In Part I (posted May 6, 2013), we explored how the general principles of New York law were formulated in the mid-to-late nineteenth century. In this Part II we review how the law was developed and applied to more complicated transactions in the twentieth century. In Part III, we will analyze how the law continues to be followed and applied in the current millennium.
In Part I, we reviewed the following Court of Appeals decisions: “Nevius v. Dunlap, 33 N.Y. 676 (1865); Story v. Conger, 36 N.Y. 673 (1867); Welles v. Yates, 44 N.Y. 525 (1871); Pitcher v. Hennessey, 48 N.Y. 415 (1872); Albany City Savings Institution v. Burdick, 87 N.Y. 40 (1881); Born v. Schrenkelsen, 110 N.Y. 55 (1888); and Christopher and Tenth Street Railroad Company v. The Twenty-third Street Railroad Company, 149 N.Y. 51 (1896).”
In Christopher and Tenth Street Railroad, the Court of Appeals affirmed and, in the process, summarized the law as the Nineteenth Century drew to an end:
To enable the plaintiffs to maintain this action, it was incumbent upon them to show that there was a mistake, that it was mutual and one made by all the parties to the agreement, so that the intention of neither was expressed. If it was such a contract as one of the parties intended to make and the one it understood the others also intended to make, the court had no power to reform it…as under such circumstances it would be making a new contract for the parties, and unjust to the ones who made no mistake. (Nevius v. Dunlap, 33 N.Y. 676; Story v. Conger, 36 N.Y. 673; Lyman v. The United Insurance Co., 17 Johns. 373.) In an action for the reformation of a written instrument upon the ground of mistake, the party seeing the reformation must prove that there was a mistake by evidence that is clear, positive and convincing. It is to be presumed that the written instrument was carefully and deliberately prepared and executed, and, therefore, is evidence of the highest character and will be regarded as expressing the intention of the parties to it until the contrary appears in the most satisfactory manner. The grade and degree of proof required to entitle a plaintiff to relief of this character has been many times considered by the courts of England, the Federal and the various state courts of the United States, and their decisions as to the nature of the proof required, show that it must be of the most substantial and convincing character.
In Salomon v. North British and Mercantile Insurance Company of New York, 215 N.Y. 214 (1915), plaintiff successfully sought to have reformed an insurance policy issued by defendant to provide that:
“The loss, if any, shall be payable to the plaintiff as mortgagee instead of providing, as in form it does, that the interest in the policy is vested in the plaintiff as owner and that the loss, if any, should be payable to Mayer Malbin and Israel Kammerman as mortgagees.
The Court of Appeals outlined the facts:
In August, 1097, Malbin and Kammerman assigned to the plaintiff the mortgage upon the insured premises and thereafter delivered to him the policy of insurance. The policy then insured Morris Weintraub and Abraham Penn as the owners of the premises and Malbin and Kammerman as mortgagees. The plaintiff gave the policy to his brokers or agents with instructions that they have the defendant make the loss, if any, payable to him as mortgagee. They wrote on the back of the policy that it should be changed so as to provide “interest vested in Morris Salomon, loss payable as heretofore,” and took the policy with such notation to and left it with the agents of the defendant for the purpose, which was carried out by the defendant, of having it changed. The defendant’s agents were given no instructions other than that of the notation. An indorsement was made on the inside of it, which read that the interest in the policy was vested in Morris Salomon, as owner, the loss, if any, payable as before, that is, to Malbina and Kammerman. The policy was thereafter returned to and placed in his safe by the plaintiff, who about one year later and after the loss had occurred saw or comprehended, for the first time, the error.
The Court of Appeals reversed and ordered a new trial, finding on the facts that:
It is not found or claimed that there was any fraud in the transaction between the parties. The evidence proves affirmatively and indisputably that there was not. The judgment must, therefore, if it is to remain, have as the basis that through a mistake mutual to the parties the policy insured Salomon as the owner of the premises instead of the holder of the mortgage lien upon them in the place of Malbin and Kammerman. The basis does not exist. The defendant did precisely what it intended and was instructed to do. It did not make any mistake. It understood and apprehended accurately and fully the instruction and direction given it and acted in strict conformity with them. It did not agree or intend to agree otherwise, and the policy, when re-delivered to the plaintiff, expressed precisely and completely the effect and obligations it understood and intended it should express. It cannot be changed as adjudged, or in any way, and express the understanding or contract or obligations which were in the mind of the defendant in changing the policy. It did not intend to insure an unnamed mortgagee or anyone who acquired the mortgage lien. The plaintiff so asserts, in effect, in asking that the policy should be changed and be now reformed. The fact that it intended to and did insure Malbin and Kammerman as mortgagees is not identical with or the equivalent of the intention to insure and the insurance of the plaintiff as mortgagee. The simple and clear truth is that the defendant intended to insure the plaintiff as owner and Malbin and Kammerman as mortgagees, and the plaintiff intended that it should insure Weintraub and Penn (or Penn) as owners and himself as mortgagee – intentions substantially and radically unlike.
And concluded on the law that:
The plaintiff was bound to prove that it was the intention of the defendant as well as of himself to have the policy read and stipulate as he seeks to have it. To warrant the reformation, the minds of the parties must have met in a contract and in the mistake through which it failed of expression. There being no fraud, the policy cannot be reformed if it expressed the intentions of the defendant only. The mistake which will permit a court of equity to reform a contract in writing in the absence of fraud must be one made by both parties to the agreement so that the intentions of neither are expressed in it. The mistake or each mistake must be shared in by both the parties. The courts cannot compel the defendant, or any party, to enter into or be bound by a contract which it never made (citations omitted).
In Susquehanna Steamship Company v. A.O. Andersen & Company, Inc., 239 N.Y. 285 (1925), an action brought upon a contract made by the owner of the steamship Lydia and defendant was embodied in two letters. Defendant insist[ed] that the contract “[was] misinterpreted when it [was] read as an assumption by the defendant of the obligations of the charterer.” The trial court ruled in the plaintiff’s favor and the Second Department affirmed.
The Court of Appeals (Cardozo, J.) initially noted that: “We agree with the courts below that if this was the meaning, there is no expression of it in the writing.”
The Court of Appeals nevertheless reversed and granted a new trial:
The plaintiff argues that the defense [of mutual mistake] is foredoomed to failure, and that any error in excluding evidence to support it is too technical and unsubstantial to lead to a reversal. We cannot say that this is so. There is some suggestion that the defendant’s letter as it stands is a departure from an earlier letter written by the defendant’s representative, who is said to have been hampered by an imperfect knowledge of the language. Even if he should be shown, however, to have written it himself, the right to reformation would not be lost if the true agreement of the parties was imperfectly expressed…These matters are for the trial. We may assume that the defendant will have no easy task in making proof of its defense. We are not at liberty for that reason to bar it from its day in court.
