| Gessin Elec. Contrs., Inc. v 95 Wall Assoc., LLC |
| 2010 NY Slip Op 04921 [74 AD3d 516] |
| June 10, 2010 |
| Appellate Division, First Department |
| Gessin Electrical Contractors, Inc., Respondent, v 95 WallAssociates, LLC, Appellant, et al., Defendants. |
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Order, Supreme Court, New York County (James A. Yates, J.), entered October 16, 2009,which declared null and void the agreement between plaintiff and defendant 95 Wall Associates,dated September 22, 2008, and denied said defendant's motion for summary judgment dismissingthe complaint as against it and for judgment on its counterclaim, unanimously affirmed, withcosts.
This action involves a claim for approximately $1.7 million in change orders that plaintiff, acontractor on a construction project, submitted to 95 Wall, the premises owner.
At a September 2008 meeting, attended by 95 Wall's chief financial officer, Joseph Moinian,and plaintiff's principals, David Wasserman and Cory Gessin, the parties, without counsel,agreed to resolve the dispute by having 95 Wall pay plaintiff$500,000. However, 95 Wall did not realize that about $1.09 million of plaintiff's claim hadalready been satisfied by payments from the general contractor. Accordingly, 95 Wall thought itwas settling the full $1.7 million claim for $500,000, and plaintiff thought it was settling a$580,000 balance for $500,000.
After the meeting, 95 Wall's in house counsel drafted a one-page agreement that provided inrelevant part:
"1. Owner and Contractor agree to value all change orders and extras . . .arising from the date of the inception of the Contract at the sum of $500,000 (the "ExtraAmount").
"2. Owner shall pay the Extra Amount as follows: (a) Owner shall make four payments of$75,000.00 each on a weekly basis. Contractor acknowledges receipt of 2 payments of$75,000.00 under this Agreement. The remaining weekly payments shall be paid on the date offull execution of this Agreement and on the same day in the following week; (b) Owner shallmake four payments of[*2]$50,000.00, on the first business dayof each month, commencing November 3, 2008 and on the first business day of each succeedingmonth thereafter."
The agreement also provided that plaintiff would not file any mechanic's lien as long as 95Wall was not in breach, that lien waivers would be executed and held in escrow until eachpayment cleared, and that plaintiff would receive an additional $350,000 as a credit for certainrebates. Plaintiff signed the agreement without the benefit of counsel.
After 95 Wall paid the first $450,000 due under the agreement, it realized that it had alreadypaid $1 million for change orders and took the position that plaintiff had been overpaid. When 95Wall refused to make any further payments, plaintiff filed a mechanic's lien for $555,237 andbrought this action to enforce it. 95 Wall answered, counterclaimed for a $493,603 allegedoverpayment, and moved for summary judgment.
The motion court directed an evidentiary hearing on the issue of what the parties intendedand understood their agreement to be. After hearing testimony, the court, noting that theagreement had been drafted by an attorney who had not attended the negotiation session, foundthat
"[t]he future payment schedule was because [plaintiff's principal] thought he was owed themoney and that was the payment schedule for the money he thought he was owed.
"There is no theft or fraud here, it is just a payment schedule of a settlement of what hethought he was, what he was owed.
"On the other hand, I agree [95 Wall's principal] just probably was totally unaware of what. . . 95 Wall had paid out in total. . . .
"I conclude there was no meeting of the minds. I credit that Gessin thought he was settlingthe 580 thousand dollar claim for 500 thousand dollars. And I credit Mr. Moinian when he sayshe thought he was paying eight point two million [the contract price] plus 500 thousand and thatwas it."
Accordingly, the court denied 95 Wall's summary judgment motion and declared the contractnull and void.
The courts should construe a contract in a manner that avoids inconsistencies and reasonablyharmonizes its terms (James v Jamie Towers Hous. Co., 294 AD2d 268, 269 [2002]).Where internal inconsistencies in a contract point to ambiguity, extrinsic evidence is admissibleto determine the parties' intent (see Federal Ins. Co. v Americas Ins. Co., 258 AD2d 39,43 [1999]). The ultimate aim is to realize the parties' "reasonable expectations" through apractical interpretation of the contract language (see Sutton v East Riv. Sav. Bank, 55NY2d 550, 555 [1982]). Even if parties intend to be bound by a contract, it is unenforceable ifthere is no meeting of the minds, i.e., if the parties understand the contract's material termsdifferently (see Brands v Urban, 182 AD2d 287 [1992]; see also McNamara vTourneau, Inc., 464 F Supp 2d 232, 238 [SD NY 2006]).
