Chimart Associates v. Paul

• Decision Date: 16 January 1986
• Citation: 66 N.Y.2d 570,498 N.Y.S.2d 344,489 N.E.2d 231
• Parties: , 489 N.E.2d 231 CHIMART ASSOCIATES, Respondent, v. David L. PAUL, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 344

498 N.Y.S.2d 344

66 N.Y.2d 570, 489 N.E.2d 231

CHIMART ASSOCIATES, Respondent, v. David L. PAUL, Appellant.

Court of Appeals of New York.

Jan. 16, 1986.

Robert S. Smith and Dorothy E. Roberts, New York City, for appellant

Robert J. Schechter, New York City, for respondent.

OPINION OF THE COURT

KAYE, Judge.

Where a written agreement between sophisticated, counseled businessmen is unambiguous on its face, one party cannot defeat summary judgment by a conclusory assertion that, owing to mutual mistake or fraud, the writing did not express his own understanding of the oral agreement reached during negotiations.

The facts are largely uncontested. Defendant, David L. Paul, a businessman and financier, was president of AmMart, one of two general partnerships that collectively owned 666 Associates, an Illinois limited partnership whose sole business was the ownership and operation of a building in Chicago. In 1980 AmMart proposed making major improvements to the building, requiring additional capital. Because the other general partner did not wish to participate, Paul and AmMart set out to find new partners and restructure 666 Associates.

To this end, Paul and AmMart located new limited partners who would purchase interests in 666 Associates for $170,000 per percentage point. One of these new limited partners was plaintiff, Chimart Associates. According to Paul's affidavit, he negotiated with Chimart and its attorneys between July 1980 and November 20, 1980, when the deal closed and Chimart purchased a 22% interest for a total of $3,740,000. At the closing, the parties executed a number of documents, including a 27-page amended and restated limited partnership agreement. Central to this suit, however, is a two-page letter agreement, also dated November 20, 1980 and executed at the closing, from Paul to Chimart, in care of its attorneys, containing the following paragraph: "In order to induce you to purchase the Interest, and subject to your assignment to me of your right to receive certain cash distributions from the Partnership, as described below, I agree to pay you, on November 23, 1982, the amount, if any, by which (A) $1,320,000 exceeds (B) the sum of the cash distributions to you from the Partnership on account of the Interest through November 20, 1982 (such amount being the 'Guarantee Payment'). If a Guarantee Payment is not paid on or before November 23, 1982, I also agree to pay interest on such Guarantee Payment from November 23, 1980 to the date such payment is actually made, at a rate per annum equal to the prime rate charged from time to time by Chemical Bank for 90-day unsecured loans to commercial borrowers of the highest credit rating plus one percent." The letter agreement was drafted by Chimart's attorneys.

As of November 23, 1982, Chimart had received no cash distributions from 666 Associates, and Paul refused to make the "Guarantee Payment" under the letter agreement. In June 1983, Chimart sued Paul to collect $1,320,000 plus interest and, after Paul answered, in August 1983 moved for summary judgment on the ground that the language in the letter was unambiguous.

Paul opposed the motion. Arguing that the language of the agreement was ambiguous and that parol evidence was therefore admissible, Paul submitted an affidavit in which he swore that he had not read the letter agreement before he signed it, but that he believed, based upon conversations with Chimart during the negotiations, that he had an obligation only to pay interest on any unpaid amount until 666 Associates made the distribution. In addition, Paul cross-moved to amend his answer to assert an additional affirmative defense of fraud and/or mutual mistake, and a counterclaim to reform the letter agreement on that ground.

Special Term denied Chimart's motion for summary judgment and granted Paul's cross motion because "it is apparent that the parties are in fundamental disagreement concerning the meaning and interpretations of their letter agreement. * * * This dispute must be resolved at trial." Chimart appealed from so much of the order as denied its motion for summary judgment, and a unanimous Appellate Division reversed and granted the motion on the ground that the provision was unambiguous. We now affirm.

As we said in Teitelbaum Holdings v. Gold, 48 N.Y.2d 51, 56, 421 N.Y.S.2d 556, 396 N.E.2d 1029, "of an unambiguous contract provision is a function for the court, and matters extrinsic to the agreement may not be considered when the intent of the parties can be gleaned from the face of the instrument." Indeed, Paul does not dispute that we should determine if there is any ambiguity by the contractual language alone, without reference to extrinsic evidence. The initial question, then, is whether the agreement on its face is reasonably susceptible of more than one interpretation.

It is not. Paul argues that ambiguity appears on the face of the agreement in that the second sentence suggests that he need only pay interest on any sums not paid by 666 Associates, but the provision does not reasonably admit of such an interpretation. The language plainly imposes an undertaking both to make the "Guarantee Payment" and to pay interest on a late payment. Moreover, Paul's interpretation would render superfluous the first sentence of the paragraph in which he unconditionally agreed to make the "Guarantee Payment", and would allow him the option of always simply paying interest.

Nor does Paul's claim of mutual mistake or fraud warrant a trial on his counterclaim for reformation.

In the proper circumstances, mutual mistake or fraud may furnish the basis for reforming a written agreement. Indeed, the concepts are closely related. In a case of mutual mistake, the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement (see, Harris v. Uhlendorf, 24 N.Y.2d 463, 301 N.Y.S.2d 53, 248 N.E.2d 892; Hart v. Blabey, 287 N.Y. 257, 39 N.E.2d 230). In a case of fraud, the parties have reached agreement and, unknown to one party but known to the other (who has misled the first), the subsequent writing does not properly express that agreement (see, Barash v. Pennsylvania Term. Real Estate Corp....