Reiss v. FIN PERFORMANCE CORP

• Decision Date: 18 December 2001
• Citation: 97 N.Y.2d 195,764 N.E.2d 958,738 N.Y.S.2d 658
• Parties: MARVIN M. REISS et al., Appellants, v. FINANCIAL PERFORMANCE CORPORATION, Respondent.
• Court: New York Court of Appeals Court of Appeals

97 N.Y.2d 195

764 N.E.2d 958

738 N.Y.S.2d 658

MARVIN M. REISS et al., Appellants, v. FINANCIAL PERFORMANCE CORPORATION, Respondent.

Court of Appeals of the State of New York.

Argued October 17, 2001.

Decided December 18, 2001.

Joseph M. Weitzman, New York City, and Howard L. Mann for appellants.

Kaufman Friedman Plotnicki & Grun, L. L. P., New York City (Howard Grun of counsel), for respondent.

Chief Judge KAYE and Judges LEVINE, CIPARICK, WESLEY, ROSENBLATT and GRAFFEO concur.

OPINION OF THE COURT

SMITH, J.

The issue here is whether warrants to purchase shares of stock of defendant corporation must be adjusted in light of a reverse stock split authorized by defendant corporation after plaintiffs received warrants. We answer that question in the negative.

Shortly after September 30, 1993, in partial repayment of a loan, defendant authorized the issuance of warrants enabling plaintiff Rebot Corporation to purchase up to 1,198,904 shares of defendant's common stock for 10 cents per share until September 30, 1998. Defendant also issued warrants to plaintiff Marvin Reiss, in recognition of his services to defendant as a director of the corporation, entitling him to purchase 500,000 shares of common stock at 10 cents per share until August 31, 1998. Although a warrant issued earlier, on September 1, 1993, to Robert S. Trump was accompanied by a warrant agreement providing for a reverse stock split, no other agreement accompanied the authorization of the plaintiffs' warrants. Thus, the warrants given to Rebot and Reiss, unlike the warrants given to Trump, did not incorporate the warrant agreement provisions requiring adjustment in the event of a reverse stock split.

In 1996, defendant's shareholders approved a one-for-five reverse split of its common stock, and, as a consequence, each stockholder owned one-fifth of the original number of shares with the value of each share increased fivefold. In 1998, Rebot and Reiss sought to exercise a portion of their warrants, claiming that in accordance with the terms of the agreement, they were entitled to buy all of the stock specified in the warrants at 10 cents per share, without adjustment to reflect the reverse stock split. Defendant rejected the request. Plaintiffs thereafter initiated this action, seeking a declaratory judgment permitting the exercise of their warrants to purchase the full number of shares stated in the warrants at 10 cents a share. Plaintiffs also sought extension of the expiration dates of the warrants.

Supreme Court denied injunctive relief and dismissed the action. A divided Appellate Division modified by declaring judgment in defendant's favor. Relying on Cofman v Acton Corp. (958 F2d 494 [1st Cir 1992]), the Appellate Division held that an essential term of the contract was missing and, according to its determination of the intent of the parties, supplied a term providing for adjustment of the number of shares stated in the warrants. The Appellate Division also found that plaintiffs' claim for reformation of the expiration date to dates in late 2000 was without merit. We now modify to reinstate the first cause of action for declaratory relief.

Duly executed stock warrants are contracts entitling the holder to purchase a specified number of shares of stock for a specific price during a designated time period. Here, the warrants are enforceable according to their terms. They have all the material provisions necessary to make them enforceable contracts, including number of shares, price, and expiration date, and were drafted by sophisticated and counseled business persons. As this Court stated in W.W.W. Assocs. v Giancontieri, "when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms" (77 NY2d 157, 162 [1990]; see also, Breed v Insurance Co., 46 NY2d 351, 355 [1978]

).

Haines v City of New York (41 NY2d 769 [1977]) is instructive. Haines involved an agreement between the City, the Town of Hunter and the Village of Tannersville under which the City assumed "all costs of construction and subsequent operation, maintenance and repair" of a sewage system and agreed to extend the sewer lines to accommodate the growth of the respective communities (id., at 770). From time to time, the City fulfilled its obligations under the contract. Fifty years after the contract agreement, the system reached full capacity and the City refused to grant the plaintiff permits for connections to its sewer lines on the ground that it had no obligation to further expand the plant or build a new one to accommodate additional development.

The agreement was silent as to the City's obligations in the event that the municipalities' usage exceeded the capacity of the plant which the City agreed to build. The municipalities, which had intervened in the plaintiff's action against the City, requested that the Court imply a term to the agreement to address this uncovered contingency by requiring the City to expand the sewage plant or construct new facilities to accommodate the new property development. The Court, however, declined to imply such a term where the contingency was clearly foreseeable by the municipalities, holding that "the contract does not obligate the [C]ity to provide sewage disposal services for properties in areas of the municipalities not presently served or even to new properties in areas which are presently served where to do so could reasonably be expected to significantly increase the demand on present plant facilities" (id., at 773). At the very least, Haines stands for the proposition that this Court will not imply a term where the circumstances surrounding the formation of the contract indicate that the parties, when the contract was made, must have foreseen the contingency at issue and the agreement can be enforced according to its terms (see also, Rowe v Great Atl. & Pac. Tea Co., 46 NY2d 62, 72 [1978]

).

That the warrants do not address the contingency of a reverse stock split does not, of itself, create an ambiguity. "An omission or mistake in a contract does not constitute an ambiguity [and] * * * the question of whether an ambiguity exists must be ascertained from the face of an agreement without regard to extrinsic evidence" (Schmidt v Magnetic Head Corp., 97 AD2d 151, 157 [1983]). "[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous on its face" (W.W.W. Assocs., supra, at 163, quoting Intercontinental Planning v Daystrom, Inc., 24 NY2d 372, 379 [1969]). Even where a contingency has been omitted, we will not necessarily imply a term since "`courts may not by construction add or excise terms, nor distort the meaning of those used and thereby "make a new contract for the parties under the guise of interpreting the writing"'" (Schmidt, supra, 97 AD2d, at 157, quoting Morlee Sales Corp. v Manufacturers Trust Co., 9 NY2d 16, 19, [1961]). Although defendant claims that to enforce the terms of the warrants creates a windfall for plaintiffs, the record evidences that the parties may have...