House v. Wechsler

Hirschberg, P. J.: The case seems to have been correctly decided, : The action is in 'equity and has for. its objects the reformation of a contract of copartnership settlement because of mutual mistake of fact, the recovery back of money paid in excess of the true amount by reason of the mistake, and the cancellation pro tanto of 'a general release given on such payment. , The parties to the action were copartners- in, business, but executed a written agreement in December, 1902, providing for a dis [125] solution of the firm and a disposition of the partnership assets. In. this agreement it was provided in effect that an accounting should be had of the assets and liabilities of the firm and that a settlement should be had in accordance with the rights and interests of the parties as thereby disclosed. This agreement was followed by another one-executed the same month which recited the fact that the plaintiff had rendered to the defendant a statement of the partnership business whereby it appeared that the individual interest of the defendant amounted to the sum of $15,422.08, which statement the defendant had accepted “relying upon the correctness” of the same, and by which agreement the plaintiff agreed to pay the defendant the sum named for his interest in the partnership property. The plaintiff subsequently paid to the defendant the sum of $15,422.08 for the latter’s interest in the firm business and assets, and mutual general releases were then executed and exchanged. It was subsequently discovered, however, that the bookkeeper of the firm who had been intrusted by both parties with the duty of making up the statement of the condition of the firm for the purposes of the settlement, and who had been relied on by both parties to discharge that duty accurately, had inadvertently enumerated an asset which did not exist, and had also omitted an undoubted liability of which he was unaware, by reason of which errors the defendant’s real interest in the firm property was $1,235.23 less than the sum which appeared by the statement to represent it, and which excessive sum the defendant received from the plaintiff in cash on the adjustment. By the judgment appealed from, the plaintiff has been' permitted to recover the excess in the sum so erroneously overpaid to the defendant, and the release has been set aside as a bar to such recovery. The learned counsel for the appellant relies for a reversal on the case of Curtis v. Albee (167 N. Y. 360). The principle of the decision in that case is that mere ignorance of a material fact is' no sufficient ground for the reformation of a contract, but the general principle is recognized and reiterated that such reformation may be decreed where through mutual mistake the real agreement of the parties was not embodied in the papers. There a claim was sold at public auction for six dollars and fifty cents, the claim being [126] described in- the assignment as one for' two thousand ,and thirty-six dollars and fifty-four cents, whereas a few. payments had then been made upon the claim by the debtor without the knowledge of either • of the contracting parties, and the claim had been accordingly reduced in amount to a somewhat smaller sum than that by which it was described upon the sale. The court treated the. description of the account in the, assignment as a Warranty that it amounted to the sum named,, the falseness of which warranty was no ground for reformation. The purchaser meant -to pay six ¡dollars and fifty, .cents for the account which he bought, and the- account - which he bought was the one .which was sold. How much more or less he would have agreed to pay for it had he known the true amount of the claim could only be conjectured and the court in assuming to reform the contract would be really making a new -one. There was no element of fraud, and.no mutual mistake which operated to produce a different result' from that- which the parties intended. Rescission- might have been decreed in that case, but reformation was manifestly impossible. The court said (p. 366): “A' "claim for the smaller amount was not in the mind, of either party, for neither supposed it to exist, and hence, their minds: could' npt have .met on the transfer of such a claim. What the: parties did not agree to cannot be added by the court. The defendant paid a small' sum for a doubtful claim, large in amount, and ran the risk of losing what he paid for the chance of realizing a great profit.- He is entitled'to the contract in the form in which it was made without interference by t-he court in the guise tof -reformation. The plaintiff got what-he agreed , to take and assigned what he agreed to assign, .and he. has no more right tó a reformation of the contract than he would have to strike out a warranty of soundness from a bill of sale of a horse, because hto and the purchaser both believed the horse to ■ be sound when in fact it Was unsound-1. He sold the claim in question with, a warranty that it was for a certain, amount, and he cannot get rid of the warranty by ‘ reforming it out of the contract, upon the ground that he sol'd something he did not have, although he supposed he had if. This would ignore the rights of the defendant, and impose upon him a contract that he never made.”-, Here, however, the intention of the parties was that the plaintiff should buy and the defendant should sell the latter’s interest in the' [127] firm at its face value, to be ascertained by an accurate inventory of ■ the firm’s assets and liabilities. The precise value was ascertainable by the mere process of calculation and the parties were both mistaken in believing that the process had been correctly performed. A wrong sum was reached by them by adopting the bookkeeper’s figures in making the agreement, but these figures were vitiated by the two errors referred to which were errors as palpable and as correctable as though they were mere mistakes in mathematical computation. They operated, however,- to produce a consideration for the agreement which neither party intended. The result was that the written agreement did not, in fact, embody the intention' of the parties, but expressed a consideration which was larger than the plaintiff meant to pay or the defendant meant to charge. The minds of the parties met as to the essence of the amount to be paid, but both erred in determining how much it was. In other words, the error was solely in figuring. When such an error is finally discovered a court of equity is not too impotent to make the correction which justice and fair dealing demand. The effect of the correction is to make the contract the very thing which both parties supposed it was when they made it, and not to impose anything upon either party which is different from his original design. The release executed by the plaintiff is no bar to the maintenance, of this action. (Kirchner v. N. H. S. M. Co., 135 N. Y. 182.) The mutual mistake which justifies the reformation of the original contract will also avoid the release which was given primarily only to attest the consummation of the contract; and having been given under the influence of the same mistake, and before its discovery, it should not operate in equity as an estoppel to prevent the reformation of the principal agreement. The plaintiff is not chargeable with laches in "not discovering the mistake sooner. The judgment should be affirmed. Bartlett and Jenks, JJ., concurred; Woodward, J., read for reversal.