In Porter v. Commercial Casualty Insurance Company, 292 N.Y. 176 (1944), an action to recover disability benefits for a period exceeding fifty-two weeks under an accident insurance policy, the insurance company counterclaimed for reformation of the policy on the ground of mutual mistake in failing to limit the payments to fifty-two weeks. Special Term dismissed the counterclaim and the Second Department reversed. The Court of Appeals reversed the Appellate Division and affirmed the decision of Special Term:
In an action for the reformation of a written instrument upon the ground of mistake, the party seeking reformation must prove that there was a mistake by evidence that is clear, positive and convincing. It is to be presumed that the written instrument was carefully and deliberately prepared and executed and, therefore, is evidence of the highest character and will be regarded as expressing the intention of the parties to it until the contrary appears in the most satisfactory manner. We shall assume that the agent of the Company made a mistake and that the Company did not intend to extend payments for disability due to the occupational accident beyond fifty-two weeks. There is no evidence that the plaintiff was in any way mistaken in accepting a policy which gave her a more extended coverage. What the plaintiff sought, as is the case with the average insured, was the best and most extended coverage that she could obtain from the Company with which she was dealing.
* * *
There is nothing in the record to show that plaintiff had any knowledge that the policies issued under the plan were all limited to a period of fifty-two-weeks.
* * *
That is important because we have here a written agreement prepared by one party to it and accepted by the other. It was prepared by the one seeking its reformation. The Company assented to that agreement only after plaintiff had accepted in writing its offered phrasing and terms. That was the written statement of the Company’s intent. What is in the mind of parties to a contract is evidenced by word or deed and must be determined therefrom.
A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort. Of course, if it appear by other words, or acts, of the parties, that they attribute a peculiar meaning to such words as they use in the contract, that meaning will prevail, but only by virtue of the other words, and not because of their unexpressed intent.
In Amend v. Executors of Anna E. Hoffman, 293 N.Y. 587 (1944):
George J. Hoffmann died June 10, 1937, then being the owner and proprietor of a sugar-weighing business in the city of New York which he had operated successfully and with large profits for more than thirty years under the trade name and style of “George J. Hoffmann & Company”. For most of that time and at the time of his death, defendant was employed by Hoffmann on a yearly salary which included 37 ½% of the profits in the conduct of that business during the latter part of his employment. By the terms of his will, which was admitted to probate, Hoffmann left his whole estate to his wife, Anna E. Hoffmann, and named her executrix thereof. She qualified as executrix and acted in that capacity until her death which occurred on April 3, 1940. She left a will in which plaintiffs Amend and McNamara were named executors. They qualified as such upon the probate of her will and also were named administrators with the will annexed of her husband’s estate and have since been acting as such.
From the time of Hoffmann’s death, defendant actively sought to acquire and to operate his previous employer’s business for himself alone and demonstrated no intention to continue to operate it for the estate. Matters reached a point when, on July 12, 1937, Mrs. Hoffmann had a conference with him with reference to his continuance of the business in behalf of the estate and he then notified her, definitely for the first time, that he would not act as manager of the business but was interested only in acquiring the business as his own. He then offered to pay her 50% of the profits of the business provided he should become the owner and should be allowed to run it entirely by himself, she to have no other interest. No agreement was reached at that conference between the parties and from that time on negotiations were carried forward principally between Joseph A. McNamara, attorney for Mrs. Hoffmann individually and for her husband’s estate, and George W. Sheldon, a man of long practice and a member of one of the leading law firms of New York City, as attorney for Hurley.
A series of conferences and letters, proposals were exchanged between attorneys – Joseph A. McNamara (for Mrs. Hoffmann) and George W. Sheldon (for Hurley). A draft agreement from McNamara to Sheldon “contained eleven separately numbered articles”.
After editing the draft to his satisfaction, Sheldon returned it to McNamara. Every one of the articles contained some changes, deletions or additions in Sheldon’s handwriting in ink, or, in some cases, a rider was attached, affecting not only the form but the substance of the article to which the same was applicable. When returned, it evidenced extensive and exhaustive examination by Sheldon and care on his part for the utmost of protection of his client’s interests with carefully drawn provisions for his benefit which were not contained in McNamara’s draft. There was no evidence that he had missed any opportunity to drive a good bargain for his client. Among other things, he drew lines through the entire part of article X quoted above and wrote opposite that part of the draft on the margin in large letters the word “No” and heavily underscored it. He made changes in the clauses relating to life insurance designed to protect Mrs. Hoffmann against losses under the contract. Thereupon the draft with its changes was sent to McNamara who retyped it verbatim with all changes and additions made by Sheldon, except in three minor particulars which did not change the wording, substance or effect of article X as re-prepared by Sheldon. Otherwise, neither in punctuation, words nor substance did the retyped instrument vary in any particular from the draft as edited by Sheldon. McNamara then presented the completed contract to Mrs. Hoffmann who discussed it at length with her attorney. She was not satisfied with the changes regarding life insurance protection against the death of Hurley before July 1, 1945, but finally acceded to the changes made by Sheldon and executed the final draft in duplicate on July 28, 1937. The agreement so executed was then delivered to Sheldon who presented it to his client who signed it in duplicate and one of the duplicate copies was given to McNamara.
* * *
Both parties fully performed the contract, without objection or question by either, until the death of Mrs. Hoffmann. The business under Hurley’s operation continued to be profitable. Hurley, previous to her death, accounted for the profits and paid to Mrs. Hoffman from the profits some $20,634. After her death he refused to perform further and this action was thereupon brought for specific performance.
Hurley asserted “a mistake on the part of Sheldon and fraud on the part of McNamara”.
Defendant claimed that his attorney inadvertently and mistakenly struck out from the McNamara draft the first sentence of article X, that McNamara knew this was inadvertently stricken out and failed to correct the mistake on copying the agreement in final form or to notify Sheldon of his mistake and that he, Hurley, did not read the final agreement when he signed it relying on Sheldon’s statement that it was all right. Accordingly defendant has asked that the agreement be reformed so as to provide that it should terminate on the death of Mrs. Hoffmann.
After hearing testimony, the trial court “gave no credit to [Hurley’s] claim that the final written agreement did not express the true intention of the parties”.
The trial court found that the evidence established that there never existed any verbal agreement between the parties, that the draft by McNamara was satisfactory to Sheldon in neither form nor substance, that his counter-proposals were reflected in the changes, deletions and additions which he made to the McNamara proposal, that McNamara accepted the counter-proposals, and that there was no meeting of the minds of the parties or any term of agreement ever fixed until the formal written contract was executed.
The Second Department reversed (two Justices dissenting) and the Court of Appeals reversed the Appellate Division.
