Pee Curiam.
¶1
Save as presently stated, the judgment under review will be affirmed, for the reasons expressed in the memorandum delivered by Circuit Court Judge Ackerson.
¶2
In reaching the stated result, we do not, under the circumstances exhibited, find it necessary to express, and we do not express, any opinion as to whether respondent did or did not
*365
have the right to pay the full purchase price ($25,000) for the stock at any time he elected without waiting to pay it, as provided, in installments, or whether respondent did or did not have the right (had he asserted it) to accelerate the payment of the agreed installments of the purchase price.
¶3
Judgment is affirmed, with costs.
¶4
For affirmance
— The Chancellor, Chief Justice, Parker, Case, Bodine, Donges, Heher, Pebskie, Porter, Colie, Dear, Wells, WolfsKeil, Rafferty, Hague, Thompson, JJ. 16.
¶5
For reversal
— None.
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Case posture Posture On appeal from a judgment of the Supreme Court affirming an order entered by Circuit Court Judge Henry Ackerson, Jr., sitting as a Supreme Court Commissioner, striking the complaint on the ground that it did not set forth a cause of action. Judge Ackerson filed the following memorandum not reported:
Defendant moves to strike the complaint herein as sham and not setting forth a cause of action in favor of plaintiff or her assignor under the guaranty agreement upon which it is based.
By this agreement of guaranty, a copy of which is attached to and made a part of the complaint, defendant agrees `that during the existence of a certain option agreement concerning the right to purchase five hundred shares of stock of Kraeuter Company, Inc.,' by defendant from plaintiff's assignor and another, `he' (the defendant) `will * * * guarantee to the party of the second part' (plaintiff's assignor) `the payment of a salary of seventy-five dollars per week by each' of two corporations to one Arthur A. Kraeuter, and that if said corporations default, defendant will, within seven days thereafter, pay said total weekly salary of one hundred and fifty dollars to plaintiff's assignor during said period.
The complaint asserts that said weekly salary was not paid from September 15th, 1934, to January 14th, 1939, during which period it is claimed said option agreement was in existence, because, although the option had been exercised, payments of installments of the purchase price were still being made according to the terms of payment therein specified, and claim is, therefore, made upon defendant for $33,900.
The validity of this complaint depends upon the meaning of the aforesaid phrase `during the existence of a certain option agreement' as applied to said weekly salary. If it means the period between the date of the agreement granting the option on March 24th, 1933, and the payment of the last installment of the purchase price for said stock, then it is conceded that no salary payments were made after the option was exercised by paying the first installment of the purchase price on September 6th, 1934. If, on the other hand, it means the period intervening between the granting of the option and the exercise thereof on September 6th, 1934, as aforesaid, then it is conceded that full payment of said salary has been made and the complaint must fall.
An option is a continuing offer upon a sufficient consideration. So long as it remains unaccepted it is a unilateral writing lacking the mutual elements of a contract, but when accepted an executory contract arises mutually binding upon the parties. The distinguishing characteristic of an option
is that it imposes no binding obligation upon the person holding the option, aside from the consideration for the offer; but when the option, i.e. , the continuing offer is accepted it ceases to be an option and becomes a mutually binding agreement of sale. 12 Am. Jur. 525 , § 27.
From a technical standpoint, therefore, it would seem that the period contemplated by the phrase, `during the existence of a certain option agreement,' would end upon the acceptance of the continuing offer comprehended in the option which then ripened into a mutually binding agreement of sale, and this transformation, according to the terms of the option, occurred when the first installment of the purchase price was paid on September 6th, 1934.
A practical interpretation of this phrase will also lead to the same result. It appears that the so-called option contract and the separate guarantee in question were both executed on the same day and as part of the same transaction, in fact there are mutual references contained in each of them. Hence in determining the meaning to be given to the above quoted phrase, recourse may be had to the well recognized rule, that where several instruments are made as part of one transaction, relating to the same subject-matter, they may be read together as one instrument, and the recitals in one may be explained or limited by reference to the other. This rule obtains even when the parties are not the same, if the several instruments were known to all the parties and were delivered at the same time to accomplish an agreed purpose. Peterson v. Miller Rubber Co. , 24 Fed. Rep. (2 d ) 60 (N.Y.), and cases cited; 13 C.J. 528 , § 487, and cases cited; 12 Am. Jur. 781 , § 246; Newark Finance Corp. v. Acocella, 115 N.J.L. 388 .
Applying this method of construction we find that copies of the instrument containing the option here involved are set forth in affidavits of both parties and there seems to be no dispute as to the correctness thereof. By its terms the defendant is given an option to purchase 500 shares of Kraeuter Company, Inc., stock for $25,000. It is provided that `this option shall expire eighteen months from the date hereof.' This undoubtedly fixes the life of the option part of this
agreement. The provisions for the payment of the purchase price in the event of the exercise of the option within the time specified are set forth in a separate part of the instrument as follows: `The purchase price of twenty-five thousand dollars, in the event such option is exercised, shall be payable * * * as hereinafter set forth: $2,500 upon the exercise of said option; $2,500 within six months thereafter; $5,000 within one year thereafter,' c., until the full purchase price is paid. When the option was exercised this provision automatically became a part of a mutually binding sales agreement, as distinguished from the option which then automatically terminated. Hence we have in the one instrument an option agreement and a potential sales agreement.
