westchester Mortgage Company, Appellant and Respondent, v. Grand Rapids and Ionia Railroad Company et al., Defendants. John A. Van Rensselaer, Appellant and Respondent; Marian R. Kennedy et al., as Executors of Henry V. R. Kennedy, Deceased, et al., Respondents.
    Contract — loan — usury — declaratory judgments — parties may properly make loan contract so that laws of foreign State will govern its construction and effect — no inference of intent to evade our statute of usury — declaratory judgment determining action which conscience of court of equity of foreign State should dictate, improper.
    1. Where the essential provisions of a loan contract were to be performed in another State and enforced, if necessary, by appeal to the courts of that State, the,parties might make their contract with such reference to the laws of that State that the latter will govern its construction and effect. Even if the terms of the loan had been agreed upon here before the written instruments were actually signed and delivered, no conclusive inference may be drawn that the intent to have the law of the foreign State govern the validity and effect of the contract was merely an intent to evade our statute of usury.
    2. In an action to obtain a declaratory judgment that the plaintiff has a prior and paramount lien upon the interest of one of the defendants in a trust fund in a foreign State, with interest at ten per cent per annum, compounded quarterly, a conclusion that the validity of the note must be determined by the laws of the State where it was made was proper. It was error, however, for the Appellate Division to make a further declaration as to the extent to which the rights of the plaintiffs may be enforced in the foreign State. Assuming that the courts of this State have the power to declare rights arising under a foreign law and enforcible only by the courts of a foreign jurisdiction, it was error to exercise that power for the purpose of determining in advance the action which the conscience of a court of equity of that State should dictate it to take when appeal is made thereto.

      Westchester Mortgage Co. v. Grand Rapids & Ionia R. R. Co., 219 App. Div. 733, modified.
    (Argued June 9, 1927;
    decided July 20, 1927.)

      Cross-appeals from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered February 17, 1927, modifying and affirming as modified a judgment entered upon a decision of the court on trial at Special Term.

      Jonathan Holden and Alphonse V. Brisson for plaintiff, appellant and respondent.
    It was unnecessary and improper for the Supreme Court of New York to make a determination of the manner in which the interest should be computed. (New York Life Ins. Co. v. Head, 234 U. S. 149; Matter of Harriman, 124 Misc. Rep. 320.) The place where the contract had its inception and became legally binding was in Rhode Island. (Fatta v. Egerton, 157 App. Div. 852; Sheldon v. Haxtun, 91 N. Y. 124; Huber v. D’Esterre, 180 App. Div. 220; Pierce v. Flagens, 39 Fed. Rep. 587; Hallenback v. Fleming, 6 Hill, 303.) The making of the loan in or with reference to the laws of Rhode Island was not an evasion of the laws of New York. (Andrews v. Hoxie, 5 Tex. 171; Andrews v. Pond, 13 Pet. 65; Sheldon v. Haxtun, 91 N. Y. 124; Berrien v. Wright, 26 Barb. 208; Vermont Loan & Trust Co. v. Dygert, 89 Fed. Rep. 123.)

      Aaron H. Marx and Walter E. Godfrey for defendant, appellant and respondent.
    The transaction is governed by the law of New York, even if the papers were signed in Rhode Island. (Hooley v. Talcott, 129 App. Div. 233; Smith v. Dixon, 150 App. Div. 571; Hosford v. Nichols, 1 Paige, 220; Western T. & C. Co. v. Kilderhouse, 87 N. Y. 430; Bank of Georgia v. Lewin, 45 Barb. 340; Tilden v. Blair, 88 U. S. 241; Dolman v. Cook, 14 N. J. Eq. 56; Hanricks v. Andrews, 9 Port. 9; Man. Life Ins. Co. v. Johnson, 188 N. Y. 108.) The note was made payable in Rhode Island for the mere purpose of avoiding the usury laws of New York. Such intent will not be tolerated. (Austin v. Walker, 45 Iowa, 527; Hall v. Eagle Ins. Co.,
      150 App. Div. 815; 211 N. Y. 507; Hartley v. Eagle Ins. Co., 222 N. Y. 185; Wilkie v. Roosevelt, 2 Johns. Cas. 207; Manhattan Life Ins. Co. v. Johnson, 188 N. Y. 108; Hosford v. Nichols, 1 Paige, 220; Bank of Georgia v. Lewin, 45 Barb. 340; Dolman v. Cook, 14 N. J. Eq. 56; Andrews v. Hoxie, 5 Tex. 171; Andrews v. Pond,. 13 Pet. 65; Berrien v. Wright, 26 Barb. 208; Vermont Loan & Trust Co. v. Dygert, 89 Fed. Rep. 123; Sheldon v. Haxtun, 91 N. Y. 124.) It was proper and necessary for the courts below to determine every right of the parties to the action. (Paine v. Schenectady Ins. Co., 11 R. I. 411.)

      Herbert Barry and Henry W. Proffitt for Marian R. Kennedy et al., as executors, et al., respondents.

      Charles Rush for Florence H. Hurd et al., as executors of George B. Hurd, deceased, respondent.
   Lehman, J.

In May, 1906, John A. Van Rensselaer executed and delivered to James J. Phelan a note payable at Newport Trust Company, Newport, R. I., one year after date for the sum of fourteen thousand dollars, “ with interest thereon at the rate of ten per cent per annum, payable quarterly, in advance, until said principal sum is paid whether at or after maturity, all installments to bear interest at the rate aforesaid until paid.” As collateral security for the payment of the note Van Rensselaer assigned to the payee his interest in a trust fund established under the fifth t ause of the will of Frances M. Hoyt, deceased. Under the terms of that will Van Rensselaer was entitled to the principal of that fund upon the death of his mother. Other assignments of his interest in this property have been made thereafter by the defendant Van Rensselaer to secure indebtedness to other persons. The principal of the note has never been paid, and no interest has been paid since September, 1907. It has been assigned to, and is in the possession of, the plaintiff. The plaintiff has brought this action in which it asks for a declaratory judgment that it has a prior and paramount lien upon the defendant Van Rensselaer’s interest in the property in the trust fund for the sum of fourteen thousand dollars with interest at ten per cent since September .1,1907, compounded quarterly in accordance with the terms of the note made by Van Rensselaer. The plaintiff in its complaint also prayed for judgment of' foreclosure of its alleged lien upon this property, but at the trial withdrew the prayer for such relief.