We find that the weight of the evidence sustained the findings of the trial court. Defendant was a business man of experience and competence and adept in the understanding and use of the English language. Not to have read the contract or to have it read to him before signing, if that be a fact as he testified, furnishes no basis for his repudiation of any of its terms…
Before defendant can be granted reformation, he must establish his right to such relief by clear, positive and convincing evidence. Reformation may not be granted upon a probability nor even upon a mere preponderance of evidence, but only upon a certainty of error (Christopher St. R. Co. v. 23d. St. R. Co., 149 N. Y. 51; Salomon v. North British & M. Ins. Co., 215 N.Y. 214; Susquehanna S.S. Co. v. Andersen & Co., 239 N.Y. 285; Porter v. Commercial Cas. Ins. Co. 292 N.Y. 176). The quality of the evidence in this case does not meet that test. Nor may the defendant secure reformation merely upon a showing that he or his attorney made a mistake. In the absence of fraud, the mistake shown “must be one made by both parties to the agreement so that the intentions of neither are expressed in it” (Salomon v. North British & M. Ins. Co., supra, p. 219). The court may not compel the plaintiffs to be bound by a contract which their principal never made (Curtis v. Albee, 167 N.Y. 360, 365). Since the right to reform the contract here is not claimed on the ground of mutual mistake, reliance is based on the alleged mistake of Sheldon and of defendant and the alleged fraud of McNamara in not disclosing to Sheldon his knowledge that the mistake was made. Both courts below have held that there was no fiduciary relation existing between McNamara on the one side and Sheldon and Hurley on the other. The trial court held upon the overwhelming weight of the evidence that the parties were “dealing at arm’s length”. There is no evidence that McNamara had any idea or knowledge that Sheldon had made a mistake. McNamara denies that he had either. To overcome that lack of evidence and the denial of McNamara and the inevitable consequence of the facts as established, the court would be compelled, to hold the contrary, to examine into the innermost recesses of McNamara’s mind which, at least, would be a hazardous undertaking (Porter v. Commercial Cas. Ins. Co., supra). Such a procedure may not here be undertaken in the face of the chain of events and the convincing facts.
Were it otherwise “The law requires disclosure to be made only when there is a duty to make it, and this duty is not raised by the mere circumstance that the undisclosed fact is material, and is known to the one party, and not to the other, or by the additional circumstance that the party to whom it is known, knows that the other party is acting in ignorance of it” (Peoples’ Bank of City of New York v. Bogart, 81 N.Y. 101, 107). It is not fraud for one party to say nothing on the subject where no confidential or fiduciary relation exists and where no false statement or acts to mislead the other are made (Peoples’ Bank of the City of New York v. Bogart, supra; Dambmann v. Schulting, supra). In the circumstances in this case, a finding of fraud may not be predicated upon McNamara’s failure to speak, whether or not he had knowledge of Sheldon’s error, especially in view of the unreversed finding that he owed no fiduciary duty either to Sheldon or to the defendant. Having accepted and acted on the written instrument, in the absence of fraud and deceit or mutual mistake, defendant was bound by its terms as the only existing agreement between the parties even though it did not contain some provision on which the parties may have agreed during the negotiations (Fitzgerald v. Arcade Theatre Co., 153 N.Y. Supp. 618, 630, affd. 172 App. Div. 932; Metzger v. Aetna Ins. Co., 227 N.Y. 411, 416).
In Ross v. Food Specialties, Inc., 6 N.Y.2d 336, 189 N.Y.S.2d 857 (1959), buyers brought an action against sellers to reform a contract on the ground of mistake and inadvertence relating to a restrictive covenant. Supreme Court reformed the contract based upon the findings of a Special Referee. The Second Department reversed and made new findings. The Court of Appeals affirmed.
The Court of Appeals described the contract:
The contract contained a restrictive covenant in the following terms: “8. The Party of the First Part for itself and for its officers, Jerome Stein and John Godston, covenant and agree to and with the Parties of the Second Part, their representative and assigns, that neither the said Party of the First Part nor Jerome Stein nor John Godston will engage directly or indirectly in any capacity whatsoever in the business of manufacturing or selling Chinese condiments under any trade name heretofore employed by the Party of the First Part, anywhere in the United States of America for a period of two (2) years from the date hereof.
The Court of Appeals set forth the basis of the claim:
The appellants Ross have brought this action to reform the contract (first cause) on the ground that, by mistake and inadvertence, the restrictive covenant was not correctly worded and, as worded, failed to express the true intent and agreement of the parties in that it omitted between the words “party of the first part” and “anywhere in the United States of America” the words “or under any other trade name”; that in its correct and intended form the restrictive covenant should read: “that neither the said Party of the First Part nor Jerome Stein nor John Godston will engage directly or indirectly in any capacity whatsoever in the business of manufacturing or selling Chinese condiments under any trade name heretofore employed by the Party of the First Part, or any other trade name anywhere in the United States of America for a period of two (2) years from the date hereof”.
And the Court of Appeals set forth the grounds for affirming the Second Department:
We have consistently and repeatedly held that before reformation can be granted the plaintiff “must establish his right to such relief by clear, positive and convincing evidence. Reformation may not be granted upon a probability nor even upon a mere preponderance of evidence, but only upon a certainty of error” nor may the plaintiff “secure reformation merely upon a showing that he or his attorney made a mistake. In the absence of fraud, the mistake shown ‘must be one made by both parties to the agreement so that the intentions of neither are expressed in it’” (Amend v. Hurley, 293 N.Y. 587, 595; Salomon v. North British & Mercantile Ins. Co., 215 N.Y. 214; Strong v. Reeves, 280 App. Div. 301, affd. 306 N.Y. 666). Here, the proof falls far short of the requirements thus enunciated. Nowhere in the record does it appear that the terms sought to be substituted were ever so framed or mutually agreed upon. It may be well that Ross hoped to get an unlimited restriction, but Godston, for good reason, did not wish to have his future activities restrained. Reformation is not designed for the purpose of remaking the contract agreed upon but, rather, solely for the purpose of stating correctly a mutual mistake shared by both parties to the contract; in other words, it provides an equitable remedy for use when it clearly and convincingly appears that the contract, as written, does not embody the true agreement as mutually intended.
In Nash v. Kornblum, 12 N.Y.2d 42, 234 N.Y.S.3d 697 (1962), a fence company brought an action against a customer to reform a contract to install fencing. The Second Department affirmed an Order of Supreme Court dismissing the complaint. The Court of Appeals reversed and remanded the matter to Special Term for further proceedings.
The Court of Appeals set forth the questions presented based upon the fact that two proposals set forth a different number of linear feet involved in the project:
The question before us is whether reformation should be granted where the written executed contract contains an essential term which does not represent the term as originally agreed upon in the oral negotiations. The remaining essential terms were not fixed until the execution of the formal contract.
The Court of Appeals outlined the facts:
There is no contention in the record that the two original proposals, identical in the most part except for the type of fence material, were not intended for exactly the same ground area. As noted previously, the problem here is that the ground linear feet involved in the original estimate (disregarding the actual measurement) was 484 feet. This would mean 484 feet of 10-foot-high chain-link fence; but 968 feet of 5-foot hex-netting fence since a double width was necessary to make the hex-netting fence 10 feet high. Plaintiff contends this contract, as signed, containing the reference to 968 linear feet, was merely a typographical or inadvertent error on the part of the plaintiff’s secretary in exactly doubling the ground linear feet, perhaps to reflect the length of 5-foot width fencing, not coming to his attention until the fence was nearly finished, and did not represent the agreement previous to its reduction to writing. Defendant asserts that he signed the contract as written, he tendered payment on the basis of that contract and is even willing to “use up” the remaining ground linear feet of fencing.
