| Eitan Ventures, LLC v Peeled, Inc. |
| 2012 NY Slip Op 03085 [94 AD3d 614] |
| April 24, 2012 |
| Appellate Division, First Department |
| Eitan Ventures, LLC, Appellant, v Peeled, Inc., et al.,Respondents. |
—[*1] Epstein Becker & Green, P.C., New York (Barry A. Cozier of counsel), forrespondents.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered January 13, 2011,which insofar as appealed from as limited by the briefs, granted defendants' motion for summaryjudgment dismissing the causes of action for breach of contract and fraud, unanimously affirmed,without costs.
In May 2007, plaintiff, a venture capital firm, invested $150,000 in defendant Peeled, Inc. Inconsideration of the payment, Peeled executed and delivered an interest-bearing promissory noteand the parties entered into a related convertible debt agreement. The note provided that "allprincipal and accrued interest" was to become due and payable in a lump sum on December 31,2009 "[u]nless converted prior thereto as provided in the [agreement]." Both the note and theagreement provided that Peeled could prepay part or all of its debt if plaintiff agreed to it.
The agreement contained two conversion provisions. Under the first, plaintiff had, "at anytime after the [note's] date of issuance," the right to convert "[t]he principal and interest payableunder the [n]ote" into shares of Peeled's common stock at a fixed price per share. Under thesecond conversion provision, the principal and interest payable under the note would"automatically" be converted upon the earliest of December 31, 2009 or a contemplatedtransaction which undisputedly never occurred.
The agreement contained other terms that are relevant here. It provided that, in the event of aconversion, plaintiff would deliver the note to Peeled for cancellation, and that the note wouldimmediately become null and void regardless of its delivery by plaintiff. Under anotherprovision, if there were any inconsistencies between the terms of the agreement and the note, thenote's terms would control.
About two weeks before the note's due date, plaintiff notified Peeled that it wanted to convertabout 26% of the total principal and accrued interest. Peeled refused to effect the partialconversion on the ground that the agreement only permitted the complete conversion of plaintiff'srights under the note. Instead, Peeled paid plaintiff the full amount of principal and interestowing under the note on the due date of December 31, 2009. Plaintiff accepted the paymentunder protest and then commenced this action.
The cause of action for breach of contract was properly dismissed. Plaintiff first claims thatPeeled breached the terms of the agreement by refusing to convert only a portion of the [*2]amount due under the note. However, the agreement cannot be readto provide for partial conversions. When construing a contract, the most important considerationis to give effect to the parties' intentions (Federal Ins. Co. v Americas Ins. Co., 258 AD2d39, 44 [1999]). To ascertain those intentions, a court should examine the contract as a whole andinterpret its parts with reference to the whole (see Kass v Kass, 91 NY2d 554, 566-567[1998]). Applying those basic principles, we find it evident that the parties did not intend thatplaintiff could choose to convert less than all of its rights under the note. Otherwise, the contractwould not have provided for the note's cancellation upon a conversion. If, as plaintiff claims, thecontract permitted it to convert only a portion of the amounts due under the note, that partialconversion would have nullified the remainder of Peeled's debt to plaintiff, and there is noevidence that plaintiff intended to forego repayment of the remainder.
As further proof that the contract does not provide for partial conversion, we note thedisparate treatment of Peeled's prepayment rights and plaintiff's conversion rights. While theinstruments explicitly provided that Peeled could make partial prepayments upon the parties'agreement, the contract makes no mention of partial conversions.
With respect to the breach of contract claim, plaintiff also claims that Peeled violated theagreement by paying off the note on December 31, 2009. Although the agreement also providedfor automatic conversion on that date, the agreement specifically provided that the note's termscontrolled in the event of inconsistency. Thus, it appears that the conversion was to occur only ifthe note was not paid off.
Finally, the fraud cause of action fails because Peeled fully repaid plaintiff's investment, withinterest, and accordingly, plaintiff sustained no out-of-pocket loss (see Lama Holding Co. vSmith Barney, 88 NY2d 413, 421 [1996]). Concur—Tom, J.P., DeGrasse, Freedman,Richter and Román, JJ.