All parties who might have any claim to the note or to the interest of Van Rensselaer in the property, transferred as collateral security for the notes, were made parties defendants. In their answers the defendants also asked for a declaration of their rights in accordance with claims they set forth. Upon this appeal we need consider only the issues raised by the defendant Van Rensselaer who asked for a declaration that the note and assignment are usurious and void and that any cause of action based on either of them is barred by the Statute of Limitations, under the laws both of New York and Rhode Island.

After a trial of the issues, a judgment was rendered at Special Term declaring that the note is owned by the plaintiff but that it is usurious and void. Unquestionably the note is usurious if it was made in the State of New York, and is governed bjr the lav/s of this State. The Appellate Division has made findings and conclusions to the effect that the note was made and delivered in Rhode Island, and its validity must be determined by the laws of that State. It also found that “it is the law of Rhode Island that the legal rate of interest is six per cent, but any rate may be agreed upon, except the rate be unconscionable, in which case the agreement is unenforceable and will not be upheld except to the extent of enforcing the payment of the principal of the note in question with 6% simple interest thereon.” The court thereupon adjudged that the promissory note and assignment executed by the defendant Van Rensselaer is a “ good, valid and existing lien against the trust established by the fifth clause of the Will of Frances M. Hoyt, deceased, to the extent of $14,000 with interest at the rate of 6% per annum.” The defendant Van Rensselaer appeals from the decision that the note is not usurious and void. The plaintiff appeals from the decision that the note cannot be enforced according to its tenor, for the full amount of principal and stipulated interest.

The parties to the original loan Lave given unmistakable evidence that it was their intention that the transaction should be governed by the law of Rhode Island. All the instruments that passed between the parties were drawn by a Rhode Island lawyer. The note was dated in Newport. Before any moneys were paid to Van Rensselaer he made an affidavit before a notary public in Rhode Island, who also witnessed his signature to the assignment. The borrower received the proceeds of the note in the form of a check drawn on a Rhode Island bank and the note was payable in Rhode Island. The property assigned to the lender as collateral security was situated in Rhode Island and subject to the laws of that State, and the jurisdiction of its courts. Since the essential provisions of the contract were to be performed in Rhode Island and enforced, if necessary, by appeal to the courts of that State, the parties might make their contract with such reference to the laws of that State that the latter will govern its construction and effect. (Manhattan Life Insurance Co. v. Johnson, 188 N. Y. 108.) Even if the terms of the loan had been agreed upon in New York before the written instruments were actually signed and delivered, no conclusive inference can be drawn from that fact, that the intent to have the law of Rhode Island govern the validity and effect of the contract was merely an intent to evade our statute of usury. (Seeman v. Philadelphia Warehouse Co., 71 Supreme Court Reporter, 673.) The intent to have the law of Rhode Island govern the construction and effect of a contract which in many of its essential features was to be performed in that State might well exist even if no statute of usury had existed here. It cannot be said here that the form in which the transaction was clothed was merely a means or subterfuge for the accomplishment of an illegal act. On this point we agree with the findings and conclusions of the Appellate Division.

We are of the opinion that after the court decided that the construction and the legal effect of the note and the assignment, as collateral security, of the defendant Van Rensselaer’s interest in the trust fund created under the will of Frances M. Hoyt are governed by the law of Rhode Island, and that the loan transaction is not rendered void by our statute against usury, it should not have made any further declaration of the extent to which the rights of the plaintiffs may be enforced in the State of Rhode Island. Section 473 of the Civil Practice Act provides that the “ Supreme Court shall have power in any action or proceeding to declare rights and other legal relations on request for such declaration whether or not further relief is or could be claimed, and such declaration shall have the force of a final judgment.” In other jurisdictions where the courts possess similar power, there have been at times attempts to define the occasions when the courts may properly exercise the power conferred upon them. (See Guaranty Trust Company of New York v. Hannay & Co., 1915, 2 K. B. 536.) We may not limit by judicial construction a power which the Legislature has conferred without limitation. We may not define the bounds within which that power may be exercised, except as we find such bounds implicit in the statute, read in the light of established public policy. The courts of this State may command only in matters where this State is sovereign. The powers of our courts do not extend beyond the territorial limits of the State, and our courts proceed with circumspection when they are called upon to give command even to a party whose person is subject to our own jurisdiction, if such command might possibly conflict with the sovereign power of another State. (N. F. I. Bridge Co. v. Grand Trunk Ry. Co., 241 N. Y. 85.) The same considerations which limit the courts of equity in their determination of where they can or should give commands which may have effect beyond the territorial limits of our State must likewise limit them in their determination of when they can or should make a declaratory judgment which would have similar effect. Such limitations may not be disregarded in spite of the general language of the statute.

In the present case the Appellate Division has declared the extent to which the courts of. Rhode Island will enforce the contract of loan. We may assume that the decisions of the courts of Rhode Island show, as the Appellate Division has found, that under the laws of Rhode Island parties may by agreement fix any rate of interest, but that a court of equity will give relief against a contract which fixes a rate of interest which is unconscionable. When appeal is made to our courts for relief in a matter of which they have jurisdiction, they may, of course, determine as a question of fact what is the law of a foreign jurisdiction and then decree relief in accordance with the law so found. Here, after the Supreme Court has determined that the plaintiff is the owner of the note, and has a lien upon the interest of Van Rensselaer in the property in Rhode Island, it can grant the plaintiff no further relief. The plaintiff’s rights to such property are not merely determined by the law of Rhode Island, but can be enforced only in the courts of Rhode Island. Only by resort to the courts of that State may the lien upon the property in Rhode Island be foreclosed. The defendant Van Rensselaer has not asked the Supreme Court for relief against a contract which he claims is unconscionable or for a declaration that he has a right to redeem his interest in the property assigned as collateral security for the note, upon payment of the principal of the loan with six per cent interest. We do not pass upon the possible effect of a prayer for such a judgment. When in this action the court declared that the plaintiff’s lien upon property in Rhode, Island under the laws of that State was enforcible to the extent of the principal and six per cent interest only, its declaration, according to the statute, had “ the force of a final judgment,” yet the plaintiff must still resort to the courts of Rhode Island for the enforcement of the lien we have declared. Until then the declaratory judgment would be without • practical effect. If our courts had declared that- the lien of the plaintiff was, under the laws of Rhode Island, enforcible in accordance with the rate of interest fixed by the contract, such declaration could hardly fetter the conscience or the powers of a court of equity in that State when called upon to enforce the lien upon property situated in that sovereignty. It might still determine that it would not lend its power to the enforcement of a contract which it believed was unconscionable. We infringe upon the exclusive jurisdiction of courts of Rhode Island if we assume to dictate to them the extent to which they should enforce a lien upon property within that State. If that is the purpose and effect of the declaration made in this case, then it would seem clear that such a declaration should not have been made.

