Commercial Division Blog

Posted: May 28, 2014 / Categories Commercial, Fraud/Misrepresentation, Real Property

Unilateral Mistake Insufficient to Justifiy Reformation of Deed Without Clear and Convincing Evidence of Fraud

On May 22, 2014, the Third Department issued a decision in Timber Rattlesnake, LLC v. Devine, 2014 NY Slip Op. 03718, affirming the refusal to reform a deed.

In Timber Rattlesnake, the plaintiff was the assignee of a contract to purchase real estate. After the plaintiff discovered that "the deed contained a restrictive covenant that had not been referenced in the contract of sale, [the plaintiff] requested that decedent correct the deed. Decedent refused and plaintiff commenced this action seeking, among other things, reformation of the deed." The trial court (Supreme Court, Sullivan County) held that the plaintiff had not established grounds for reformation of the deed. The Third Department affirmed, explaining:

A party seeking reformation must establish, by clear and convincing evidence, that the writing in question was executed under mutual mistake or unilateral mistake coupled with fraud. The burden is on the proponent of reformation to establish, by clear and convincing evidence, that the relief is warranted.

Here, it is undisputed that the deed's restrictive covenant was not set forth in the contract of sale and [the plaintiffs assignor] testified that he first became aware of it when he received the deed after the closing. Thus, plaintiff established the existence of a unilateral mistake regarding whether the restrictive covenant was intended to be included as a condition of the sale. Nonetheless, plaintiff's proof fell short of establishing fraud on decedent's part, which requires a misrepresentation that is false and that the defendant knows is false, made to induce the other party to rely on it, justifiable reliance on the misrepresentation by the other party, and injury. Decedent's attorney testified that he believed the parties had intended to include the restrictive covenant in the deed and that he added it to the proposed deed after he realized that it had been omitted therefrom. Prior to the closing, decedent's attorney had his legal assistant send the deed containing the restrictive covenant to the title insurance company by facsimile and contact plaintiff's attorney regarding the deed. Although some negative inferences could be drawn from the fact that decedent and his representatives failed to ensure that plaintiff's attorney was actually informed of the addition to the deed before the closing, other credible evidence suggested that decedent's counsel made efforts to so inform plaintiff. The attorney who appeared for decedent at the closing further provided the deed to plaintiff's attorney at the closing. Notably, the restrictive covenant language is clearly evident on the face of the executed deed and would easily have been discovered with even a cursory examination. Decedent's attorney testified that he had no intention of deceiving plaintiff. Under these circumstances, plaintiff failed to establish that decedent intended to induce its reliance on any misrepresentation.

(Internal quotations and citations omitted) (emphasis added).