Home Owners' Loan Corp. v. Stevens

• Decision Date: 07 May 1935
• Citation: 179 A. 330,120 Conn. 6
• Parties: HOME OWNERS' LOAN CORPORATION v. STEVENS
• Court: Connecticut Supreme Court

179 A. 330

120 Conn. 6

HOME OWNERS' LOAN CORPORATION v. STEVENS

Supreme Court of Errors of Connecticut.

May 7, 1935

Appeal from Superior Court, New Haven County; Edwin C. Dickenson Judge.

Action by the Home Owners' Loan Corporation against Edward E Stevens for cancellation or reformation of an " authorization for delivery of bonds" issued by the plaintiff to the defendant, or for a judgment declaring the rights of the parties, in which the defendant filed a cross-complaint claiming delivery of bonds in the amount called for by the authorization, or damages, brought to the superior court in New Haven county and tried to the court. Judgment for the defendant on the complaint and for the plaintiff on the cross-complaint, and appeal by the plaintiff. Error, and cause remanded with direction.

Frederick C. Hesselmeyer and Thomas A. Grimes, both of New Haven (Samuel O. Clark, Jr., of New Haven, on the brief), for appellant.

Louis Harris, of Milford, for appellee.

Argued before MALTBIE, C. J and HAINES, HINMAN, BANKS, and AVERY JJ.

HINMAN, Judge.

The facts found by the trial court include the following: In September, 1929, Ethel M. Smith purchased a house and lot in Stratford from the defendant, the purchase price being $4.625, of which $570 was paid in cash and the balance by first mortgage, the principal to be reduced $200 yearly. In the summer of 1932 Mrs. Smith was in default under the mortgage to a considerable amount and the defendant agreed with her that he would attempt to sell the property for her. He placed it with a real estate agent for sale at an asking price of $3,900 and would have been willing to accept less, but the agent was unable to make a sale or obtain a reasonable offer. In September, 1933, the defendant suggested to Mrs. Smith that she apply to the plaintiff for a loan under the Home Owners' Loan Act of 1933 (see 12 USCA § § 1461-1468), and she finally did so. At the request of the plaintiff and in accordance with its usual procedure, she forwarded to the defendant a form of mortgagee's consent to take bonds, and the defendant filled out and signed it, agreeing to take plaintiff's bonds in the amount of $4,200 for a release of his mortgage. Mrs. Smith filed this consent with the plaintiff and, in accordance with its usual procedure, the plaintiff caused the property to be appraised; the appraisal placing the value at $5,283.35. The plaintiff was specifically prohibited by the act from loaning in excess of 80 per cent. of the appraised value of the property; therefore, as taxes in excess of $200 were unpaid, the plaintiff was without authority to issue bonds to the defendant in the amount specified in his first consent. The defendant was thereupon requested to consent to accept a less amount, visited the plaintiff's office, and there signed a second consent whereby he agreed to accept bonds in the amount of $3,950. In accordance with its usual procedure the plaintiff caused further appraisals to be made, as a result of which $5,000 was the final appraisal value, permitting the plaintiff to make a maximum loan of $4,000.

Procedure for the granting of the loan thereafter progressed until it was ready for closing on November 28, 1933. A statement had been prepared by a closing clerk of the plaintiff, in which was inserted, by mistake, as the amount to be paid the defendant, $4,849.32, the full amount of the defendant's mortgage claim as shown by a statement which he had furnished the plaintiff, instead of the $3,950 which he had agreed to accept. The circumstances attending and contributing to this error need not be detailed, as they involve no such negligence or other fault of the plaintiff as would affect its right to relief. 2 Pomeroy, Equity Jurisprudence, § 828; 21 C.J. p. 88; Geremia v. Boyarsky, 107 Conn. 387, 391, 140 A. 749. At the closing the plaintiff's attorney called the defendant's attention to the item of $4,849.32 to be paid by the plaintiff to the defendant and inquired as to whether the figure was correct, and the defendant replied that it was. He " expressed no surprise or astonishment with regard to the amount he was to receive, asked no questions whatsoever regarding it, and made no comment thereon except to say that such amount was correct." The defendant delivered to the plaintiff a release of his mortgage and received from the plaintiff the original of an authorization for delivery of bonds in the amount of $4,750 with interest coupons affixed having a value of $75.91 and a check for $23.41, aggregating $4,849.32, or $899.32 in excess of the amount which he had agreed to accept. The mistake was first discovered by the plaintiff early in December, and its representatives immediately visited the defendant, explained the mistake to him, and requested and demanded that the return the authorization for correction; but the defendant refused to do so and still has it in his possession.

The trial court's conclusion that there was neither fraud nor mistake on the part of the defendant and its ruling" that reformation could not be granted are the principal and determining points of this appeal.

Reformation is appropriate in cases of mutual mistake-that is where, in reducing to writing an agreement made or transaction entered into as intended by the parties thereto, through mistake, common to both parties, the written instrument fails to express the real agreement or transaction. 5 Pomeroy, Equity Jurisprudence (2d Ed.) § 2096; 53 C.J. p. 941; Amer. Law Institute Restatement, Contracts, vol. 2, § § 504, 505; Town of Enfield v. Hamilton, 110 Conn. 319, 148 A. 353; Mishiloff v. American Central Ins. Co., 102 Conn. 370, 128 A. 33; Snelling v. Merritt, 85 Conn. 83, 100, 81 A. 1039; Bishop v. Clay F. & M. Ins. Co., 49 Conn. 167. An illustration of the limitations of this rule is afforded by the situation presented in Geremia v. Boyarsky, supra. As is pointed out in the Connecticut Annotations to the above cited sections of the American Law Institute Restatement (at page 338), that was not a case in which reformation would be granted because, although the plaintiff had reason to know that a substantial error had been made in the amount of a bid submitted by the defendant, he did not know what the bid would have been had there been no mistake and there was no mistake in reducing to written form an agreement previously made.

The facts of the instant case do not disclose such mutual mistake as to make the rule applicable, but reformation is also available in equity when the instrument does not express the true intent of the parties owing to mistake of one party coupled with fraud, actual or constructive, or inequitable conduct on the part of the other. 5 Pomeroy, Equity Jurisprudence (2d Ed.) § 2097; 53 C.J. p. 949; 10 R. C. L. 301; Town of Enfield v. Hamilton, supra, 110 Conn. 319, page 327, 148 A. 353. Fraud, for the purposes of this rule, includes not only misrepresentation known to be such, but also concealment or nondisclosure by a party who knows that the other party is acting under a mistake as to material facts. Amer. Law Institute Restatement Contracts) vol. 2, § § 471, 472. " Where, unknown to one of the parties, an instrument contains a mistake rendering it at variance with the prior understanding and agreement of the parties, and the other party learns of this mistake at the time of the execution of the instrument and later seeks to take advantage of it, equity will reform the instrument so as to make it conform to the prior understanding." Spirt v. Albert, 109 Conn. 292, 300, 146 A. 717, 720; In re Estate of Jenkins, 201 Iowa, 423, 205 N.W. 772. In Town of Essex v. Day, 52 Conn. 483, 496, 1 A. 620, 623, examples illustrative of inequitable conduct are cited, as follows: " A grantor, by mistake, embraces in his deed a parcel of land that neither party intended to have conveyed. The grantee sees his mistake, but does not call the attention of the grantor to it, and afterwards claims the parcel thus accidentally conveyed; or a person offers a reward of $100 for the detection and arrest of a burglar, but by mistake, and without his notice, it is printed $1,000. A man who knows of the mistake arrests the burglar,...