It may perhaps be said that the purpose and effect of the declaratory judgment is not so much to bind the courts of the State of Rhode Island in the determination of the extent to which they may enforce a lien on property within that State as to preclude the parties from again litigating in that State an issue already determined here. Even if that be the result of the judgment rendered in this case, the fact still remains that the courts here have determined that issue without any purpose of granting relief here, and not as part of a declaration of “ rights ” which may be made effective here without resort to the courts of a foreign sovereignty, or of legal relations,” with consequential result here between persons within the jurisdiction of our own courts. The plaintiff’s rights against the property in Rhode Island are rights in rem. They can be enforced solely by the courts of Rhode Island. The Supreme Court has been asked to declare what the plaintiff’s rights are. It has not been asked by the defendant Van Rensselaer to declare any rights he may have to redeem or kindred rights. The declaration of the extent to which the courts of Rhode Island will enforce the plaintiff’s rights has no purpose or effect, unless it be to remove to the courts of this State an issue which is properly determinable in an action to enforce rights in rem of which the courts of Rhode Island have exclusive jurisdiction.

If the courts of one jurisdiction have the power to declare rights which can be made effective only by appeal to the courts of another sovereignty, it is a power which in the interests of comity must be sparingly exercised. (British South Africa Company v. Companhia de Mocambique, 1893 App. Cas. 602.) Perhaps where question of the law of this jurisdiction may . be the determinative factor in an action in a foreign jurisdiction, our courts might declare the law of this jurisdiction as an aid to the foreign court. (The Manar; Northern Trust, Ltd., v. Strachan Bros., 89 L. T. [N. S.] 218 [1903].) Doubtless there may be other circumstances where a declaration of legal rights here might serve a useful purpose, though enforcement of these rights might rest exclusively in the courts of another jurisdiction. We do not now decide whether power to make such a declaration exists, and if so, its possible limitations. We decide only that even if the courts of this State have the power to declare rights arising under a foreign law and enforcible only by the courts of a foreign jurisdiction, it was error to exercise that power in this case for the purpose of determining in advance the action which the conscience of the court of equity of Rhode Island should dictate it to take when appeal is made to that court.

The judgment should be modified by striking out from the judgment all reference to the extent to which the plaintiff’s hen is enforcible, and, as modified, affirmed without costs.

Cardozo, Ch. J., Pound, Kellogg and O’Brien, JJ., concur; Crane and Andrews, JJ., dissent.

Judgment accordingly.


text:
    Frederick S. Dickinson et al., Appellants, v. John Springer et al., Copartners under the Name of Steelman & Birkins et al., Respondents, Impleaded with Others.
    Former adjudication — equity — injunction — foreign judgment conclusive adjudication between parties only as to facts court was bound to pass upon in reaching its decision — court of equity on finding no ground for equitable relief may relegate question of damages to action at law — may not decide that plaintiff was not originally entitled to relief without taking proof, where that issue was not decided in foreign action — bonds given upon granting of temporary injunction — court must decide whether plaintiff had cause of action.
    1. Where in spite of some differences in the allegations of the complaints in two actions, one brought in this and the other in a foreign State, it is plain that they are both based upon the same alleged claim or cause of action, a judgment in the foreign action is conclusive adjudication between the parties not only as to all matters litigated but as to all matters which might have been litigated therein.
    2. Where, however, at the trial of the foreign action the court was called upon to determine only whether an injunction restraining the sale of certain stock should be continued and it determined that it should not be continued solely for the reason that it appeared from the evidence that at the time of the trial the stock had already been sold, the judgment constitutes an adjudication only upon that issue and upon those facts which the court was bound to pass upon before it could reach a conclusion.
    3. Though the complaint in the New York action, in addition to the same injunctive relief sought in tho foreign action, demanded damages for alleged wrongs, the court of equity, after it was shown no ground for equitable relief existed, was not bound to pass upon the question of damages. It might, in its discretion, relegate the parties to an action at law. It might not, however, decide that no wrong was committed and that originally plaintiffs did not .have a right to equitable relief without taking proof of the facts, for that issue was not decided in the foreign action.
    4. Upon granting of the temporary injunction in this action bonds were given and defendant’s right to enforce the penalty thereof is dependent upon a final decision that plaintiff was not entitled to an injunction. If, therefore, the judgment in this case is to be construed as a decision that plaintiffs never had a cause of action for an injunction, and it is capable of that construction, it is erroneous, for the plaintiffs have not had the opportunity to litigate this question either in the foreign action or in this. If the court did not decide that question, the judgment is also erroneous because the trial justice was bound to pass upon this question so long as there may be a claim for damages under the bonds.

      Dickinson v. Springer, 218 App. Div. 831, modified.
    (Argued June 9, 1927;
    decided July 20, 1927.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered December 29, 1926, unanimously affirming a final judgment of Special Term dismissing the complaint.

      Edward F. Clark, Leonard J. Reynolds and Oscar B. Lowman for appellants.
    It is the thoroughly settled law of New York that where a plaintiff in an action for an injunction, who has had at the commencement of the action a temporary injunction and given tho usual undertaking, appears upon the trial to be not entitled to judgment for a permanent injunction, because of a change in the situation between the time of the granting of the temporary injunction and the trial, such plaintiff must be given an opportunity to show that he was entitled to the temporary injunction at the time it was granted, and upon such showing is entitled to an adjudication to that effect in the final judgment. (Williams v. Montgomery, 148 N. Y. 519; Sackett & Wilhelms L. & P. Co. v. Nat. Assn. Employing Lithographers, 211 N. Y. 554; Kelley v. McMahon, 37 Hun, 212.) The trial court erred in dismissing the complaint without affording the plaintiffs opportunity to prove the facts necessary to obtain an adjudication in the judgment that the plaintiffs were entitled to a temporary injunction. The decree in the New Jersey Chancery suit was not a bar thereto. (Hull v. Hull, 225 N. Y. 342; Lewis v. Ocean Navigation & Pier Co., 125 N. Y. 341; Clark v. Scovill, 198 N. Y. 279; Middleworth v. Blackwell, 85 App. Div. 613; Stannard v. Hubbell, 56 Hun, 450; 123 N. Y. 520; Foster v. Milliner, 50 Barb. 385; Louw v. Davis, 13 Johns. 227; Katz v. Geyelin, 191 N.. Y. Supp. 481.)

