
    PETER C. ANTHONY, Plaintiff and Respondent, v. ASHER D. ATKINSON, Defendant and Appellant.
    
      [Decided March 5, 1870.]
    In an action to compel the specific performance of a written contract to transfer shares of stock of a corporation, it is competent to show by parol that the contract, although purporting on its face to be a sale, was, nevertheless, intended as a mere security for the payment of a sum of money.
    Such at least is the rule in equity. The rule at law is otherwise, and parol evidence is inadmissible to vary a written instrument or explain its meaning, if it is free from ambiguity.
    Before Monell, Jones, and Spencer, JJ.
    Appeal from a judgment.
    The action was to compel the performance of the following agreement, assigned to the plaintiff.
    “New York, March 1,1865.
    “ For value received, I hereby agree, on the payment of a certain promissory note; drawn by Lemuel Arnold, dated December 24, 1864. four months after date, for five thousand six hundred and sixty-six 10-100 dollars, to transfer to the said Lemuel Arnold, or to his order, eight thousand five hundred and eighty-five shares of the capital stock of the Sherman and Barnsdale Oil Company of New York, and to deliver to said Arnold scrips of said stock, as he may desire, and to indorse such payments on his note as he may from time to time desire to pay at the rate of one 50-100 dollars per share.
    “ (Signed) Asher D. Atkinson.”
    The plaintiff averred a tender of the amount due on the promissory note, a demand for the stock, and a refusal to deliver.
    The defense was, that the sum represented by the promissory note was a loan from the defendant to the plaintiff’s assignor, and that the stock was a pledge to secure the loan.
    
      The answer further alleged that, upon maturity of the note and after demand of payment, the defendant, upon due notice to the plaintiff’s assignor, sold the shares of stock, realizing a sum less than the amount due on the note.
    On the trial before Judge McCunn without a jury, the defendant, in support of his defense, offered to prove that the stock was pledged to the defendant by the plaintiff’s assignor to secure money advanced by the former to the latter to pay the latter’s subscription to the capital stock of the oil company.
    Which offer was excluded by the court, and the defendant excepted.
    It was proved that at the maturity of the note its payment was demanded and refused, and at the same time a return of the stock offered.
    An offer to prove notice to the plaintiff’s assignor of the time and place of sale of the stock was also excluded, and the defendant excepted.
    Judgment was rendered against the defendant, from which he appealed.
    
      Mr. James Emott for appellant.
    The issue between the parties, made by the plaintiff, was whether the transaction in March, 1865, between Atkinson and Arnold was a loan and a pledge, or a sale. Defendant alleged and offered to prove that he did not sell or agree to sell this stock to Arnold, but that he lent him money and received this stock in pledge to secure it.
    There was nothing in this inconsistent with the agreement signed by the defendant in 1865. That was an agreement by Atkinson to do exactly what, as pledgee, he was bound to do in payment of the note for which he held the pledge.
    Defendant offered to show the history of these shares of stock from their inception—that Arnold subscribed for them and was their original owner—that defendant lent and advanced the money to him to pay his subscription—that they were never defendant’s, so that he could not have sold or agreed to sell them, but were held by him to secure the money he advanced to Arnold —and that the title to the shares was taken to him, by Arnold’s request, for his security.
    Defendant offered to prove that Arnold was elected and acted as trustee on this very stock, and joined in agreements with the other stockholders.
    There was no legal ground whatever to exclude all or any of this evidence.
    The note spoken of in the written memorandum of March 1, 1865, was dated December 24,1864, at five months. It was therefore an existing debt to defendant by Arnold when this paper was signed, and not the purchase-money of stock then sold him.
    It was proved that when this note matured, and afterwards, payment was demanded and the stock was tendered. Payment was not made nor the stock accepted—and Mr. Arnold had become in default and forfeited his contract and rights when he undertook to assign it.
    Defendant should have been permitted to prove that he notified Arnold that in default of payment he should sell the stock, and that he did sell it at the day and place named in the notice, fairly at public auction.
    Even if this was not a transaction of loan and pledge, but a sale or agreement for a sale, in which defendant was vendor and Arnold vendee, upon his making default and failing to pay the price when due and demanded, and to accept the article when tendered, he had a right to close the transaction by selling the property for his account (Pollen v. Leroy, 30 N. Y., 549; Sands v. Taylor, 5 J. R., 395; Bennet v. Smith, 15 Wend., 493; Crooks v. Moore, 1 Sand. S. C. R., 297; Laird v. Pim, 7 M. & W., 478; Barren v. Arnaud, 8 Q. B., 604; Blackburn on Sales, 325; Sugd. Vend., 39; Benj. on Sales, 588, 590, 594).
    Even on the theory of the plaintiff, therefore, the evidence which defendant offered should have been received.
    The tender proved by the plaintiff was insufficient, because it was conditional.
    
