Commercial Division Blog
Posted: January 13, 2021 / Categories Commercial, Contracts
Mutual Mistake Claim Fails
On December 22, 2020, Justice Schecter of the New York County Commercial Division issued a decision in D.E. Shaw Composite Holdings, L.L.C. v. Terraform Power, LLC, 2020 NY Slip Op. 34294(U), dismissing a claim for mutual mistake, explaining:
The premise underlying the doctrine of mutual mistake is that the agreement as expressed, in some material respect, does not represent the meeting of the minds of the parties. When a party seeks reformation based on a scrivener's error it must prove a prior agreement between the parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement. 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. It is thus presumed that a deliberately prepared and executed document manifests the true intentions of the parties such that the proponent of reformation is required to proffer evidence, which in no uncertain terms, evinces mistake and the intended agreement between the parties. Moreover, the doctrine of mutual mistake may not be invoked by a party to avoid the consequences of its own negligence.
Importantly, the mistake must truly be mutual. It must be made by both parties. Evidence that only one side was mistaken is insufficient.
There is no record evidence from which a reasonable finder of fact could conclude that plaintiffs made a mistake in using the word Buyers in section 2.04(g). Defendants posit that because SunEdison was acquiring the developing projects on which the Accelerated Eamout Payment would be based, and since the PSA generally requires only SunEdison to pay the earnout-payments for these projects, it makes no sense that the parties would agree that defendants would both be liable upon an "Acceleration Event." The court disagrees. Even though the PSA limits payment obligations for each of the Buyers to their respective First-Wind acquisitions, it is not economically illogical, as part of the deal as a whole, for plaintiffs to have negotiated and for defendants to have agreed to pay the accelerated-earnout obligation in the event of, among other things, SunEdison's bankruptcy. This makes sense given that SunEdison's bankruptcy, and presumable inability to immediately deliver payment, is a trigger to TerraForm LLC's independent obligation. Section 2.04(g), as executed, certainly is not irrational nor is it itself indicative of inconsistency with the parties' demonstrated intent.
Even assuming that defendants submitted sufficient evidence that they themselves made a mistake, they have not submitted any evidence showing that plaintiffs made a mistake and that any mistake was, in fact, mutual. The PSA's draft history shows that the word "Buyers" was conspicuously inserted into section 2.04(g) and that defendants and their extremely competent counsel had ample opportunity to review this section, which was specifically the subject of negotiations, to ensure its terms reflected the parties' agreement. Indeed, 22 of the 24 drafts contained the provision, which at one point was even removed and re-inserted, and all of them included the word Buyers. Whether defendants simply overlooked the term or always intended it to be reflective of the parties' agreement is irrelevant as defendants point to no evidence establishing that plaintiffs, who drafted the language, did not purposely include Buyers' liability for the accelerated payment as part of the bargain that they struck. The parties made deliberate drafting decisions about when to refer to a specific Buyer and when to refer to both Buyers. There is no evidence that plaintiffs were any less deliberate about their drafting of section 2.04(g), and defendants had ample opportunity to object to the term if it was included by mistake just as the sellers pointed out the mistake in failing to include the provision altogether in one of the drafts before it was reinserted.
In sum, there is no question of fact as to whether both parties made a mistake here. Any inconsistency alleged by defendants is one sided and does not prove a mutual mistake. Absent evidence that plaintiffs intended anything contrary to what the agreement says in the event of an Acceleration Event, the contract must be enforced as written. Summary judgment is therefore granted to plaintiffs on the mutual-mistake defense and on liability for breach of § 2.04(g) based on the unambiguous provision and satisfaction of its requirements. TerraForm Inc. is liable as guarantor of TerraForm LLC's obligation.
(Internal quotations and citations omitted).
The doctrines of mutual and unilateral mistake are a way to have a court throw a contract out because there was no meeting of the minds by the parties. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.