The Court of Appeals summarized the law:
The sole issue before us is whether reformation should have been granted. In Ross v. Food Specialties (6 NY 2d 336, 341) this court stated: “We have consistently and repeatedly held that before a reformation can be granted the plaintiff must establish his right to such relief by clear, positive and convincing evidence. Reformation may not be granted upon a probability nor even upon a mere preponderance of evidence, but only upon a certainty of error’ nor may the plaintiff ‘secure reformation merely upon a showing that he or his attorney made a mistake. In the absence of fraud, the mistake shown “must be one made by both parties to the agreement so that the intentions of neither are expressed in it” (Amend v. Hurley, 293 N.Y. 587, 595; Salomon v. North British & Mercantile Ins. Co., 215 N.Y. 214; Strong v. Reeves, 280 App. Div. 301, affd. 306 N.Y. 666). Reformation is not designed for the purpose of remaking the contract agreed upon but, rather, solely for the purpose of stating correctly a mutual mistake shared by both parties to the contract; in other words, it provides an equitable remedy for use when it clearly and convincingly appears that the contract, as written, does not embody the true agreement as mutually intended” (emphasis in original). However, in Hart v. Blabey (287 N.Y. 257, 262), this court invoked the equitable doctrine of reformation on the following basis: ‘Where there is no mistake about the agreement and the only mistake alleged is in the reduction of the agreement to writing, such mistake of the scrivener, or of either party, no matter how it occurred, may be corrected.’ (Born v. Schrenkeisen, 110 N.Y. 55, 59). ‘In such a case equity will conform the written instrument to the parol agreement which it was intended to embody.’ (Pitcher v. Hennessey, 48 N.Y. 415, 423).
And the Court of Appeals concluded that reformation was warranted:
It clearly and convincingly appears from the record here that this is a case of a mistake on the part of plaintiff’s agent in typing the erroneous linear ground measurement, which plaintiff did not discover before submission to the defendant, and the latter, with knowledge of the mistake, trying to take advantage of the error. The writing itself did not represent the understanding of either party as to the area to be fenced which had been agreed upon previous to the writing, and thus did not embody the true agreement, as mutually intended, relating to the area.
This is not a case where the plaintiff unilaterally and mistakenly estimated the linear feet and defendant, without a duty to speak and absent fraud, agreed to the proposal. Should these circumstances have been present in the contract’s reduction to writing, there would be no scrivener’s mistake or mutual mistake of fact, the agreement would be the intended one by the parties, and equity would not “reform” the executed contract (Isaacs v. Schmuck, 245 N.Y. 77, 82). This set of circumstances is not presented here by the record.
There is clear and convincing evidence that there was an agreement between the parties as to the area to be fenced before the formal written contract was executed, and then an error was made, albeit by plaintiff, in the reduction of the antecedent expression of the parties into the complete contract (see 3 Corbin, Contracts, § 614, pp. 723-724). The only question between the parties on the execution of the written contract was the type of fencing to be constructed and cost thereof, and admittedly these essential terms were not fixed until the formal contract was signed. These latter terms are not sought to be reformed.
The situation presented clearly calls for relief, and the only practicable method of achieving such a result is by the equitable remedy of reformation. The Trial Judgment dismissed the complaint with the finding that the proof failed to show fraud on the part of the defendant. In our view of the case it was unnecessary for the plaintiff to establish fraud on the part of the defendant. Perhaps reformation could have been predicated upon a unilateral mistake on one side and deceptive conduct on the other side which tended to obscure the true agreement (cf. Restatement, Contracts, § 505). However, the situation presented as a result the scrivener’s error was closely akin if not precisely, to a mutual mistake of fact, and as such was sufficient to call for the application of the equitable doctrine of reformation. Therefore, the judgment should be reversed and the case remitted to Special Term for proceedings not inconsistent with this opinion.
In George Backer Management Corp. v. Acme Quilting Co., Inc., 46 N.Y. 2d 211, 413 N.Y.S. 2d 135 (1978), the Court of Appeals addressed “issues of ambiguity, mutual mistake, fraud and unconscionability” arising from a 1970 commercial lease that “included an escalation clause under which increases [in rent were] keyed to certain wage rate increases.”
The clause is paragraph 39(b) of the lease. It provides that if, in any year of the lease, “the RAB [Realty Advisory Board] rate shall be greater than the RAB Labor Rate [for the period of 12 months prior to the commencement date], the Tenant shall pay to Landlord as additional rent an amount equal to the product obtained by multiplying the Wage Rate Multiple by three-quarters (3/4) of the number of cents by which the RAB Labor Rate exceeds the RAB Labor Rate for the Base year”. The lease also tells us that “Wage Rate Multiple” shall mean the figure 7,245.
The RAB labor rate is defined in paragraph 39(b) as: “the aggregate of (a) the average of the minimum regular hourly wage rates for porters, handymen, elevator operators, starters and watchmen as applied to this building pursuant to an agreement between the Realty Advisory Board on Labor Relations, Incorporated (or any successor thereto) and Local 32-B of the Building Service Employees International Union, AFL-CIO (or any successor thereto) or, if no such agreement is in effect at such time, the average of the minimum regular hourly wage rates then actually being paid by Landlord or by the independent contractors who furnish such services to the demised premises, (b) the total amount, computed on an hourly basis, of social security, unemployment and disability insurance and payroll and other taxes imposed upon or measured by such wages, and (c) the total amount, computed on an hourly basis, of all benefits required by law and/or such agreement to be paid to or for such personnel.
The Court described the history of the negotiation of the subject lease escalation clause:
It is clear from the record that there was nothing routine about the way in which these provisions came into being. It would be impossible to argue that they contained any element of adhesion. Backer, by its treasurer, Arthur Lukach, first submitted a proposed lease. It was then analyzed by Acme’s vice-president, Richard Rattner, who was not only a member of the Bar but, perhaps more important in the present context, a corporate executive in the multimillion dollar business of his principal with 20 years of business experience behind him. Rattner did not rest on his analysis; he prepared a comprehensive memorandum on certain of its provisions, including the very clause with which we are now concerned.
Additionally, by happenstance, the course of the negotiations required both sides to repeatedly focus on it. For example, though the initial discussions were suspended because of uncertainty over whether the existing tenant would vacate within the time required for Acme to commence occupancy, they were thereafter resumed with renewed vigor when Acme’s broker discovered other suitable space in the building. Again, a lease containing the identical escalation clause was reviewed by Acme, which this time offered to sign the lease but raised specific written objections to the escalation clause. Backer’s response was to reject the offer. Shortly thereafter, a fresh series of negotiations was undertaken at the instance of another broker. Once more, the rent escalation provision merited special attention. But despite what Acme concedes were extensive discussions between Rattner and Lukach, while Acme succeeded in having certain changes incorporated into the lease, the escalation clause was completely intact when the document was executed. From beginning to end the discussions took roughly half a year. The record also reveals that, since it was not a member of the owners’ unit for which the Realty Advisory Board would act in negotiating industry-wide collective bargaining agreements with labor unions representing the classes of employees whose wages were involved here, Backer was not bound to, and in fact did not, accept the RAB’s labor scale for its employees. The scale in effect at its building was a lower one.
