Judicial Deference to the Written Word in Commercial Documents, Still Rules, Except When It Is Clear There Has Been a Mutual Mistake

February 27, 2017

By: Stephen D. Richman

(A “Watch Your Language” Series Article)

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will typically uphold commercial document provisions unless they are contrary to public policy or statutory law. Courts traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial real estate transactions, since both parties will usually have attorneys to review their documents. Because courts often defer to the specific language of a commercial document (or lack thereof), unintended results are often the norm for parties who do not seek professional advice, and for professionals who do not closely review their documents. See, e.g. Christiansen v. Schuhart, 2011-Ohio-1199 (5th Dist. Ct. of App.) 2003 [document that used the words “easement” and “license”, and lacked “binding on successors language” was held to be a revocable license instead of a perpetual easement].

Because of this judicial deference to “commercial language”, and the fact that courts will not look outside the four corners of a document (to consider extrinsic evidence of intent) if the language is unambiguous, you must “watch your language, and say what you mean, precisely, or a judge will decide what you meant.”

Notwithstanding this deference to the written word, as aptly stated by the genie in the Disney film Aladdin,There are a few provisos, a couple of quid-pro-quos…” While the genie was specifically referring to the rules with regard to granting wishes, there are also a few exceptions with regard to the rules of “commercial contract deference law”. Most notably is the equitable doctrine of “mutual mistake”. Basically, a court may reform (in essence, re-write) a written agreement, if it finds that “the party seeking reformation has proven by clear and convincing evidence that both parties to an agreement were mutually mistaken as to the substance or meaning of the document. Equity will even permit the reformation of a written instrument not only as between the original parties but also as to parties in privity with them [such as the original parties’ successors in interest], unless the opposing party can demonstrate that he was a bona fide purchaser without knowledge of an encumbrance on the property.” Mason v. Swartz (1991), 76 Ohio App.3d 43,50.

The appellant (Circle J. LLC) in the recent case of Dysart v. Circle J, L.L.C., 2016-Ohio-869, unfortunately learned about the afore-mentioned proviso, the hard way (with a judgment for the appellee).

The facts of the case are as follows:

In 1996, David and Kathryn Dysart (Plaintiffs-Appellees) acquired 50 acres of a larger property owned by Leslie and Joan Maust in Wooster, Ohio. Being adjoining properties, there were a number of utility easements and one access easement granted at the time of the sale. The easement at issue in Dysart is the access (driveway) easement which grants the Dysarts (and their successors) the right to use a driveway which runs across the Mausts’ property.

In 2008, the Mausts sold their adjoining property to Circle J. LLC (Defendants-Appellees) a holding company owned by Jamie and Jody Snyder. The contract stated that the property was being purchased/sold subject to existing easements, including the driveway easement at issue, and copies of the easements were attached to the purchase agreement as exhibits. Between 2008 and 2011 the driveway was used by the Dysarts, without any issue from Circle J.

In 2011, the Dysarts attempted to sell their 50-acre property without success. They then tried to sell the property by auction in April of 2013. The day before the scheduled auction, however, Mr. Snyder/Circle J told the auctioneer that he was terminating the driveway easement. Circle J claimed that the document’s plain language permitted either party the right to terminate. The relevant provision states: “This Agreement may be amended, or terminated in whole or in part by Grantors or Grantees, or their respective successors in title to Parcel 1 and Parcel 2 without the consent of any tenant, lessee, mortgagee or other person claiming by or through them.” (Emphasis added). As a result of the unilateral termination, the Dysarts canceled the auction and filed a complaint against the Snyders and Circle J, LLC (collectively “Circle J”), seeking reformation of the driveway easement to reflect the original parties’ intent to create a perpetual easement, and seeking damages. The trial court entered judgment in favor of the Dysarts, reforming the easement document by substituting the word “and” between “Grantors” and “Grantees” for the word “or.”

Circle J appealed, claiming the trial court erred: 1) in finding that the Dysarts were granted an easement vs. a license; and 2) by reforming the purported “easement”. Circle J argued that since easements are assignable, perpetual interests running with the land that cannot be terminated unilaterally by any individual party, the document in question must be a license which is a personal right or privilege, that does not convey a property interest, is not assignable, does not run with the land and can be revoked unilaterally. Alternatively, if the document was to be construed to be an easement, Circle J argued that the courts should honor the plain language of the easement, and allow either party to terminate the same.

The Dysarts argued that the original parties intended to create an easement allowing permanent access to the Dysarts’ property, rather than a mere license that could be unilaterally terminated and to the extent that the easement document indicated that the easement could be terminated, the document contained a mutual mistake as to the parties’ intent. In addition to the testimony of the Mausts and Dysarts which confirmed such intent, the attorney for the Mausts admitted to the mistake in the document (claiming “boilerplate made him do it”) and further testified that the document was a perpetual easement because: 1) in his practice he would never title a document as an “easement” (as the agreements here were titled) if it could be terminated unilaterally by any party; 2) the agreements were recorded, and there would be no reason to publicly record a mere license; and 3) other provisions in the driveway easement (i.e. binding upon successor language) supported the conclusion that a perpetual easement (revocable only upon mutual assent) was intended.

The trial court and the appellate court in Dysart basically upheld the “mutual mistake proviso” to the “deference to actual language in a commercial instrument rule”. Citing precedent (prior court decisions on point), the Ninth District Court of Appeals in Dysart held that a trial court may reform a written agreement if it finds “that the party seeking reformation has proven by clear and convincing evidence that the parties were mutually mistaken as to the substance or meaning of the document.”

Applying the law to the facts, the appellate court had no problem finding clear and convincing evidence. The Dysarts testified that when they bought the subject property, the parties all discussed their intent to create an easement granting permanent access to the home via the existing driveway. Mr. Maust testified that he directed his attorney to draft the document to “guarantee access to the house that’s on that 50 acresfor as long as the house existed.” Finally, the attorney for the Mausts testified that, after conferring with the parties, he intended to draft agreements that could not be terminated unilaterally by either the grantor or grantee.

Circle J’s final argument was that “the exception to the exception” applies, namely that, irrespective of the mutual mistake of the original parties (Mausts and the Dysarts), Circle J was a bona fide purchaser without knowledge of an encumbrance on the property. The court of appeals in Dysart easily shot down this argument. First, the court cited precedent to clarify that while a court may not reform an instrument as against a bona fide purchaser without notice of the encumbrance, notice may be either constructive or arise from actual knowledge, and when an encumbrance has been recorded, a subsequent purchaser is charged with constructive notice.

In Dysart, the court held that the Snyders had at a minimum, constructive notice of the driveway easement when they purchased the Mausts’ property because: 1) the driveway easement was recorded; 2) the real estate purchase contract contained a section captioned “Subject to Existing Easements/Agreements” and a copy of each easement agreement was attached to the contract; 3) the Deed contained the requisite “subject to language”; and 4) Jamie Snyder testified that he was aware of the easements when he bought the Mausts’ property and never believed he had unilateral authority to terminate the driveway easement until April, 2013, after he asked his attorney to review the easement document.

What is the moral of this story?

Don’t hang your hat on the proviso. The general rule re: judicial deference to the written word in commercial documents, still… rules. Courts are reluctant to reform a document w/o clear and convincing evidence, and rarely is the evidence clear or convincing. Cases are turning on the use of seemingly trivial grammar rules such as e.g. vs. i.e., and the insertion, or omission of commas. The Dysart case and the legal fees that both parties incurred could have been avoided by the use of “and” vs “or”.  Most importantly, “watch your language, and say what you mean, precisely, or a judge will tell you what you meant.”