      George W. Bristol and John S. Wise, Jr., for respondents.
    The plea of res adjudicata properly disposed of the plaintiffs’ case. (Embury v. Conner, 3 N. Y. 511; Clemens v. Clemens, 37 N. Y. 59; Harris v. Harris, 36 Barb. 88; Gates v. Preston, 41 N. Y. 113; Blair v. Bartlett, 75 N. Y. 150; Le Heresse v. Hess, 57 Atl. Rep. 808; Gardner v. Raisbeck, 28 N. J. Eq. 71; Mershon v. William, 63 N. J. L. 398; Hoppaugh v. McGrath, 53 N. J. L. 81; Sapula Petroleum Co. v. McGray, 4 Fed. Rep. 2d Ser. 645.) The counterclaim of defendant Springer is properly asserted in this action. (Kelly v. Webster, 143 App. Div. 737; Sheehan v. Pierce, 70 Hun, 22; O’Brien v. Dwyer, 76 App. Div. 516; Glenn & Hall Mfg. Co. v. Hall, 61 N. Y. 226; Gettinger v. Glasser, 204 App. Div. 829;
      Gilboy v. Lennon, 118 Misc. Rep. 467; Deagan v. Weeks, 67 App. Div. 410; Ter Kuile v. Marsland, 81 Hun, 420.)
   Lehman, J.

The plaintiff brought this action in April, 1922, for the purpose of obtaining an injunction against these defendants, prohibiting them from selling or disposing of certain capital stock of the plaintiff Dickinson Cord Tire Corporation, which, according to the allegations of the complaint, belonged to the plaintiff Frederick S. Dickinson and, without authority from him, came into the possession and control of the defendant John Springer. The action was commenced by the service of the summons and complaint and an order to show cause, together with supporting affidavits and injunction bonds, upon the defendants Steelman and Birkins who are alleged to be the brokers of the defendant Springer, and upon the defendant George Bristol, a lawyer, retained by him. These defendants answered the complaint. The defendant Springer was not served at that time. It appears that the order to show cause served upon the defendants Steelman & Birkins and Bristol contained a temporary injunction or stay which was vacated upon the return of. the order to show cause. In September, 1922, the plaintiffs began a new action in New Jersey against the defendant Springer alone. The complaint asked for substantially the same relief. In that action a temporary injunction was obtained which restrained Springer from disposing of the stock in his possession until the trial of the action. No bond was given or required upon the granting of that injunction.

The action in New Jersey resulted after trial in a judgment in favor of the defendant Springer on the merits. After his successful defense in the New Jersey action, Springer appeared voluntarily in the New York action and pleaded as an affirmative defense the prior adjudication in New Jersey. In his answer he also set up a counterclaim for $250,000. In this counterclaim Springer alleged that the plaintiff had wrongfully prevented him from disposing of the stock owned by him, while there was a market for such stock; that the actions in New York and New Jersey were brought maliciously and based upon false allegations; that the temporary injunction in the order to show cause in the New York action and the injunction pendente lite in the New Jersey action were procured by means of false affidavits, and that in the interim between the time when the injunction in the New York action was vacated and the injunction pendente lite granted in the New Jersey action the plaintiffs maliciously circulated false stories, among possible prospective purchasers of Springer’s stock, to the effect that the stock was stolen.

The plaintiffs thereupon made a motion to strike out the defense of prior adjudication on the ground that it was insufficient on its face, and to strike out the counterclaim on the ground that the counterclaim is not one which may be properly interposed in this action. The motion was denied and the plaintiffs did not appeal to the Appellate.Division from the order of denial.

When the case came to trial, records in the New Jersey action were offered in evidence. The justice at Special Term held that these records showed a prior adjudication in New Jersey which constituted a bar to the prosecution of the same cause of action in New York, and directed judgment in favor of the defendants, dismissing the complaint. Judgments were entered separately in favor of the separate defendants. The judgment in favor of the defendant Springer orders and adjudges that the complaint should be dismissed and that the issues raised by the counterclaim and the reply thereto should be tried before a jury. The judgments in favor of the other defendants who had pleaded no counterclaim finally determine the litigation as to them. The Appellate Division has unanimously affirmed the judgments. Separate judgments of affirmance were again entered and the plaintiffs appeal from these final judgments by permission of this court.

The only question which we may review upon this appeal is whether the records in the action in New Jersey which were introduced at the trial show a binding adjudication of all the issues in this case. The plaintiffs have sought by their notice of appeal to this court to bring up for review the order of the Special Term denying their motion to strike out from the answer of the defendant Springer the defense of res adjudicata and the counterclaim. No appeal was taken to the Appellate Division from this order, and, upon the appeals from the judgments, it was not brought to that court for review by proper notice in accordance with section 580 of the Civil Practice Act. The order denying the motion striking out the defense of res adjudicata did not necessarily affect the judgment ” dismissing the complaint, for the plaintiffs might still urge upon the trial that the proofs did not establish a defense. (Ansorge v. Kane, 244 N. Y. 395.)

No judgment has finally determined the issues raised by the counterclaim and the reply, and the direction for a trial is concededly only interlocutory. No appeal lies from the decision of the Appellate Division affirming that direction, without permission of the Appellate Division. Indeed, no appeal has been attempted in regard to that branch of the decision. Even if there should be doubt as to whether Springer may set up such a counterclaim in this action, we may not upon this appeal resolve that doubt either way.