And the basis of the dispute:
After a period during which Backer had not billed Acme for increases responsive to the RAB standard, the time came when Acme, no doubt because the RAB had negotiated a new scale providing for a substantial increase in wages, refused to comply with Backer’s demand that it remit payment in an amount reflecting the application of 39(b) to the RAB rate. Backer then commenced suit to recover the arrearages so computed. Acme, characterizing paragraph 39(b) as “shamefully ambiguous and unintelligible” and urging, by way of affirmative defense, that it was unconscionable, asserted that the clause should be read to limit the escalation to sums computed by reference to wage increases actually paid by the landlord. It further alleged that Lukach, on Backer’s behalf, had expressly represented that the cost of any increase to Acme “in no event, would exceed an amount equal to four or five per cent of the base rate for any particular year”. These grounds, according to Acme, entitled it to have the lease provision reformed under a theory of mutual mistake or, in the alternative, mistake on its part and fraud on the part of Backer.
Supreme Court, “finding the clause ambiguous and the facts controverted”, denied Backer’s motion for summary judgment. The Appellate Division unanimously reversed “on the law, granted the motion as to liability only and remanded for assessment of damages.” Upon the remand, the parties “stipulated on the amount due in lieu of assessment [and a] final judgment was entered.” The Order of the First Department was thereafter brought up for review and, upon such review, the Court of Appeals affirmed.
The Court of Appeals rejected the claim of ambiguity, noting that “the lease in this case was entered into at arm’s length and, ultimately on terms—most particularly those contained in the lease’s rider where paragraph 39(b) is to be found—which were the residue of suggestions and counter-suggestions on which each of the two sophisticated parties had attempted to persuade the other to join in a meeting of the minds.” And the Court noted that the clause “was not a novel provision, but one commonly found in New York City commercial leases[.]”
The Court of Appeals found that the clause was not unconscionable because “Acme assumed the precise risk of which it now complains—that the RAB labor rate would rise so as to substantially increase its monthly rental payments.
And, as to the claim for reformation, the Court of Appeals stated:
We turn now to Acme’s claim for reformation. Its allegation of mutual mistake or fraudulently induced unilateral mistake describes the classic grounds for such relief (Albany City Sav. Inst. V. Burdick, 87 NY 40, 47; 3 Pomeroy, Equity Jurisprudence [5th ed], § 870; Restatement, Contracts, §§ 504, 505). The claim of mutual mistake need not detain us. The undisputed history of the negotiations demonstrates beyond cavil that the language of the clause that Lukach proposed and to which he resolutely adhered reflects precisely what the lessor intended, and the unilateral mistake of Acme would not suffice to invoke reformation (Curtis v. Albee, 167 NY 360, 365; 3 Pomeroy, Equity Jurisprudence [5th ed], § 870a). Acme posits its alternate claim of fraudulently induced unilateral mistake on the oral misrepresentations allegedly made by Lukach to induce in Rattner a mistaken conception as to the operation of the wage rate escalation provision. On this theory, too, we must deny the requested relief.
Reformation is not granted for the purpose of alleviating a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties (Ross v. Food Specialties, 6 NY2d 336, 341; 13 Williston, Contracts [3d ed], §§ 1548, 1549). Equity evolved the doctrine because an action at law afforded no relief against an instrument secured by fraud or as a result of mutual mistake (see 5 Holdsworth, History of English Law, pp. 292-293, 327-328). But to overcome the heavy presumption that a deliberately prepared and executed written instrument manifested the true intention of the parties, evidence of a very high order is required (Christopher & Tenth St. R.R. Co. v. Twenty-Third St. Ry. Co., 149 NY 51, 58). And well that it is, for freedom to contract would not long survive court’s ready remaking of contracts that parties have agreed upon (Nash v. Kornblum, 12 NY2d 42, 46). All the more so when a litigant seeks to invoke the power of the court, not merely to sever the contractual relationship between the parties, but, as here, to continue that relationship in a modified form. It follows that a petitioning party has to show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties (Willison, Contracts [3d ed], §§ 1548, 1597).
The requisite standard of proof has been stated variously (Amend v. Hurley, 293 NY 587, 595 [“clear, positive and convincing evidence” so as to demonstrate not the probability but the certainty of error in the making of the contract]; Porter v. Commercial Cas. Ins. Co., 292 NY 176, 181 [“evidence of the clearest and most satisfactory character”]; Christopher & Tenth St. R. R. Co. v. Twenty-third St. Ry. Co., supra, p. 58 [proof of “the most substantial and convincing character”]). Allowing for difference in expression, all the cases demand a high order of proof. It would serve no purpose to add yet another definition. Rather, the definitions may more easily be conceptualized for our present purposes if we think in terms of what is to be avoided. Viewed from that perspective, the evidentiary requirement “[operates] as a weighty caution upon the minds of all judges, and it forbids relief whenever the evidence is loose, equivocal or contradictory” (Southard v. Curley, 134 NY 148, 151).
As a matter of law, no showing free of contradiction or equivocation comes through from the affidavits submitted by Acme. The history of the lease negotiations between Backer and Acme discloses continuing awareness on the prospective tenant’s part that the wage rate escalation provision might be potentially disadvantageous. The negotiations were conducted in a most businesslike, meticulous and unhurried manner by both sides. These produced substantial economic modifications to Acme’s advantage. And, only a month before the culmination of the negotiations, when Rattner advised Lukach that he was not satisfied with the clause, the latter remained steadfast and the lease containing the now objectionable provision was accepted by the tenant in unchanged form.
Furthermore, patently, Lukach’s purported oral interpretation of the clause as limiting Acme’s liability to about “four or five percent” of the actual wage rate sets forth no reasonable ground for reliance. The very indefiniteness of the figures confirms this statement as an expression of opinion rather than of fact. Above all, it did not relate to a concrete fact or a past or existing event. At best, it was no more than an expression of expectations as to labor agreements which had not yet been negotiated and the outcome of which, as both parties knew, could not be foretold. As a matter of law, then, it cannot form the basis for a claim of misrepresentation (see Woodmere Academy v. Steinberg, 41 NY2d 746, 751).
In Designcraft Jewel Industries, Inc. v. Rampart Brokerage Corp., 46 N.Y. 2d 981, 415 N.Y.S. 2d 991 (1979), “an action brought by plaintiffs jewelers against their insurance broker, for negligence and breach of contract by reason of failure to provide appropriate excess insurance [coverage] for the contents of the building occupied by plaintiffs, which had suffered a burglary loss[,]” Supreme Court denied the third party defendant’s motion for summary judgment dismissing the third-party complaint; the Appellate Division reversed on the law; and the Court of Appeals, as follows, affirmed:
[T]he evidence was clear and beyond dispute that the insurance broker secured exactly what it ordered, a straight excess policy over a $1,000,000 threshold, that it had the opportunity to correct that policy, after the issuance but before the loss, but did not do so, that there was no evidence of mutual mistake or of fraud or misrepresentation, and that there was no issue of fact whatever as between the broker and the third-party defendants.
