Scrivener’s Error and Mutual Mistake

• Posted on: Feb 13 2023

By: Jeffrey M. Haber

As readers of this Blog know, to form a contract, the following elements must be present: an offer, acceptance of the offer, consideration, mutual assent (or a meeting of the minds) and an intent to be bound.

Contracts are subject to the equitable remedy of rescission or reformation if entered under a mutual mistake.¹ To invoke the doctrine of mutual mistake, a party must present proof that the agreement, as expressed, does not represent a “meeting of the minds” between the parties in some material respect.² The mutual mistake must be substantial³ and exist at the time the parties enter the contract.⁴ To establish mutual mistake, the moving party must overcome a heavy presumption, and prove, by clear and convincing evidence, that the agreement did not express the intentions of either party.⁵ 

When, as in Ralph Lauren Retail, Inc. v. 888 Madison LLC, 2023 N.Y. Slip Op. 00747 (1st Dept. Feb. 9, 2023) (here), “the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement”, the court may reform the written agreement to correct the mistake.⁶ In other words, “‘[w]here there is no mistake about the agreement and the only mistake alleged is in the reduction of that agreement to writing, such mistake of the scrivener, or of either party, no matter how it occurred, may be corrected.’”⁷ 

Ralph Lauren involved a dispute concerning a renewal lease for the third and fourth floors of Ralph Lauren’s flagship store located at Madison Avenue and 72nd Street.

Plaintiff, Ralph Lauren Retail, Inc., is the tenant of four floors in the building owned by defendant and of an adjacent townhouse, combined with those floors, that is also owned by defendant. Plaintiff, Ralph Lauren Corporation, is the tenant’s guarantor. 

On November 30, 2006, plaintiffs and defendant extended the lease for those premises to August 31, 2027. The modification granted plaintiffs two options to renew the lease, each time for ten additional years. Plaintiffs could exercise their first renewal right until September 1, 2025. The parties subsequently modified the lease a second time.

On December 1, 2020, during the height of the pandemic, the lease was modified a third time to extend the term by ten years to August 31, 2037. According to plaintiffs, the parties had orally agreed to keep the rent for two floors flat without extending the term of the lease. Plaintiffs alleged that they had unambiguously told defendant they would not extend the lease without more favorable rent provisions. Plaintiffs alleged that they erroneously drafted the modification because, during a significant change of their legal personnel, there was a communication error between their departing counsel (who had negotiated the modification) and their incoming counsel (who wrote it).

Plaintiffs commenced the action seeking rescission or reformation of the third modification agreement, alleging that the modification agreement did not reflect the parties’ meeting of the minds and the terms of their actual agreement. Defendant moved to dismiss.

The motion court denied the motion as to the first cause of action seeking recission based on mistake or, in the alternative, reformation to reflect the terms of any actual agreement. The motion court found that plaintiffs sufficiently alleged unilateral mistake resulting in defendant’s unjust enrichment, or mutual mistake on the ground that the third modification agreement as written did not reflect the parties’ meeting of the minds.

The motion court granted the motion as to the third cause of action seeking rescission or reformation based upon fraudulent inducement. The motion court found that plaintiffs failed to allege any affirmative misrepresentation by defendant to support a claim of fraud. “At best”, said the motion court, “the Landlord did not advise counsel for Ralph Lauren (who had drafted the Agreement) that the Modification Agreement did not reflect any terms to which the parties had agreed”. The motion court noted that defendant had no legal duty (as opposed to a potential ethical one on which it declined to opine) to disclose that information to opposing counsel, particularly since plaintiffs’ executives who signed the lease modification agreement could have readily ascertained the contents of the two-page document by reading it. Further, the motion court held that plaintiffs did not satisfy the justifiable reliance element of a fraud claim. The motion court explained that plaintiffs were solely responsible for the conduct of their attorney who drafted the agreement and its executives who signed the agreement. 

On appeal, the Appellate Division, First Department modified the motion court’s order to dismiss plaintiffs’ claim sounding in unilateral mistake; the Court otherwise affirmed the order.

The Court held that plaintiffs failed to state a claim for unilateral mistake. However, said the Court, plaintiffs “pleaded facts sufficient to sustain a claim for rescission or reformation based on mutual mistake”.⁸ The Court found that “[t]he allegations that the parties had orally agreed to modify the lease to keep the rent for the third and fourth floors of the premises flat for the remainder of the lease term without extending that term, and that the written agreement did not accurately reflect the oral agreement, sufficiently stated a claim”.⁹ 

[Ed. Note: This Blog previously examines the doctrine of mutual mistake and the scrivener’s error here.]

Takeaway

Reformation is an equitable form of relief that is designed to effectuate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties.¹⁰ When a party seeks reformation, he or she “‘must establish [the] right to such relief by clear, positive and convincing evidence.’”¹¹ Therefore, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.”¹² 

When a scrivener’s error is the basis for reformation, the party demanding reformation must prove “a prior agreement between [the] parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement.”¹³ In Ralph Lauren, the oral agreement between the parties reflected the actual agreement between them and, as such, was considered to be the most persuasive evidence of the intention of the parties.¹⁴ Under those circumstances, plaintiffs met their burden and stated a claim for reformation or rescission based on a mutual mistake.

Footnotes

1. Matter of Gould v. Board of Educ. of Sewanhaka Cent. High Sch. Dist., 81 N.Y.2d 446, 453 (1993).
2. E.g., Zacharius v. Kensington Publ. Corp., 167 A.D.3d 452, 454 (1st Dept. 2018); Jerome M. Eisenberg, Inc. v. Hall, 147 A.D.3d 602, 604 (1st Dept. 2017); Resort Sports Network Inc. v. PH Ventures III, LLC, 67 A.D.3d 132, 135 (1st Dept. 2009).
3. Matter of Gould, 81 N.Y.2d at 453; Jerome M. Eisenberg, 147 A.D.3d at 604.
4. Matter of New York Agency & other Assets of Bank of Credit & Commerce Intl. [Superintendent of Banks of State of N. Y.—CITIC Indus. Bank], 90 N.Y.2d 410, 424 (1997).
5. Gunther v. Vilceus, 142 A.D.3d 639, 641 (2d Dept. 2016); US Bank Natl. Assn. v. Lieberman, 98 A.D.3d 422, 424 (1st Dept. 2012).
6. Chimart Assocs. v. Paul, 66 N.Y.2d 570, 573 (1986).
7. Harris v. Uhlendorf, 24 N.Y.2d 463, 467 (1969) (quoting, Born v. Schrenkeisen, 110 N.Y. 55, 59 (1888)).
8. Slip Op. at *1.
9. Id. (citations omitted).
10. George Backer Mgt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 219 (1978).
11. Schultz v. 400 Coop. Corp., 292 A.D.2d 16, 19 (1st Dept. 2002) (quoting, Amend v. Hurley, 293 N.Y. 587, 595 (1944)).
12. Id.
13. US Bank, 98 A.D.3d at 424.
14. Gulf Ins. Co. v Transatlantic Reins. Co., 69 A.D.3d 71, 85 (1st Dept. 2009).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.