Court Opinion

ID: 9465729
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:54:06.267525+00
Date Added: 2024-06-11T17:39:20.240771
License: Public Domain

VAN GRAAFEILAND, Circuit Judge,
dissenting:
Because my understanding of the law of reformation differs markedly from that of my colleagues, I must dissent.
*326Although the facts are somewhat complicated, they resolve themselves into a simple legal issue. The parties entered into written settlement agreements providing for payment of demurrage and cargo on twelve ships. The defendants believed that all twelve had reached Nigerian waters when in fact six of them had never sailed. Defendants’ mistaken belief was either induced or shared by the plaintiff. Under such circumstances, can the written agreements be reformed by reducing defendants’ obligation thereunder to the payment of cargo and demurrage on only six ships while at the same time plaintiff is held fully bound to release its claims involving all twelve?
Judge Oakes states that the district court “could have found a mutual mistake of fact leading up to the negotiation of the agreements of discharge, warranting reformation under well-established principles of law.” Majority op., ante at 322 (emphasis supplied). Alternatively, he says fraud or misrepresentation as to the location of the second six ships and resulting mistake on' the part of the Nigerians would also warrant reformation. I respectfully suggest that this is not the established law of reformation in New York or in any other American jurisdiction.
“Reformation is an ancient remedy used to reframe written contracts to reflect accurately the real agreement between contracting parties when, either through mutual mistake or unilateral mistake coupled with actual or equitable fraud by the other party, the writing does not embody the contract as actually made.” Mutual of Omaha Insurance Co. v. Russell, 402 F.2d 339, 344 (10th Cir. 1968), cert. denied, 394 U.S. 973, 89 S.Ct. 1456, 22 L.Ed.2d 753 (1969).
Reformation may be used only to make an instrument conform to the actual agreement between the parties. Beecher v. Able, 575 F.2d 1010, 1015 (2d Cir. 1978); Brubrad Co. v.. United States Postal Service, 404 F.Supp. 691, 693 (E.D.N.Y.1975), aff’d, 538 F.2d 308 (2d Cir.), cert. denied, 429 U.S. 834, 97 S.Ct. 99, 50 L.Ed.2d 99 (1976). 3 Corbin on Contracts § 614 (1960). In reforming an instrument, the court does not make a new agreement; it merely declares what the actual agreement was. Schongalla v. Hickey, 149 F.2d 687, 690 (2d Cir.), cert. denied, 326 U.S. 736, 66 S.Ct. 46, 90 L.Ed. 439 (1945); Agee v. Travelers Indemnity Co., 264 F.Supp. 322, 326 (W.D.Okla.1967), aff’d, 396 F.2d 57 (10th Cir. 1968); 66 Am.Jur.2d Reformation of Instruments § 5 at 530; City of New York v. Pennsylvania R.R., 281 App.Div. 27, 31, 117 N.Y.S.2d 140 (1952), aff’d, 305 N.Y. 788, 113 N.E.2d 301 (1953). “It is not what the parties would have intended if they had known better, but what did they intend at the time, informed as they were.” Beecher v. Able, supra, 575 F.2d at 1015 (quoting Russell v. Shell Petroleum Corp., 66 F.2d 864, 867 (10th Cir. 1933)).
Once this intention is incorporated in the parties’ written agreement, the agreement cannot thereafter be reformed on the ground that one party was induced by fraud to agree. Long v. Sergio, 36 Misc.2d 668, 670, 233 N.Y.S.2d 715 (1962), aff’d, 19 A.D.2d 588, 240 N.Y.S.2d 152 (1963); Simons v. Crowley, 112 N.Y.S.2d 851, 855-56 (Sup.Ct.1952); Charles Albert Co. v. Newtown Creek Realty Corp., 211 App.Div. 1, 3-4, 206 N.Y.S. 670 (1924); Russell v. Shell Petroleum Corp., supra, 66 F.2d at 868; 12 Williston on Contracts § 1525A (2d ed. 1970). If that party agreed because he was deceived, he may demand rescission but not reformation. Buffalo Electric Co. v. State of New York, 17 A.D.2d 523, 526, 236 N.Y. S.2d 581 (1963).
The majority cite one New York case and several sections of the Restatement of Contracts as supportive of their interpretation of the law of reformation. My reading of these authorities leads me to a contrary conclusion. Section 297 of Tentative Draft No. 10 of the Second Restatement provides for reformation where a writing embodying an agreement fails to express the greement because of a mistake of both parties as to the contents or effect of the writing. In Comment “a” under this section, the drafters state that the “province of refor*327mation is to make a writing express the agreement that the parties intended it should” and that “reformation is available when the parties, having reached an agreement and having then attempted to reduce it to writing, fail to express it correctly in the writing.”
Section 308 of Tentative Draft No. 11 permits reformation when a party’s manifestation of assent is induced by the other party’s fraudulent misrepresentation as to the contents or effect of a writing. Comment “b” thereunder states that the section is applicable “only to misrepresentations as to the contents or effect of a writing” and that “[i]f the misrepresentation relates to some other fact, the contract may be voidable under § 306, but reformation is not appropriate.” This is the established New York rule.