The First Department in Designcraft Jewel Industries, Inc. v. Rampart Brockerage Corp., 63 A.D.2d 926, 406 N.Y.S.2d 97 (1978), stated that:
The underlying main action is brought by plaintiffs Designcraft Jewel Industries, Inc. and Mathey Tissot Corp., jewelers, against Rampart, plaintiffs’ insurance broker, for negligence and breach of contract by reason of failure to provide appropriate excess insurance for the contents of the building occupied by plaintiffs, and which had suffered a burglary loss. Rampart had undertaken to service plaintiffs’ insurance needs, placing prime insurance with nonparty Home Insurance Company for $1,000,000, excess over which was placed with Midland through Feit. The dispute basic to this appeal arises from the following circumstances: the loss by burglary was in the amount of $650,000, confined to jewelry stored on the first floor of plaintiffs’ building; the Home policy, though $1,000,000 in the aggregate, was selectively written, floor by floor, with separate internal limits for each, that for the first floor being $150,000 less a $5,000 deductible; Home paid plaintiffs $145,000 as its policy provided; the excess policy, having a limitation threshold of $1,000,000, and not written to provide separate limitations for each floor, was never triggered into operation by this loss. Rampart, charged with the primary duty to provide appropriate excess insurance, places the blame in its third-party complaint on Midland and Feit for failure to tailor the excess insurance provided to the peculiar needs inherent in the floor-by-floor limits of the prime policy, and with having represented that the excess insurance “conformed to the primary coverage and supplemented same.” Rampart therefore seeks indemnity from Midland and Feit, and additionally asks for reformation of the excess policy to conform to plaintiffs’ actual needs, by reason of mutual mistake or scrivener’s error. Special Term, finding an issue of fact, has denied summary judgment. To the contrary, we find the evidence clear and beyond dispute that Rampart secured exactly what it ordered, a straight excess policy over a $1,000,000 threshold and, further, that it had the opportunity to correct that policy, after issuance before loss, but did not do so. The deposition of Meyer Morris, a vice-president of Rampart, may be summarized briefly. In an endeavor to secure plaintiffs’ insurance account, he tried without success to get Home Insurance to cover the entire risk, $1,750,000, in a block policy; Home accepted a risk aggregating $1,000,000, internally limited by floors as above described; he went to Feit and Midland for excess insurance and procured a binder, but neither Feit nor Midland was shown the Home policy before the binder was issued. In any event, it is clear from the evidence that the policy was issued and in Rampart’s possession well before the time of loss, with ample opportunity to return it for correction. There is nothing in this record to reflect that it was either inspected or returned. The inferences to be drawn are obvious. As has been indicated, there is no evidence whatever of mutual mistake or of fraud or misrepresentation. There is no issue of fact whatever as between Rampart and the third-party defendants. An affidavit in opposition to the motions for summary judgment argues the possibility of drawing an inference from certain of Morris’ statements that he had revealed to officials of the third-party defendants that it was necessary by means of the excess policy to plug gaps in the insurance provided by Home. Such speculation, without actual basis in the record, is not evidence. No basis whatever for the allegations of the third-party complaint is found in the record, and it should be dismissed…
The Court of Appeals summarily affirmed on the decision of the Appellate Division. The Court thus rejected the plaintiffs’ claim for reformation of the excess policy by reason of mutual mistake or scrivener’s.
In Sagan v. Sagan, 53 N.Y. 2d 635, 438 N.Y.S. 2d 782 (1981), “an action to declare the rights of a married couple in and to enforce the provisions of a handwritten separation agreement drafted without the aid of counsel”, Supreme Court denied defendant’s motion for summary judgment and dismissed the complaint. Previously the Appellate Division reversed and dismissed the claims for specific performance, breach of contract and reformation, Sagan v. Sagan 73 A.D. 2d 508, 422 N.Y.S. 2d 98 (1979):
The parties had been married in 1968. On August 27, 1977, they signed a handwritten documented entitled “Preliminary agreement, Marriage settlement”, which contained property disposition and custody provisions. There was a subsequent handwritten addendum purporting to modify the preliminary agreement. It was never signed. Neither party adhered to the terms of the preliminary agreement. Subsequently, both plaintiff and defendant retained separate counsel. A separation agreement was drafted but not signed by the parties. The terms of the proposed separation agreement contained provisions significantly different from those of the handwritten document. The plaintiff wife brought this action seeking, inter alia, a declaration that a valid separation agreement exists. The defendant moved at Special Term for dismissal of the complaint on the ground that no contract existed between the parties and that the preliminary agreement was in any event abandoned. Special Term denied the motion, and we would reverse. The preliminary writing sought to be enforced is at best an agreement to agree. All the essential terms were not fully set forth. Even in the wife’s complaint the document is characterized as “referring to certain of the parties’ understandings” (emphasis added). This conclusion is substantially confirmed by the conceded fact that, after the parties retained counsel, a substantially different arrangement was proposed but never agreed upon by the parties. Finally, the preliminary agreement cannot pass muster as a separation agreement, since the parties did not specifically state an intent to live separate and apart. Under these circumstances, the husband was entitled to summary judgment dismissing the complaint.”
The Court of Appeals affirmed, noting as to the claim for reformation that:
[T]o the extent that the plaintiff seeks reformation of the writing, her tender of proof in evidentiary form does not rise to the high level required to resist a motion for summary judgment directed against such an action (see Backer Mgt. v. Acme Quilting Co., 46 NY2d 211, 219-220).”
Sagan, 53 N.Y.2d at 636-637
In Chimart Associates v. Paul, 66 N.Y. 2d 570, 498 N.Y.S. 2d 344 (1986), “an action by plaintiff to collect money’s allegedly due from defendant pursuant to a letter agreement”, at the outset the Court of Appeals stated that:
Where a written agreement between sophisticated, counseled businessmen is unambiguous on its face, one party cannot defeat summary judgment by a conclusory assertion that, owning to mutual mistake or fraud, the writing did not express his own understanding of the oral agreement reached during negotiations.
The Court summarized the facts:
The facts are largely uncontested. Defendant, David L. Paul, a businessman and financier, was president of AmMart, one of two general partnerships that collectively owned 666 Associates, an Illinois limited partnership whose sole business was the ownership and operation of a building in Chicago. In 1980 AmMart proposed making major improvements to the building, requiring additional capital. Because the other general partner did not wish to participate, Paul and AmMart set out to find new partners and restructure 666 Associates.
To this end, Paul and AmMart located new limited partners who would purchase interests in 666 Associates for $170,000 per percentage point. One of these new limited partners was plaintiff, Chimart Associates. According to Paul’s affidavit, he negotiated with Chimart and its attorneys between July 1980 and November 20, 1980, when the deal closed and Chimart purchased a 22% interest for a total of $3,740,000. At the closing, the parties executed a number of documents, including a 27-page amended and restated limited partnership agreement. Central to this suit, however, is a two-page letter agreement, also dated November 20, 1980 and executed at the closing, from Paul to Chimart, in care of its attorneys, containing the following paragraph: “In order to induce you [Chimart] to purchase the Interest, and subject to your assignment to me [Paul] of your right to receive certain cash distributions from the Partnership, as described below, I agree to pay you, on November 23, 1982, the amount, if any, by which (A) $1,320,000 exceeds (B) the sum of the cash distributions to you from the Partnership on account of the Interest through November 20, 1982 (such amount being the ‘Guarantee Payment’). If a Guarantee Payment is not paid on or before November 23, 1982, I also agree to pay interest on such Guarantee Payment from November 23, 1980 to the date such payment is actually made, at a rate per annum equal to the prime rate charged from time to time by Chemical Bank for 90-day unsecured loans to commercial borrowers of the highest credit rating plus one percent.” The letter agreement was drafted by Chimart’s attorneys.