The complaint in the action is somewhat voluminous. Its allegations may be summarized briefly as follows: The defendant Springer has in his possession and is endeavoring to sell certain stock of the Dickinson Cord Tire Corporation. Though the stock stands in Springer’s name it in fact is the property of the plaintiff Frederick S. Dickinson and was never delivered to Springer. The stock was placed in Springer’s name upon his express agreement that it would not be offered for sale until the treasury stock of the corporation had been sold and the proceeds paid into the corporation treasury as capital. In addition to other relief an injunction is asked against a sale or offer for sale by Springer or his agents of this stock on the ground that the stock does not belong to Springer and that in any event it may not be offered for sale or sold until the treasury stock is sold.

The allegations of the complaint or bill in the New Jersey action are somewhat different, but the relief asked is likewise an injunction which would prohibit Springer or his agents from selling or offering for sale the stock standing in his name, on the ground that the stock belongs to Frederick S. Dickinson and was never delivered to Springer and that Springer had agreed that he would not sell or offer the stock for sale until the corporation should have received the sum of $500,000 from the sale of its treasury stock. In spite of some differences in the allegations of the complaints in the two actions it is plain that they are both based upon the same alleged claim or cause of action. It follows that the judgment in the New Jersey action is conclusive adjudication between the parties not only as to all matters litigated but as to all matters which might have been litigated therein. (Cromwell v. County of Sac, 94 U. S. 351; Hull v. Hull, 225 N. Y. 342; Embury v. Conner, 3 N. Y. 511. See 2 Black on Judgments [2d ed.], § 731; 2 Freeman on Judgments [5th ed.], §§ 674 and 675.) That judgment, dismissing the complaint on the merits and vacating the preliminary injunction, concededly determined as between the parties that at the time of the trial the plaintiffs were not entitled to the injunctive relief they claimed. Whether the judgment in New Jersey is conclusive as to all the issues in the New York action depends upon whether those same issues might have been litigated in the New Jersey action.

In the New Jersey action there was no claim for money damages and no bond had been given when the preliminary injunction was granted. At the trial the court was called upon to determine only whether the injunction .should be continued. The court decided that it should not be continued. It rendered no formal decision stating the ground for its conclusion. It could not reach that conclusion without deciding that the stock did not belong to the plaintiff Frederick S. Dickinson. On that issue the judgment is certainly conclusive. The plaintiffs, however, claimed, as stated above, that in any event Springer had agreed to refrain from offering for sale or selling the stock standing in his name till treasury stock was sold. Equity will mould its relief in accordance with the conditions existing at the trial. The injunction against sale of the stock might not be continued after the trial if it then appeared either that no such agreement had ever been made or that at the time of the trial the condition that Springer’s stock should not be offered for sale until the treasury stock was sold had been met. It appears from the records in evidence that the court found that the treasury stock had been sold at the time of the trial. For that reason alone it vacated its previous injunction. It failed or refused to find whether the agreement claimed by the plaintiffs was ever made by the defendant Springer. The plaintiffs could not, even if they wished, compel the court to make a finding on that issue. The only issues that could be litigated at the trial in the New Jersey action were the issues which would determine the right to injunctive relief at that time. The complainants in the New Jersey action did not ask for any damages for alleged wrongs committed by Springer. No bonds had been given by the complainants when the temporary injunction was issued upon which the defendant Springer might recover if no right to the injunction existed. The only issue that could affect the rights of the parties to that action was whether the complainants at the time of the trial were entitled to an injunction. No other question was litigated, and the judgment constitutes an adjudication only upon that issue and upon those facts which the court was bound to pass upon before it could reach a conclusion.

Undoubtedly, as we have pointed out, the real purpose of the New York action was to obtain the same injunctive relief as the courts of New Jersey have denied to the plaintiff. The courts of this State, like the Court of Chancery of New Jersey, would deny injunctive relief if it appeared that though a basis for injunctive relief may have existed at the time the suit was begun, it no longer existed at the time of the trial. While the complaint does also include a demand for damages for alleged wrong committed by Springer as well as for an injunction against a continuance of the wrong, the court of equity was not bound, if indeed it had the power, after it was shown that no ground for equitable relief existed, to pass upon the question of whether the plaintiff had a right to money damages upon a claim cognizable at law. It certainly might in its discretion relegate the parties to an action at law. (Hunter v. Manhattan Railway Co., 141 N. Y. 281.) It might not, however, decide that no wrong was committed by the defendant Springer, and that originally the plaintiffs did not have a right to equitable relief without taking proof of the facts, for that issue was not and could not be decided in the New Jersey action. The question whether the judgment in this action can be sustained, then, depends upon whether it constitutes a decision on such issues.

The dismissal of the complaint on the merits in the equitable action because at the time of the trial no basis for equitable relief existed might not ordinarily constitute an adjudication that no right of action exists at law for the damages which have been claimed as a mere incident to equitable relief. In the present case, however, it must be remembered that a temporary injunction was contained in the order to show cause served upon some of the defendants, and bonds were given when the injunction was served. The defendant's right to enforce the penalty of the bond was dependent upon a final decision that the plaintiff was not entitled to the injunction. (Palmer v. Foley, 71 N. Y. 106.) A dismissal of the complaint in an equity action'which adjudges that the plaintiffs were not entitled to the injunction prayed for is, at least in some circumstances, a final decision that the plaintiffs were not entitled to the preliminary injunction. (Williams v. Montgomery, 148 N. Y. 519.) Only at the trial of the injunction action can such a decision be rendered, and it would seem that the justice presiding at the trial must pass upon this question if possible claim for damages may be asserted thereafter upon an injunction bond. (Kelley v. McMahon, 37 Hun, 212.)

If the judgment in this case is to be construed as a decision that plaintiffs never had a cause of action for an injunction, and it is capable of that construction, it is erroneous, for the plaintiffs have not had the opportunity to litigate this question either in New Jersey or New York. If the court did not decide that question, the judgment is nevertheless erroneous because the trial justice was bound to pass upon this question so long as there may be a claim for damages under the bonds. Since, however, a decision of such question would be required only if a claim upon the bonds may be asserted, we will not order a new trial, if the defendants properly waive such claim.

The judgments of the Appellate Division and those of the Special Term should be reversed and a new trial ordered, with costs to abide the event, unless the defendants within twenty days after notice of this decision file a stipulation waiving any claim for damages under the bonds or undertakings referred to herein, in which event the judgments will be affirmed, without costs, on the ground that the court might refuse to proceed with the trial when it appeared that ground for injunctive relief did not at that time exist.

Cardozo, Ch. J., Pound, Crane, Andrews, Kellogg and O’Brien, JJ., concur.