Where the writing expresses the agreement, but the agreement was induced by fraud or misrepresentation, the injured party may be entitled to rescission or cancellation. Reformation is not the proper remedy.
1933 New York Annotations to the Restatement of Contracts at 309 (emphasis in original).
In re Wesche, 4 A.D.2d 997, 169 N.Y.S.2d 612 (1957), cited by the majority, is not to the contrary. There the court held that the Allegheny County Surrogate had the equitable power to reform an instrument of release “so as to conform to the prior agreement of the parties.” Id. 4 A.D.2d at 998, 169 N.Y.S.2d at 613.1 That is not what the district judge did in this case.
It is clear beyond dispute that the Agreements of Discharge herein covered and were intended to cover all twelve ships. The record shows that Mrs. Delia went to Nigeria intending to negotiate payment for cargo and demurrage on all twelve ships. She took with her a list containing the names of the twelve, and she presented this list to the Negotiating Committee in support of her principals’ claim. A certificate subsequently issued by the Negotiating Committee names the twelve ships2 and states that they are accepted in accordance with paragraph 3 of the certificate.3 Defendants’ witnesses testified that the Committee’s certificate “correctly summarize[s] the agreements that were negotiated . . ..” The total amount of cement on the twelve ships was 70,830 metric tons, the amount which, according to the Agreements of Discharge, had either been delivered under the letter of credit or was then awaiting delivery in vessels lying in Nigerian territorial waters.
The bills of lading and commercial invoices that plaintiff had presented to Morgan Guaranty in November 1975 covered $1,992,000 worth of cement to be transported to Nigeria on ships seven through twelve. On March 11, 1976, Central Bank of Nigeria cabled instructions to Morgan Guaranty to pay the C.I.F. value of the cement on ships seven through twelve, and on March 12, 1976, Morgan Guaranty paid plaintiff $1,992,000.
*328All of the foregoing facts are conceded by defendants,4 and it cannot be disputed that the parties intended to include ships seven through twelve and their contents within the terms of their Agreement of Discharge. This being so, the fact, as the district court found, that defendants were misled into believing that ships seven through twelve were in Nigerian waters at the time they executed the Agreements of Discharge, did not justify the district court in reforming the Agreements so as to eliminate these vessels from the instruments’ coverage.
Either the contracts covered and included the twelve ships, or there were no contracts. “There must have been a meeting of the minds of the contracting parties concerning the agreement, or agreements, which the court is asked to declare existent.” Metzger v. Aetna Insurance Co., 227 N.Y. 411, 417, 125 N.E. 814, 816 (1920). “If no prior agreement or intention existed, then the only remedy is rescission. . . . ” 66 Am.Jur.2d, supra, at 383-84. The logic of the majority’s argument concerning part performance escapes me completely. I fail to see how the defendants’ “part performance”, which consisted of paying for cement loaded on the second six ships, can serve as the basis for reforming the contracts so as to eliminate completely the requirement for such payment. I am convinced that the district court erred when it designated the $1,992,000 payment for cement on ships seven through twelve as an “overpayment under settlement” while at the same time holding plaintiff bound by its agreement to release all claims involving these same ships.
I am convinced also that it would be a misstatement of the facts to argue that plaintiff did not intend to be paid demur-rage for the second six ships. Although the defendants’ agreement to make such payments may have been induced by the mistaken belief of one or both of the negotiating parties that the ships were in Nigerian waters, it will not do to pretend that the subject of demurrage was not covered in the written instruments. As defendants concede in their brief, “[t]he Negotiating Committee in good faith accepted the settlement claim and incorporated its terms into the Agreements of Discharge.” If the minds of the parties did not thus meet, the appropriate remedy would be to cancel the Agreements. 3 Pomeroy’s Equity Jurisprudence § 870 at 383-84 (5th ed. 1941).
The majority makes sport of the plight of plaintiff and its associates, overlooking the fact that at least one of them, Intrafinsa, is now in the hands of creditors.5 It is undisputed that Nigeria, imperiously and by threat of force,6 breached a valid contract to purchase 240,000 tons of cement from plaintiff. Plaintiff is now being deprived of its right to recover damages for that breach by an “Agreement of Discharge”, the terms of which were not agreed upon by the parties but were created in the mind of the district judge. I cannot concur in this inequity.