Here, although paragraph 1 of the settlement agreement values all change orders arising[*3]from the date of the inception of the underlying contract at$500,000, paragraph 2 provides that plaintiff will be paid $500,000 on specified future dates, andparagraph 5 adds $350,000 more in rebates, which demonstrates that plaintiff never intended toreturn over $400,000 to 95 Wall; there was no meeting of the minds on this material term.
In Computer Assoc. Intl., Inc. vU.S. Balloon Mfg. Co., Inc. (10 AD3d 699 [2004]), the buyer's witness established thatthe buyer understood the computer software "service pack" addendum to the parties' contractincluded all the educational services he and his employees would need to use the software.When, shortly after contract execution, the seller tried to sell a separate education package atadditional cost, the buyer sought to rescind the contract. In direct conflict with this testimony,the seller's witnesses established that they understood that educational services were not includedin the contract price, but were to be included in a separate agreement. The Second Departmentfound the language employed in the contract was not susceptible of only one meaning, and thusthe contract was ambiguous as a matter of law. There was a reasonable basis for the parties'difference of opinion as to what the contract included or did not include, and thus the contractwas unenforceable for lack of a meeting of the minds regarding a material element.
Similarly, in this case the motion court found that
"[i]t would not have made sense for [Gessin's principal] to sign an agreement that says oh, Ivalue all change orders, one point seven million dollars worth of change orders for 500 thousand,even though you already paid me 900 thousand dollars . . .
"I do not think when he signed it, that is the way that he read that paragraph, and I do notthink . . . this is the kind of paragraph that is so crystal clear to Mr. Gessin in hissituation at that time that he was consciously agreeing to instead of getting 580 thousand dollars,instead he was agreeing to give back 400 thousand."
95 Wall contends that the contract must be enforced because it reflects its understanding ofthe parties' agreement. But while it may have reflected 95 Wall's understanding insofar as itpurported to settle "all change orders" for $500,000, 95 Wall ignores the contract provisionstating that it would make future payments even though it had already paid plaintiff far morethan $500,000. In effect, 95 Wall asks this Court to read the future payment provision out of thecontract, but doing so would depart from the well-settled rule of construction that no provision ofa contract should be left without force and effect (see Corhill Corp. v S.D. Plants, Inc., 9NY2d 595, 599 [1961]; see also AcmeSupply Co., Ltd. v City of New York, 39 AD3d 331 [2007], lv denied 12 NY3d701 [2009]). As the motion court determined as the finder of fact, 95 Wall believed that theparties were settling about $1.75 million worth of claims for a total of $500,000, and plaintiffbelieved that 95 Wall had agreed to pay it an additional $500,000 to settle its remaining claims.The written contract does not reflect either party's understanding.
Moreover, a court sitting in equity can rescind a contract for unilateral mistake if failure torescind would unjustly enrich one party at the other's expense, and the parties can be returned tothe status quo ante without prejudice (Cox v Lehman Bros., Inc., 15 AD3d 239 [2005]; see alsoRosenblum v Manufacturers Trust Co., 270 NY 79, 84-85 [1936]). In Cox, theplaintiff maintained a margin account with the defendant broker, which was secured by stock inthe account. The parties stipulated that the broker would return 112,400 stock shares upon the[*4]plaintiff's payment of $60,000. After the plaintiff paid themoney, the broker discovered there were only 81,700 shares in the account. The plaintiff sued toenforce the stipulation, but the trial court directed judgment for the broker on its counterclaim torescind the stipulation. We affirmed, holding that enforcing the stipulation as written, byrequiring the broker to purchase 30,700 shares on the market to give to the plaintiff (in additionto the 81,700 shares from the account) would create "a windfall" for the plaintiff. We noted thatduring the parties' settlement negotiations, the plaintiff never asked for more shares than were inthe margin account, and that we saw "no indications that [the broker] lacked good faith orintentionally avoided making an inquiry it had reason to know would disclose the true facts" (15AD3d at 240). Moreover, we concluded, rescinding the stipulation would restore the status quoante.
Here, if 95 Wall's interpretation were accepted, i.e. that $1.7 million in change orders weresettled for $500,000, 95 Wall would be unjustly enriched in that undisputedly plaintiff did notintend those terms. On the other hand, if plaintiff's interpretation were accepted, it would require95 Wall to pay plaintiff about $1 million more than 95 Wall had intended. Under thesecircumstances, rescinding the contract restores the status quo ante, where 95 Wall has alreadypaid plaintiff on some of its claims, and the remaining claims are outstanding.
Accordingly, the motion court correctly determined that the written contract should bevoided. Concur—Andrias, J.P., Saxe, Sweeny, Freedman and RomÁn, JJ.