In the seventh paragraph of the instrument containing the option we find it provided that: `the continued existence of this option for the period named herein' (18 months) `shall be expressly conditional upon the performance by the party of the second part of a certain agreement under the terms of which he is to guarantee' to defendant, `the payment of a total weekly salary of one hundred and fifty dollars * * * to Arthur A. Kraeuter, and in the event that said weekly sum is not paid * * *, then the parties of the first part shall have the right to cancel and terminate the within option upon notice,' c. (Italics throughout this memorandum are mine.) This is a fairly clear indication that the weekly salary is to be paid only during the period that the option remains open, especially since no special remedy is provided for a default after the option has been exercised, as in the case of defaults in the payment of insurance premiums and interest on policy loans during the year 1934 provided for in other parts of this instrument and in the separate guaranty next to be considered.
The separate guaranty here sued upon provided for payment by the defendant of insurance premiums on policies on the life of said Arthur A. Kraeuter, and interest on policy loans as same fall due `during the year 1934.' Hence we have a definite period during which such payments are to be made. Yet, realizing that the option might be exercised before the end of that definite period the parties provided
that in case of default in making such payments, the party of the first part (plaintiff) `may cancel the option agreement of even date herewith, if the same had not been exercised by that time, and if said option had been exercised,' said party, `shall have the same right as if default had been made * * * in the payments under said option,' i.e. , retention of the stock and the payments made on account thereof in full satisfaction of all liability, or sale of the stock and suit for any deficit. Here we see that, although a definite period is fixed during which the payment of insurance premiums and interest on policy loans were to be made, nevertheless a definite distinction is made between the option and the agreement of sale resulting from the exercise thereof with respect to the remedies given for a default. Yet no such distinction is made with respect to the weekly salary payments. The only remedies given for a default in such payments is to `cancel and terminate the within option upon notice,' or to sue for a breach of the guaranty agreement. No special remedy is given for a default occurring after the option has been exercised, such as to retain the stock and the payments made on account thereof in satisfaction of all liability, or to sell the stock and sue for any deficit. All of which is strongly indicative that the weekly salary payments were to be made only so long as the option remained unexercised or unexpired.
The plaintiff in support of her claim for $33,900, designated as unpaid salary — a sum much in excess of the stated purchase price of the stock itself, argues that the weekly salary was really intended to be a part of the purchase price of the stock. But this contention falls of its own weight when we consider that the defendant could have exercised his option to purchase the stock for $25,000 the very day it was given, in which event he had the right under his agreement to pay the full purchase price of $25,000 at once, without waiting to pay it in installments, thus depriving the said Arthur A. Kraeuter, or plaintiff's assignor, of any salary benefit whatsoever. This eventuality is due to the fact that the agreement for the option provides for the payment of the purchase price of the stock as follows: `$2,500 upon the exercise of said option; $2,500 within six months thereafter;
$5,000 within one year thereafter; $5,000 within two years thereafter; $5,000 within three years thereafter; $5,000 within four years thereafter.' The word `thereafter' as here used, of course, refers in each instance to a time dating from the exercise of the option by the payment of the first installment of the purchase price, which in this case was on September 6th, 1934, and the word `within' as used in each instance means any time whatever between such first payment and the end of the specified period after such first payment. So, although defendant could not have been called upon to accelerate the payment of the installments of the purchase price, he, nevertheless, had the right to do so if he so desired. Had he so desired, he could have effectively relieved himself of the payment of any salary whatsoever by paying the full $25,000 immediately after the agreement for the option was signed. On the other hand, he could have exercised his option eighteen months after the signing of the agreement therefor, and then extended the payment of that sum over a period of four years from the date of the exercise of said option, in which event, if the theory of the plaintiff's claim is correct, the defendant would have been compelled to pay by way of weekly salary the sum of $42,900 — almost double the specified purchase price. Is it likely, if the stock was worth so much more than the specified purchase price of $25,000 that the plaintiff's assignor would have left it entirely within the power of the defendant to have purchased it at once for such a grossly reduced sum? The question, of course, suggests the answer. Normal people do not bargain that way.
This provision for a weekly salary was undoubtedly inserted for an entirely different purpose, and the reason for it becomes clear when we notice that defendant is given an irrevocable proxy to vote the stock in question immediately upon the signing of the agreement containing the option instead of from the time the option might be exercised. This gave defendant immediate and complete control of the stock for all corporate purposes during the entire period of the option, which might extend for the full eighteen months, without binding the defendant to purchase same at the end of that period. It was to compensate for this valuable privilege
during this possible long period of uncertainty, that the weekly salary was provided for, as otherwise the defendant would have had it without paying anything directly to the individuals concerned, except perhaps the insurance premiums and interest on policy loans hereinbefore referred to. Of course, upon the exercise of the option by the payment of the first installment of the purchase price with interest on installments thereafter falling due, there would undoubtedly be sufficient protection for the surrender of control from that point on until the last installment of the purchase price was paid as the defendant would then be bound to complete the purchase or be answerable in damages for any default.
Furthermore that part of the agreement concerning the giving of the irrevocable proxy provides that it is `to continue so long as the within option remains in existence , and if the option is exercised, then this proxy or a renewal or renewals thereof shall be executed,' c. Here again we find the distinction made between the option agreement and the sales agreement which results from the exercise of the option, which distinction runs throughout the instruments involved.
In view of what has been said, my conclusion is that the complaint is sham and does not set forth a cause of action in favor of the plaintiff or her assignor under the guaranty agreement which is the subject thereof.
A form of order may be presented in accordance with the conclusion thus reached. Source: CourtListener