As of November 23, 1982, Chimart had received no cash distributions from 666 Associates, and Paul refused to make the “Guarantee Payment” under the letter agreement. In June 1983, Chimart sued Paul to collect $1,320,000 plus interest and, after Paul answered, in August 1983 moved for summary judgment on the ground that the language in the letter was unambiguous.
Paul opposed the summary judgment motion :
Arguing that the language of the agreement was ambiguous and that parol evidence was therefore admissible, Paul submitted an affidavit in which he swore that he had not read the letter agreement before he signed it, but that he believed, based upon conversations with Chimart during the negotiations, that he had an obligation only to pay interest on any unpaid amount until 666 Associates made the distribution. In addition, Paul cross-moved to amend his answer to assert an additional affirmative defense of fraud and/or mutual mistake, and a counterclaim to reform the letter agreement on that ground.
Special Term denied Chimart’s motion and granted Paul’s cross-motion for summary judgment because:
[I]t is apparent that the parties are in fundamental disagreement concerning the meaning and interpretations of their letter agreement. This dispute must be resolved at trial.” Chimart appealed from so much of the order as denied its motion for summary judgment, and a unanimous Appellate Division reversed and granted the motion on the ground that the provision was unambiguous. We now affirm.
The Court of Appeals rejected Paul’s claims that the agreement was ambiguous and also rejected the claim that the letter was the result of mutual mistake or fraud and should be reformed:
In the proper circumstances, mutual mistake or fraud may furnish the basis for reforming a written agreement. Indeed, the concepts are closely related. In a case of mutual mistake, the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement (see Harris v. Uhlendorf, 24 NY2d 463; Hart v. Blabey, 287 NY 257). In a case of fraud, the parties have reached agreement and, unknown to one party but known to the other (who has misled the first), the subsequent writing does not properly express that agreement (see, Barash v. Pennsylvania Term. Real Estate Corp., 26 NY2d 77, 86; Welles v. Yates, 44 NY 525).
Because the thrust of a reformation claim is that a writing does not set for the actual agreement of the parties, generally neither the parol evidence rule nor the Statute of Frauds applies to bar proof, in the form of parol or extrinsic evidence, of the claimed agreement (see, Brandwein v. Provident Mut. Life Ins. Co., 3 NY2d 491, 496; but see, Friedman & Co. v. Newman, 255 NY 340). However, this obviously recreates the very danger against which the parol evidence rule and Statute of frauds were supposed to protect – the danger that a party, having agreed to a written contract that turns out to be disadvantageous, will falsely claim the existence of a different, oral contract (see, Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219). To this end – “for freedom to contract would not long survive courts’ ready remaking of contracts that parties have agreed upon” (id.) – reformation has been limited both substantively and procedurally. Substantively, for example, reformation based upon mistake is not available where the parties purposely contract based upon uncertain or contingent events (Sears v. Grand Lodge, 163 NY 374, 378).
Procedurally, there is a “heavy presumption that a deliberately prepared and executed written instrument [manifests] the true intention of the parties” (Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219, supra), and a correspondingly high order of evidence is required to overcome that presumption. (Id., at pp. 219-220; see also, 3 Corbin, Contracts § 615, at 745-746). The proponent of reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties” (Backer Mgt. Corp. v. Acme Quilting Co., at p. 219, supra).
For the same reasons, we have required a party resisting pretrial dismissal of a reformation claim to tender a “high level” of proof in evidentiary form (Sagan v. Sagan, 53 NY2d 635, 637). “Only thus can the benefits of the written form be preserved” (3 Corbin, Contracts § 607, at 659-660). Thus, in Backer (46 NY2d 211, supra), summary judgment was granted dismissing a reformation claim because “[as] a matter of law, no showing free of contradiction or equivocation [came] through the affidavits submitted” in opposition to the motion (46 NY2d, at p. 220). It was uncontroverted that the negotiations had been conducted by sophisticated, counseled businessmen, and the undisputed evidence showed that the unambiguous language reflected precisely what the moving party intended. Various statements allegedly made during negotiations were, as a matter of law, too indefinite to form the basis for a claim of misrepresentation.
Backer dictates an affirmance here. First, the contract at issue is part of a multimillion dollar transaction involving sophisticated, counseled parties dealing at arm’s length (cf. Citibank v. Plapinger, 66 NY2d 90,95). Second, the language of the agreement was plain and unambiguous, and by Paul’s own admission he failed to read the agreement. Crucially, there is no unequivocal evidence of mutual mistake or fraud.
As to mutual mistake, Paul sets forth no basis for his contention that both parties reached an agreement other than that contained in the writing. His affidavit contains no specific claim that both parties agreed that Paul could pay only interest in fact strongly suggests that the mistake was not mutual. The affidavit of Chimart’s attorney, by contrast, squarely addresses the point: “Whether or not defendant signed the Agreement under such a mistaken impression, I can state categorically that Chimart did not labor under the same mistaken impression. As noted above, I played a key role in helping Chimart to negotiate the agreement. I therefore have direct knowledge of the facts to which I am testifying. Without doubt, the Agreement’s words reflected exactly what I intended them to reflect. Otherwise, Chimart would not have signed the Agreement. There could have been no mistake on the part of Chimart, because the words of the Agreement are plain and unambiguous.” Under such circumstances, Paul was required – and failed – to come forward with something more than his own conclusory assertion that mistake existed.
Paul’s alternative claim of fraud fails for much the same reason. In Backer (supra), the party seeking reformation set forth a particular misrepresentation supposedly made by the other party’s agent, yet the representation was not sufficiently definite to support a claim of reliance. Paul’s allegation of fraud – “Chimart fraudulently misrepresented to me at the closing the Agreement’s contents and effect” – is, a fortiori, too uncertain and conclusory to defeat summary judgment in favor of Chimart.
Estate of Catherine H. Vadney v. Vadney, 83 N.Y. 2d 885, 612 N.Y.S. 2d 375 (1994), arose out of an action to reform a deed. The Court of Appeals set forth the facts:
“On June 13, 1985, decedent Catherine H. Vadney executed a deed conveying her real property located at 17 Bohl Avenue in Albany, New York, to herself and her son, petitioner Peter J. Vadney. The deed did not describe the type of tenancy created or contain any survivorship language. Acting as the executor of decedent’s estate, petitioner excluded the Bohl Avenue property from the list of estate assets when decedent’s will was admitted to probate in December 1988. In so doing, petitioner proceeded on the assumption that the deed created a joint tenancy with a right of survivorship and that the parcel passed solely to him upon decedent’s death. Decedent’s three other children, respondents herein, contended that the deed created a tenancy in common under EPTL 6-2.2(a), which provides that “[a] disposition of property to two or more persons creates in them a tenancy in common, unless expressly declared to be a joint tenancy.” Under respondents’ construction, decedent’s proportionate interest in the subject property would pass upon her death to all of her surviving children through the residual clause of decedent’s will.”