Judgment accordingly.


author: Andrews, J.

text:
    Charles S. Martin, Appellant, v. William C. Peyton et al., Respondents, Impleaded with Others.
    Partnership — contract — rule to determine whether partnership exists — loan of securities to banking firm to be used as collateral — agreement for cont ol of business of firm by trustees representing lenders — provisions insufficient to show creation of a partnership.
    1. A contract which as a whole contemplates an association of two or more persons to carry on as co-owners a business for profit is a partnership. If it bo less than this no partnership exists. Passing on the contract as a whole, an arrangement for sharing profits is to be considered and given its duo weight in connection with all the rest. It is not decisive. It may be merely the method adopted to pay a debt or wages, as interest on a loan or for other reasons.
    2. In an action to hold the respondents as partners in a firm doing business as bankers and brokers, whore it appears that the firm being financially involved it entered into an agreement with respondents, expressed in three documents executed as part of one transaction, by the terms of which respondents were to loan the firm securities to be used by it as collateral and the business of the firm was to be controlled by trustees representing the lenders who were to share in the profits until return of the securities, upon examination of the papers, taken as a whole, it cannot be held that a partnership exists.

      Martin v. Payton, 219 App. Div. 297, affirmed.
    (Argued June 6, 1927;
    decided July 20, 1927)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered February 16, 1927, unanimously affirming a judgment in favor of defendant entered upon the report of a referee.

      Charles P. Howland, Walter H. Pollak and John D. Van Cott for appellant.
    The relation that the PeytonPerkins groups bore to the firm of Knauth, Nachod & Kuhne by virtue of the agreements of June 4, 1921, was the typical partnership relation, a relation alike of proprietorship and principalship. (Dry Dock Bank v. American Life Ins. & Trust Co., 3 N. Y. 344; Wyckoff, Church & Partridge v. Riverside Bank, 135 App. Div. 400; 204 N. Y. 561; Maryland Casualty Co. v. Omaha Electric Light & Power Co., 157 Fed. Rep. 514; Magovern v. Robertson, 116 N. Y. 61; Johnson Bros. v. Carter, 120 Iowa, 355; Minter v. Gidinsky, 228 S. W. Rep. 1075; Meehan v. Valentine, 145 U. S. 611; Bailey Co. v. Darling, 119 Me. 326; Gray v. Rosendorf, 181 App. Div. 824; Kent v. Universal Film, 200 App. Div. 539; Bershad v. Roshke, 196 N. Y. Supp. 548; Pierce v. Feno, 184 N. Y. Supp. 851.) One who has the powers of a partner is as matter of law a partner and liable as such. The contract of June fourth gave to the Peyton-Perkins groups these characteristic rights and powers of partners. (Lindley on Partnership, 51, 52; Ex parte Delhasse, 7 Ch. Div. 511; Magovern v. Robertson, 116 N. Y. 61; Pooley v. Driver, 5 Ch. Div. 458; Evans v. Warner, 20 App. Div. 230; Matter of Van Buren v. Estate of Decker, 204 App. Div. 138; Cossack v. Burgwyn, 112 N. C. 304.) The option contract of June fourth gave to the Peyton-Perkins groups the power of liquidation and the delectus personarum. The contract and option contract together gave the Peyton-Perkins interests all the powers possessed by the members of a typical partnership. (Greenham v. Gray, 4 Ir. C. L. 501; Burnett v. Snyder, 76 N. Y. 344; Badeley v. Consolidated Bank, 38 Ch. Div. 238; Mollwo, March & Co. v. Court of Wards, L. R. 4 P. C. App. 419.) The disclaimers of partnership liability inserted in the contract of June fourth serve only to show the fear of partnership that counsel for the Peyton-Perkins interests entertained. They cannot affect any relation which the positive provisions establish. (Manhattan Brass & Mfg. Co. v. Sears, 45 N. Y. 797; Pierce v. Feno, 184 N. Y. Supp. 851; Evans v. Warner, 20 App. Div. 230; Russell v. Herrick, 127 App. Div. 503; 195 N. Y. 586; Hawkins v. Campbell, 48 App. Div. 43; Meehan v. Valentine, 145 U. S. 611; Daon v. Dyer, 286 Fed. Rep. 339; Fougner v. First Nat. Bank of Chicago, 141 Ill. 124.)

      Maxwell C. Katz and Otto C. Sommerich for Rheinische Creditbank et al., amici curiæ.

    Under the agreements, respondents were persons carrying on, with the former members of the firm of Knauth, Nachod & Kuhne, its business as co-owners thereof. (Camp v. Rogers, 44 Conn. 298; Higgins v. City of San Diego, 131 Cal. 294; Dow v. Mining Co., 31 Cal. 629; First National Bank v. Staples, 11 N. Y. Supp. 809; 126 N. Y. 669; Evans v. Warner, 20 App. Div. 230; Johnson v. Alexander, 46 App. Div. 6; 167 N. Y. 605; Lefevre v. Silo, 112 App. Div. 464; Russell v. Herrick, 195 N. Y. 586.)

      Leonard B. Smith and George W. Elkins for William C. Peyton et al., respondents.
    None of the provisions of the agreements of June 4, 1921, indicate the existence of a partnership; all are consistent with the relation of debtor and creditor, bailor and bailee, and principal and surety. (Badeley v. Consolidated Bank, L. R. 38 Ch. Div. 238; Burnett v. Snyder, 81 N. Y. 550; Fechteler v. Palm Bros. & Co., 133 Fed. Rep. 462; Rockafellow v. Miller, 107 N. Y. 507; Crehan v. Megargel, 199 App. Div. 649; 234 N. Y. 67; Austin, Nichols & Co. v. Neil, 62 N. J. L. 462; Thillman v. Benton, 82 Md. 64; Matter of Hoyne, 277 Fed. Rep. 669; 258 U. S. 623; Mollwo, March & Co. v. Court of Wards, L. R. 4 P. C. App. 419; Boston Co.
      v. Smith, 13 R. I. 27; Dake v. Butler, 7 Misc. Rep. 302; 80 Hun, 602; Matter of Young — Ex parte Jones, [1896] 2 Q. B. 484; Hollom v. Whichelow, 64 L. J. Q. B. 170; King & Co. v. Whichelow, 64 L. J. Q. B. 801.) Provisions of the agreements of June 4, 1921, are inconsistent with the idea of partnership. (Mollwo, March & Co. v. Court of Wards, L. R. 4 P. C. App. 419; Burnett v. Snyder, 81 N. Y. 550; Salter v. Ham, 31 N. Y. 321; Heye v. Tilford, 2 App. Div. 346; 154 N. Y. 757; Central City Savings Bank v. Walker, 66 N. Y. 424; Kent v. Universal Film Mfg. Co., 200 App. Div. 539; Jones v. Gould, 209 N. Y. 419; Gill v. Kuhn, 6 Serg. & Rawle, 333; Cox v. Hickman, 8 H. L. Cas. 268; Schultz v. Brackett Bridge Co., 35 Misc. Rep. 595; Hutchinson v. Birdsong, 211 App. Div. 316; Canton Bridge Co. v. Eaton Rapids, 107 Mich. 613; Giles v. Vette, 263 U. S. 553.)

