Chimart Associates v. Paul, 66 N.Y.2d 570 (1986)
A claim for reformation of a contract based on unilateral mistake requires legally sufficient allegations of fraud on the part of the other party.
Summary
Chimart Associates sued Paul seeking reformation of a contract and an accounting, alleging mutual mistake or unilateral mistake coupled with Paul’s fraud. Chimart claimed entitlement to profits from the conversion of apartments to tenant ownership, regardless of whether the conversion was to cooperative or condominium ownership, while the contract only mentioned cooperative ownership. The New York Court of Appeals affirmed the dismissal of the claims based on unilateral mistake and fraud, finding that Chimart’s complaint failed to adequately allege fraud, which is necessary to support a reformation claim based on unilateral mistake. The court emphasized the need for specific allegations of misrepresentation, falsity, scienter, and deception to state a valid fraud claim.
Facts
In October 1980, Chimart Associates entered into an agreement with Paul to transfer an interest in certain apartment buildings. The agreement stipulated that Chimart would receive 25% of the profits upon conversion of the buildings to cooperative ownership.
Paul converted the apartments to condominium ownership, not cooperative ownership.
Paul refused to pay Chimart any portion of the profits from the condominium conversion.
Chimart commenced an action seeking reformation of the agreement, arguing that the parties intended Chimart to receive 25% of the profits regardless of whether the conversion was to cooperative or condominium ownership, alleging mutual mistake of the parties and mistake of the plaintiff and fraud of the defendants.
Procedural History
Special Term treated Paul’s motion to dismiss as a motion for summary judgment.
Special Term dismissed the allegations of unilateral mistake and fraud but denied the motion with respect to mutual mistake.
The Appellate Division affirmed, finding that the complaint failed to state a claim for fraud as a matter of law.
The Court of Appeals affirmed the Appellate Division’s order.
Issue(s)
Whether a bare claim of unilateral mistake, unsupported by legally sufficient allegations of fraud, states a cause of action for reformation of a contract.
Holding
No, because a bare claim of unilateral mistake by plaintiff, unsupported by legally sufficient allegations of fraud on the part of defendants, does not state a cause of action for reformation.
Court’s Reasoning
The Court of Appeals found that Chimart’s complaint failed to state a cause of action for reformation based on unilateral mistake and fraud. The court relied on established precedent, citing Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211, 218-219 and Nash v Kornblum, 12 NY2d 42, 46, emphasizing that a bare claim of unilateral mistake, without sufficient allegations of fraud, is insufficient for reformation. The court also noted the high standard of proof required for reformation, stating the right to reformation must be demonstrated by clear, positive, and convincing evidence (citing Amend v Hurley, 293 NY 587, 595).
The court highlighted that Chimart’s complaint merely alleged that Paul committed fraud by concealing knowledge of a “loophole” in the contract—that its reference to cooperative conversion did not include condominium conversion. The court emphasized that the essential elements of a fraud claim—misrepresentation of a material fact, falsity, scienter, and deception—were not adequately pleaded, failing to satisfy the specificity requirements of CPLR 3013 and 3016 (b). (citing Channel Master Corp. v Aluminium. Ltd. Sales, 4 NY2d 403, 406-407)
Even considering additional submissions, the court found no contention that Paul was aware of and concealed the “loophole” at the time of the contract’s negotiation and execution, nor was there any claim that Chimart was fraudulently induced into the agreement by any such concealment. The court stated: “Here, plaintiff merely alleged that defendant committed fraud in concealing knowledge of a ‘loophole’ in the contract — that its reference to cooperative conversion did not include condominium conversion.”
The court concluded that the complaint was legally insufficient to support a reformation claim based on unilateral mistake and fraud and was therefore properly dismissed.