Court Dismisses Complaint For Reformation Based On Claimed Mutual Mistake

In a Decision and Order, dated October 5, 2023, in ACP Housing Associates, L.P. v. ABJ Milano, LLC, Index No. 156320/2019, Justice Joel M. Cohen granted defendant’s motion for summary judgment dismissing plaintiff’s complaint for reformation. The plaintiff alleged a mutual mistake in a commercial real estate transaction, in that the contract mistakenly conveyed a vacant lot that was not intended to be included in the sale of an adjacent developed property. Plaintiff sought reformation of the contract to exclude the vacant lot from the transaction or, in the alternative, recovery for unjust enrichment. The Court granted defendant’s motion for summary judgment, explaining:

Here, Buyer has made a prima facie showing of entitlement to judgment as a matter of law on Seller's claim for reformation of the agreement by either a scrivener's error or through mutual mistake. Seller has failed to raise an issue of fact as to Buyer's or its counsel's state of mind or their intention to purchase the Vacant Lot at the time the Contract was signed. Seller relies on marketing materials, a conversation between its broker and Buyer which was communicated to Seller in an email, and the Term Sheet-all of which occurred in or prior to October 2015, before any transaction documents were shared. Seller prepared the transaction documents, including the November 2015 email cover letter which included the Vacant Lot, and sent the deed descriptions [that] expressly did so as well.

Moreover, the inclusion of the Vacant Lot in the transaction documents cannot credibly be characterized as a stray reference in the contract or an isolated scrivener's error. The Vacant Lot is included in several, separately-prepared Closing Deliverables (NYSCEF 219-221; SOF ¶ 39). For example, the Deed describes the premises as "163-165 West 122nd Street" (NYSCEF 222 at 14-15). The multiple affirmative explicit inclusions of the Vacant Lot in the transaction documents are inconsistent with the claim of an inadvertent scrivener's error, which must be shown by clear and convincing evidence.

Furthermore, because reformation is grounded in equity, courts consider the length of delay in discovering the mistake, as well as a party's detrimental reliance on the contract terms (Loyalty Life Ins., 214 AD2d at 300 ["Inasmuch as reformation is an equitable matter, we also note the length of the delay in discovering the mistake and defendants' detrimental reliance on the amended policy in structuring the finances of their business"]; see also Designcraft Jewel Indus. v Rampart Brokerage Corp., 63 AD2d 926, 927 [1st Dept 1978], aff'd, 46 NY2d 981 [1979] [ample time between issuance and time of loss to inspect and return contract for correction in holding no mutual mistake or scrivener's error had occurred]). Seller's delay of nearly three years in asserting its alleged mistake, while at the same time leaving it to Buyer to pay carrying expenses and taxes, weighs against Seller.

In sum, the summary judgment record demonstrates that to the extent there was any mistake, it was a unilateral mistake or misunderstanding by Seller, which cannot support a reformation claim (Burnside Bargain Store v. Carmel, 156 AD2d 248 [1st Dept 1989]).

The Court also granted defendant summary judgment on plaintiff’s claim for unjust enrichment because there was a written contract governing the transferring of the properties.

As this case demonstrates, if you believe there is a mistake in your contract, you must act promptly or any remedy may be waived. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning reformation.