      Lewis L. Delafield and Alfred Gregory for Evelina B. Perkins et al., respondents.
    The provision for a share of the profits was consistent with the loan of securities. (King & Co. v. Whichelow, 64 L. J. Q. B. 191; Bullen v. Sharp, L. R. 1 C. Pl. 86; Ex parte Tennant, 6 Ch. Div. 303; Boston, etc., Smelting Co. v. Smith, 13 R. I. 27; Badeley v. Consolidated Bank, L. R. 38 Ch. Div. 238; Davis v. Davis, 1 Ch. Div. 393; Thillman v. Benton, 82 Md. 64.) The provision that, until the return of the active securities, the directing management should be in the hands of Hall, one of the partners of K. N. & K., was consistent with the loan of securities. (Thillman v. Benton, 82 Md. 64.) The provisions of the contract that the firm should enter into no speculative transactions without the consent of the trustees; that the trustees should be advised about the business of the firm and consulted in all important matters affecting its interest, and that the trustees might veto any business which was highly speculative or injurious to the interest of the lenders, were all consistent with the loan of the active securities. (Badeley v. Consolidated Bank, 38 Ch. Div. 238; Mollwo, March & Co. v. Court of Wards, L. R. 4 P. C. App. 419; King & Co. v. Whichelow, 64 L. J. Q. B. 801.) The option given the lenders is consistent with the loan of securities and is inconsistent with a partnership. (Matter of Young — Ex parte Jones, 2 Q. B. Div. 484; Matter of Beard & Co., 1 Hansell’s Bankr. Cas. 191.) Under the contract of June 4, 1921, the active securities were loaned and under the contract of November 20, 1922, the money was loaned. The obligation of K. N. & K. to return the securities in the one case and the money in the other was absolute and unconditional; in neither case did the lenders contribute capital to K. N. & K. All the rights and powers given to the lenders were for the protection of their interests as creditors. (Pooley v. Driver, L. R. 5 Ch. Div. 458; King & Co. v. Whichelow, 64 L. J. Q. B. 801.)
   Andrews, J.

Much ancient learning as to partnership is obsolete. Today only those who are partners between themselves may be charged for partnership debts by others. (Partnership Law [Cons. Laws, ch. 39], sec. 11.) There is one exception. Now and then a recovery is allowed where in truth such relationship is absent. This is because the debtor may not deny the claim. (Sec. 27.)

Partnership results from contract, express or implied. If denied it-may be proved by the production of some written instrument; by testimony as to some conversation; by circumstantial evidence. If nothing else appears the receipt by the defendant of a share of the profits of the business is enough. (Sec. 11.)

Assuming some written contract between the parties the question may arise whether it creates a partnership.. If if be complete; if it expresses in good faith the full understanding and obligation of the parties, then it is for the court to say whether a partnership exists. It may, however, be a mere sham intended to hide the real relationship. Then other results follow. In passing upon it effect is to be given to each provision. Mere words will not blind us to realities. Statements that no partnership is intended are not conclusive. If as a whole a contract contemplates an association of two or more persons to carry on as co-owners a business for profit a partnership there is. (Sec. 10.) On the other hand, if it be less than this no partnership exists. Passing on the contract as a whole, an arrangement for sharing profits is to be considered. It is to be given its due weight. But it is to be weighed in connection with all the rest. It is not decisive. It may be merely the method adopted to pay a debt or wages, as interest on a loan or for other reasons.

An existing contract may be modified later by subsequent agreement, oral or written. A partnership may be so created where there was none before. And again, that the original agreement has been so modified may be proved by circumstantial evidence — by showing the conduct of the parties.

In the case before us the claim that the defendants became partners in the firm of Knauth, Nachod & Kuhne, doing business as bankers and brokers, depends upon the interpretation of certain instruments. There is nothing in their subsequent acts determinative of or indeed material upon this question. And we are relieved of questions that sometimes arise. The plaintiff’s position is not,” we are told, that the agreements of June 4, 1921, were a false expression or incomplete expression of the intention of the parties. We say that they express defendants’ intention and that that intention was to create a relationship which as a matter of law constitutes a partnership.” Nor may the claim of the plaintiff be rested on any question of estoppel. “ The plaintiff’s claim,” he stipulates, “ is a claim of actual partnership, not of partnership by estoppel, and liability is not sought to be predicated upon article 27 of the New York Partnership Law.”

Remitted then, as we are, to the documents themselves, we refer to circumstances surrounding their execution only so far as is necessary to make them intelligible. And we are to remember that although the intention of the parties to avoid liability as partners is clear, although in language precise and definite they deny any design to then join the firm of K. N. & K.; although they say their interests in profits should be construed merely as a measure of compensation for loans, not an interest in profits as such; although they provide that they shall not be liable for any losses or. treated as partners, the question still remains whether in fact they agree to so associate themselves with the firm as to “ carry on as co-owners a business for profit.”

In the spring of 1921 the firm of K. N. & K. found itself in financial difficulties. John R. Hall was one of the partners. He was a friend of Mr. Peyton. From him he obtained the loan of almost $500,000 of Liberty bonds, which K. N. & K. might use as collateral to secure bank advances. This, however, was not sufficient. The firm and its members had engaged in unwise speculations, and it was deeply involved. Mr. Hall was also intimately acquainted with George W. Perkins, Jr., and with Edward W. Freeman. He also knew Mrs. Peyton and Mrs. Perkins and Mrs. Freeman. All were anxious to help him. He, therefore, representing K. N. & K., entered into negotiations with them. While they were pending a proposition was made that Mr. Peyton, Mr. Perkins and Mr. Freeman or some of them should become partners. It met a decided refusal. Finally an agreement was reached. It is expressed in three documents, executed on the same day, all a part of the one transaction. They were drawn with care and are unambiguous. We

shall refer to them as “ the agreement,” the indenture ” and u the option.”