. Sections 294 of Tentative Draft No. 10 and 306 of Tentative Draft No. 11 deal with avoidance of contracts. That issue is not before us.
Likewise inapposite are the cases cited by the majority that permit one, who was fraudulently induced to execute a release, to sue for damages without first rescinding the settlement and restoring the consideration received.

. The twelve ships and the tonnage of cement that they carried, as shown in the Negotiating Committee’s Certificate, are as follows:
Name Metric Tons 1. Cretan Life 500 2. Naimbana 2,730 3. Rio Doro 10,500
Name Metric Tons 4. Jotina 5,600 5. Joboy 7,500 6. Cherryfield 10,800 7. Aristotle 8,000 8. Astrid 3,200 9. Ardenal 5,700 10. Sandrina 5,300 11. Euna 6,800 12. Nikolaos H. 4,200 70,830
—(Total tonnage figure supplied)

. Paragraph 3 of the Certificate reads as follows: “That subject to the presentation of satisfactory documents all existing cargo and demurrage obligations be met on the basis of pro rata construction of all demurrage clauses.”

. On pages 12-15 of defendants’ brief, they state: “The settlement claim identifies the twelve vessels in question; it states that the total tonnage for the twelve vessels was 70,830 metric tons; that the value of the cargo not paid for amounted to $1,992,000; and that total demurrage due as of February 7, 1976 totaled $2,784,140. . . . The Negotiating Committee in good faith accepted the settlement claim and incorporated its terms into the Agreements of Discharge (379-381). ... On March 2, 1976 Central Bank instructed Morgan Guaranty to make payment with respect to the documentation Morgan Guaranty was holding for Cement Cargos, i. e., that relating to the second six vessels (460). Payment was made by Morgan Guaranty in the sum of $1,992,000 representing 33,200 tons of cement at $60 per ton (1224).”

. In order to carry out the terms of the Nigerian contract, Intrafinsa contracted to buy the cement from Spanish and Portuguese mills and agreed through a shipbroker to charter seventeen ships with which to transport it to Nigeria.

. Plaintiff was informed by telegram on September 22, 1975, that anyone violating Nigeria’s embargo “will be liable to have his vessel denied entrance to Nigerian territorial waters by force if necessary X This is a final warning.”