Hudson Boulevard East Land Corporation owed defendant $15,000 for professional engineering services. It had planned to erect a building on a parcel of land which it owned in West New York, New Jersey. As was stated by the trial court:
During the option period, instead of developing this land through the corporation, plaintiff arranged to resell it to another developer for $350,000 and a 49% equity interest in himself, and he thereupon exercised his option which placed him in position to become sole stockholder of the corporation. Upon acquiring the shares of the other stockholders, and taking their general releases to the corporation and himself, plaintiff came into position where he could deal with the property of the corporation as though it were his own, subject to rights of creditors and of the public (Diamond v. Diamond, 307 N.Y. 263; Kent v. Quicksilver Min. Co., 78 N.Y. 159).
He chose to depart from the method of development of this land in New Jersey which had been contemplated by the terms of the option under which the other shareholders including defendant agreed to sell him their stock, by causing the land to be transferred to him and then to the other developer instead of having the Hudson corporation itself build upon the land. This change in plan frustrated the provision made in the option agreement for the payment to defendant by the corporation of its
Defendant foresaw what plaintiff was about to do and prevented it before it occurred. He was himself a shareholder as well as a creditor of the Hudson corporation, and a signer of this option agreement. When his turn came to transfer his shares to plaintiff, and deliver his general release to plaintiff and the corporation, he pointed out that, in view of the conveyance of this land through plaintiff to the other developer, the Hudson corporation would be left without funds to pay its indebtedness to him of $15,000, which the option agreement had provided would be paid within 10 days following the first advance of mortgage funds following commencement of construction by Hudson of a building on the land. He refused to transfer his stock to plaintiff, or to release plaintiff and the corporation in the light of this departure from the program of the option agreement, unless plaintiff personally paid to him this debt of the Hudson corporation. Plaintiff did so by delivering to defendant $10,000 in cash and his note for the balance of $5,000. Defendant thereupon transferred his shares to plaintiff for the price stated in the option, and delivered to plaintiff his general release running to plaintiff and the corporation. Plaintiff now sues defendant for the return of this $10,000 and the cancellation of his note for $5,000 upon the theory that they were exacted from him by the defendant by means of duress, which would, as defendant foresaw, leave him without means of collecting his $15,000 debt from the corporation.
That is not this situation. It was not duress but simple justice for defendant to insist upon payment by plaintiff of the $15,000 indebtedness of the corporation to defendant, as a condition of transferring his stock and giving the general release, in view of plaintiff's announced intention of abandoning the procedure provided by the option agreement, which threatened to render and did render the Hudson corporation judgment proof through the transfer of its assets to plaintiff and by plaintiff to the other developer. Defendant had the right to insist upon performance of the option agreement according to its terms if he were to be obliged to sell and transfer his stock and give a general release. He was not seeking a windfall but was endeavoring to protect himself against the crafty contrivance of plaintiff, who sought to lay hands on the entire profit from the sale of this real property of the corporation without making the provision contemplated for the payment of its indebtedness to defendant. Plaintiff has even argued that defendant, in effect, cancelled this indebtedness from the corporation and is never entitled to be paid, on the theory that by signing the option agreement defendant changed his position from an absolute creditor of the corporation to a contingent creditor, contending that the option agreement provides that defendant is never to be paid unless the Hudson corporation obtains a building loan on this real estate in New Jersey, which plaintiff has rendered it powerless to do.
Defendant would have been entitled under the language of the option agreement to have insisted that this real property be held by the corporation for the construction of the contemplated buildings. That being so, he had the right to insist upon payment by plaintiff as a condition of letting plaintiff deal with the corporate property as though it had been his own. He abandoned the right to object, on payment of this indebtedness by plaintiff. Having thus obtained the stock and general release from the defendant, plaintiff now seeks to annul the payment on the basis of which it was done. The law contemplates fair dealing and not its opposite. Persons invoking the aid of contracts are under implied obligation to exercise good faith not to frustrate the contracts into which they have entered. The rule is grounded in many cases that in every contract there is an implied undertaking on the part of each party that he will not intentionally and purposely do anything to prevent the other party from carrying out the agreement on his part (Patterson v. Meyerhofer, 204 N.Y. 96, 100-101; Matter of Casualty Co. [Bliss Co. Claim], 250 N.Y. 410, 419; Amies v. Wesnofske, 255 N.Y. 156, 162-163; Wagner v. Derecktor, 306 N.Y. 386, 391). In suing for duress, plaintiff charges defendant with bad faith in refusing to sell and transfer his stock and give a general release in accordance with the terms of the option; upon the other hand, and more convincing, we think, is the circumstance that defendant manifested no unwillingness to do that if plaintiff were to have had the Hudson corporation continue with the development of this real property, as the option agreement contemplated, instead of rendering the corporation a hollow shell by the transfer to him of its real property, so that he could profit exclusively by its sale without leaving anything in the corporation to defray its admitted indebtedness to defendant, and even then contending that this choice of procedure on plaintiff's
The judgment of the Appellate Division should be reversed and that of Trial Term reinstated, with costs in this court and in the Appellate Division.
Judgment reversed, etc.