And the prior proceedings:
Petitioner commenced this action to reform the deed, contending that the absence of survivorship language in the instrument of conveyance was contrary to the grantor’s intent and due solely to a scrivener’s error. Surrogate’s Court denied the petition after ruling that extrinsic evidence of the grantor’s intent would not be received to vary the terms of the deed. The Appellate Division reversed and granted the petition. We now affirm.”
The Court of Appeals affirmed the decision of the Appellate Division:
“Petitioner has met his burden of proving by clear and convincing evidence that decedent intended to create a joint tenancy rather than a tenancy in common, and that language manifesting such an intent was mistakenly omitted from the instrument of conveyance by the scrivener (see, Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219; Amend v. Hurley, 293 NY 587, 595; Born v. Schrenkeisen, 110 NY 55, 59). Petitioner’s uncontroverted evidence consisted of testimony of the attorney who drafted the deed indicating that he had received oral instructions from decedent to prepare a deed conveying the subject property to herself and petitioner as joint tenants, that he neglected to include survivorship language in the deed through his own oversight, and that neither he nor the grantor noticed the omission at the time of the execution of the instrument. The drafting attorney also produced a copy of his notes taken during a preliminary meeting with decedent which indicate that decedent desired the co-ownership interest created by the deed to include the “right of survivorship”. The attorney’s wife, who was present during the execution of the deed and who witnessed decedent’s contemporaneously executed will, testified that decedent stated at that time that she wanted petitioner to have the house. Indeed, unless decedent intended to remove that property from the estate assets that were to pass by the contemporaneously executed will, the execution of a deed conveying the property to herself and petitioner would have been unnecessary. Accordingly, petitioner has met his high burden of proving that the instrument as written did not accurately reflect decedent’s intent to include a right of survivorship, and the deed should be reformed to include the omitted language.
In Matter of William F. Wallace v. 600 Partners Co., 86 N.Y.2d, 543, 634 N.Y.S. 2d 669 (1995), the question presented was whether article 17 of a ground lease was enforceable as written?
The Court of Appeals summarized the facts:
Petitioners landlords and respondent tenant entered into a 99-yer ground lease in 1960 for property located on Madison Avenue between 57th and 58th Street in the Borough of Manhattan. Tenant is the assignee of the lease. Landlord succeeded the original trustee who entered into the ground lease with tenant’s assignor. Tenant has constructed a 26-story office building on the property.
The lease provided for an initial term of 33 years, with options to tenant to renew for two additional 33-year terms. The lease provided for six incremental rent increases during the initial 33-yer term, with a starting rent of $100,000 annually increasing to $160,000 in 1985. The rent for the final eight years of the initial term was to be calculated at 6% of the appraised “then value” of the land, which amount was determined to be $2,100,000 in 1985.
Prior to expiration of the initial term, tenant timely exercised its option to renew under article 16 of the lease, which provides that the rent amount is to be fixed by agreement between the parties or, in the absence of agreement, by an appraisal to be calculated at 6% of the “then value” of the land. When the parties could not agree on a rental amount for the renewal term, tenant sought an appraisal under article 17 of the lease, which provides in pertinent part:
The party desiring…appraisal shall give written notice to that effect to the other party…except that in case of any appraisal under the provisions of Sections 16.01 or 16.02 hereof with respect to the first renewal term and the second renewal term, neither party shall give such written notice to the other party earlier than twelve (12) months prior to the expiration of any such renewal term” (emphasis added).
And described the issue presented:
The term “expiration” is at the heart of this dispute. If read literally, it requires that the determination of the rent amount for the first renewal term – which commenced on July 1, 1993 – take place 32 years after the term began, in 2025. The effect of postponing a determination of the rent due until 2025 is to freeze the annual rent for the first renewal term at the current amount, requiring tenant to make a lump-sum payment at the end of the first renewal term representing the difference between the amount arrived at pursuant to the retrospective appraisal and the rent actually paid during the renewal term.
Landlords commenced a CPLR Section 7601 proceeding to stay an appraisal of the property; and, in turn, tenant sought reformation of the lease based upon a scrivener’s error. Supreme Court granted the motion to stay the appraisal noting that the lease was executed and revised by “sophisticated business people ably assisted by presumed reasonably competent counsel and competent financial advisors”. The Appellate Division majority (two Justices dissenting) affirmed with the admonition that courts should not, “under the guise of interpretation, rewrite part of an agreement which is clear and explicit simply because a party’s expectation of the bargain does not materialize due to a change in the economic climate.”
After holding that the tenant’s action was time-barred, the Court of Appeals rejected the claim for reformation:
“Tenant contends that the word “expiration” appearing in paragraph 17.01 of the ground lease is a scrivener’s error which went unnoticed from 1960 to 1993. Tenant claims that article 17.01 should not be read literally because it would give rise to dramatic inconsistencies and anomalies. Primarily, tenant complains of the fiscal uncertainties resulting from retrospective appraisal, including the prospect of belated lump-sum payments in amounts which are presently unascertainable, and resultant difficulty in selling or mortgaging its interest in the lease and setting rents when subleasing to tenants of the office building.
At the outset, we note that tenant’s claim for reformation is time-barred. The six-year Statute of Limitations of CPLR 213(6) began to run in 1960, at the time the asserted “scrivener’s error” was allegedly committed. In the absence of a claim for reformation, courts may as a matter of interpretation carry out the intention of a contract by transposing, rejecting, or supplying words to make the meaning of the contract more clear (see, Castellano v. State of New York, 43 NY2d 909, 911). However, such an approach is appropriate only in those limited instances where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part (see, e.g., Castelli v. Burns, 156 App Div 200).
It is axiomatic that a contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language employed (Breed v. Insurance Co., 46 NY2d 351, 355, quoting Morlee Sales Corp. v. Manufacturers Trust Co., 9 NY2d 16, 19). Thus, “clear, complete writings should be generally enforced according to their terms” (W.W.W. Assocs. V. Giancontieri, 77 NY2d 157, 160). This “sensible proposition of law”, which we reaffirm today, imparts “stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses…[and] infirmity of memory” (id., at 162, quoting Fisch, New York Evidence § 42, at 22 [2d ed]). The rule has even greater force in the context of real property transactions, “where commercial certainty is a paramount concern” (id.), and where, as here, the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length (see, Chimart Assocs. V. Paul, 66 NY2d 570, 574).
The question whether a writing is ambiguous is one of law to be resolved by the courts (see, Van Wagner Adv. Corp. . S & M Enters., 67 NY2d 186, 191; Sutton v. East Riv. Sav. Bank, 55 NY2d 550, 554). The rules governing the construction of ambiguous contracts are not triggered unless the court first finds an ambiguity (see, Breed, supra, at 355). We conclude that article 17 as written is not unenforceable and does not create an absurd result. Considered in isolation or in the context of the ground lease as a whole, article 17 is clear and complete and allows for the implementation and enforcement of its terms. While the retrospective appraisal mechanism may be novel or unconventional, this does not warrant an excursion beyond our four corners of the document (see, 4 Williston, Contracts, § 610A, at 513 [3d ed] [“it is not the function of the judiciary to change the obligations of a contract which the parties have seen fit to make”].
[to be continued]