      The rule of damages adopted by the judge was erroneous. The plaintiff cannot have the highest price of the stock, fixing it at a certain time, and also dividends made afterwards.
    
      Mr. Levi S. Chatfield for respondent.
    The contract relied on was in writing, was clear and specific in its terms, and was for the absolute transfer of 8,585 shares of the stock above mentioned whenever Arnold should pay a note to Atkinson of $5,666.10. No time or place of performance was specified. The stock was contracted as Atkinson’s stock, and he agreed to transfer it to Arnold or his order whenever the money should be paid. There is no intimation on the face of the contract, that the stock had been pledged to Atkinson, that it was stock which Arnold had subscribed for, or stock that he had had any connection with.
    It is respectfully insisted that this contract could not be turned into a pledge or security contract by parol, and that all the evidence offered tending to that result was properly rejected.
    Extrinsic evidence cannot be received to contradict, vary, or add to an instrument in writing, but only to explain and elncidate it, and this only in case of ambiguity appearing on the face of the instrument (Jackson v. Sill, 11 John., 201; Erwin v. Saunders, 1 Cow., 249; Norton v. Woodruff, 2 Coms., 153; 3 Hill, 171; 24 Wend., 419).
    If there be no latent ambiguity in the contract, subsequent acts of the parties, like parol evidence, are inadmissible to give it a construction (Lawber v. Le Roy, 2 Sand., 202).
    When no trust appears upon the face of the deed, oral evidence is not admissible to engraft a trust upon it; and so of every condition not made a part of the deed (Movan v. Hayes, 1 John. Ch., 339; McCurtie v. Stevens, 13 Wend., 528).
    But a tender and demand would be just as valuable to the defendant as a sale on Arnold’s account.
    Exit no proper or available demand and tender was ever made. Atkinson says he demanded payment and offered to transfer the stock. He does not pretend that he had the stock then and showed it to Arnold. This he was obliged to do, for Arnold had a right to know that what was offered was the stock of this company and was properly transferred on the books. Until this was done he was not obliged to pay his money. Arnold denies this. He says no stock was ever offered to him by Atkinson. He did ask him to pay the note, but offered him no stock. It became a question of fact whether this demand and tender was ever made, and it has been found in favor of the plaintiff, and that finding cannot be disturbed on appeal.
    It is claimed that the plaintiff’s tender was insufficient because it was conditional. How conditional ? By the terms of the contract an offer of the money for the notes was all that was necessary. If that was done, that was enough.
   By the Court:

Monell, J.

As the exclusion of the evidence offered by the defendant to show the nature of the transaction between the parties was, as it appears to me, so clearly erroneous that the judgment must be reversed and a new trial had, I do not propose to examine any of the other exceptions taken by the defendant.

It is to be presumed that the decision of the learned judge, in rejecting the evidence offered, was upon the ground that such evidence would contradict or vary the written agreement; and as the written contract was free from ambiguity, such evidence could not be used to elucidate or explain it. Such undoubtedly is the rule at law, and had this been an action to recover damages for a non-performance of the contract, it might be that the rule would have been properly applied (Webb v. Rice, 6 Hill, 219).

The rule in equity, however, is otherwise; and it may be considered as settled that, in equity, parol evidence is admissible to show that any instrument, although absolute as a sale (and whether with or without a seal), was intended by the parties as a mere security; and upon showing such to be the nature of the instrument, it loses its characteristics of a sale, and becomes subject to all the rules applicable to a pledge (Despard v. Walbridge, 15 N. Y. R., 374).

All the cases cited by the respondent’s counsel were actions at Tcm, and arose chiefly before the adoption of the present Code of Procedure, allowing equitable defenses to be set up to strictly legal causes of action.

In these cases the rule at 1cm was applied, and the parol evidence was held to be inadmissible. Before the union of law and equity in one tribunal, and until the adoption of the Code, it could not be set up as a defense to an action at law that a contract absolute in its terms was intended to be a security. Hence it was necessary to go into equity for the relief. Under the Code, however, such equitable defense can be interposed in any action.

The case at bar relieves the question of all difficulty. The action is for a specific performance of a contract, therefore an action in equity, to which must be applied equitable rules.

The case of Despard v. Walbridge (supra) was an action to recover for use and occupation by the assignee of the lessor. An offer to prove by parol that the assignment, although absolute in its terms, was intended as a security merely, was rejected, and the rejection held to be erroneous. The distinction between the rule at law and in equity is stated, and the admissibility of such evidence under the Code, when the facts are set up as an equitable defense, is authoritatively determined (See also Hutchins v. Hebbard, 34 N. Y. R., 24).

The judgment must be reversed and a new trial ordered, with costs to the appellant, to abide the event.  