We have no doubt as to their general purpose. The respondents were to loan K. N. & K. $2,500,000 worth of liquid securities, which were to be returned to them on or before April 15, 1923. The firm might hypothecate them to secure loans totalling $2,000,000, using the proceeds as its business necessities required. To insure respondents against loss K. N. & K. were to turn over to them a large number of their own securities which may have been valuable, but which were of so speculative a nature that they could not be used as collateral for bank loans. In compensation for the loan the respondents were to receive 40 per cent of the profits of the firm until the return was made, not exceeding, however, $500,000 and not less than $100,000. Merely because the transaction involved the transfer of securities and not of cash does not prevent its being a loan within the meaning of section 11. The respondents also were given an option to join the firm if they or any of them expressed a desire.to do so before June 4, 1923.

Many other detailed agreements are contained in the papers. Are they such as may be properly inserted to protect the lenders? Or do they go further? Whatever their purpose, did they in truth associate the respondents with the firm so that they and it together thereafter carried on as co-owners a business for profit? The answer depends upon an analysis of these various provisions.

As representing the lenders, Mr. Peyton and Mr. Freeman are called trustees.” The loaned securities when used as collateral are not to be mingled with other securities of K. N. &'K., and the trustees at all times are to be kept informed of all transactions affecting them. To them shall be paid all dividends and income accruing therefrom. They may also substitute for any of the securities loaned securities of equal value. With their consent the firm may sell any of its securities held by the respondents, the proceeds to go, however, to the trustees. In other similar ways the trustees may deal with these same securities, but the securities loaned shall always be sufficient in value to permit of their hypothecation for $2,000,000. If they rise in price the excess may be withdrawn by the defendants. If they fall they shall make good the deficiency.

So far there is no hint that the transaction is not a loan of securities with a provision for compensation. Later a somewhat closer connection with the firm appears. Until the securities are returned the directing management of the firm is to be in the hands of John R. Hall, and his life is to be insured for $1,000,000, and the policies are to be assigned as further collateral security to the trustees. These requirements are not unnatural. Hall was the one known and trusted by the defendants. Their acquaintance with the other members of the firm was of the slightest. These others had brought an old and established business to the verge of bankruptcy. As the respondents knew, they also had engaged in unsafe speculation. The respondents were about to loan $2,500,000 of good securities. As collateral they were to receive others of problematical value. What they required seems but ordinary caution. Nor does it imply an association in the business.

The trustees are to be kept advised as to the conduct of the business and consulted as to important matters. They may inspect the firm books and are entitled to any information they think important. Finally they may veto any business they think highly speculative or injurious. Again we hold this but a proper precaution to safeguard the loan. The trustees may not initiate any transaction as a partner may do. They may not bind the firm by any action of their own. Under the circumstances the safety of the loan depended upon the business success of K. N. & K. This success was likely to be compromised by the inclination of its members to engage in speculation. No longer, if the respondents were to be protected, should it be allowed. The trustees, therefore, might prohibit it, and that their prohibition might be effective, information was to be furnished them. Not dissimilar agreements have been held proper to guard the interests of the lender.

As further security each member of K. N. & K. is to assign to the trustees their interest in the firm. No loan by the firm to any member is permitted and the amount each may draw is- fixed. No other distribution of profits is to be made. So that realized profits may be calculated the existing capital is stated to be $700,000, and profits are to be realized as promptly as good business practice will permit. In case the trustees think this is not done, the question is left to them and to Mr. Hall, and if they differ then to an arbitrator. There is no obligation that the firm shall continue the business. It may dissolve at any time. Again we conclude there is nothing here not properly adapted to secure the interest of the respondents as lenders. If their compensation is dependent on a percentage of the profits still provision must be made to define what these profits shall be.

The indenture ” is substantially a mortgage of the collateral delivered by K. N. & K. to the trustees to secure the performance of the agreement.” It certainly does not strengthen the claim that the respondents were partners.

Finally we have the option.” It permits the respondents or any of them or their assignees or nominees to enter the firm at a later date if they desire to do so by buying 50 per cent or less of the interests therein of all or any of the members at a stated price. Or a corporation may, if the respondents and the members agree, be formed in place of the firm. Meanwhile,. apparently with the design of protecting the firm business against improper or ill-judged action which might render the option valueless, each member of the firm is to place his resignation in the hands of Mr. Hall. If at any time he and the trustees agree that such resignation should be accepted, that member shall then retire, receiving the value of his interest calculated as of the date of such retirement.

This last provision is somewhat unusual, yet it is not enough in itself to show that on June 4, 1921, a present partnership was created nor taking these various papers as a whole do we reach such a result. It is quite true that even if one or two or three like provisions contained in such a contract do not require this conclusion, yet it is also true that when taken together a point may come where stipulations immaterial separately cover so wide a field that we should hold a partnership exists. As in other branches of the law a question of degree is often the determining factor. Here that point has not been reached. (Cox v. Hickman, [1860] 8 H. L. Cas. 267, 268; Mollwo, March & Co. v. Court of Wards, [1872] L. R. 4 P. C. App. 419; Badeley v. The Bank, [1888] L. R. 38 Ch. Div. 238; Matter of Young, [1896] 2 Q. B. 484; King & Co. v. Whichelow, [1896] 64 L. J. Q. B. 801; Giles v. Vette, 263 U. S. 553; Matter of Hoyne, 277 Fed. Rep. 668, 669; Petition of Williams; 297 Fed. Rep. 696; Eastman v. Clark, 53 N. H. 276; Thillman v. Benton, 82 Md. 64; Boston & Colorado Smelting Co. v. Smith, 13 R. I. 27; Austin, Nichols & Co. v. Neil, 62 N. J. L. 462.)

The judgment appealed from should be affirmed, with costs.

Cardozo, Ch. J., Pound, Crane, Lehman, Kellogg and O’Brien, JJ., concur.

Judgment affirmed, etc.