Murray v. Dake

California Supreme Court Jul 1, 1873 No. No. 3,587Published

Before: Belcher

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Holding. A court of equity may reform a written contract or prevent its enforcement according to its literal terms when a party attempts to use the instrument to commit a fraud by violating a prior express oral agreement, even in the absence of mistake or fraud at the time of execution.

Issues

Is parol evidence admissible to reform a written lease when a party seeks to enforce it in a manner contrary to the parties' express oral agreement?
Does a court of equity have the authority to prevent the fraudulent use of a written contract for a purpose not contemplated at the time of its execution?

Disposition. affirmed

Quotations verified verbatim against the opinion

“The rule does not, however, exclude proof by parol testimony of fraud or mistake in the execution of the contract when a reformation of the instrument is sought.”

“It is as much a fraud to obtain a paper for one purpose and use it for a different and unfair purpose, as to obtain it by fraudulent statements.”

“To permit the plaintiff here to avail himself of this lease, in violation of his express agreement, to recover the property in controversy, would be to uphold and sanction fraud and bad faith.”

Synopsis

Written Contract—Parol Testimony. — The general rule that parol testimony is inadmissible to contradict, add to, or vary a written contract, does not exclude proof by parol testimony of fraud or mistake in the execution of the contract, when a reformation of the instrument is sought.

Equity—Fraud or Mistake.—A Court of equity will interfere to prevent the fraudulent use of a paper for a purpose not contemplated at the time it was made, even where there was no mistake or fraud in its execution. Reformation of a Lease by a Court of Equity.—If a lease is drawn of all of a brick building, but before it is signed by the lessor the parties agree verbally that it shall only cover the building as it then is, and that the lessor may erect and use a second story, the lessee cannot recover in ejectment a second story afterwards erected ; but a Court of equity will prevent such fraudulent use of the lease, and reform it so as to make it correspond with the verbal agreement of the parties.

Evidence in Ejectment.—In ejectment, based on a lease made by defendant to plaintiff, evidence is admissible that there was a verbal understanding that the demanded premises were not to be included in it, provided that defense is set up, and the Court is asked to reform the lease.

By the Court, Belcher, J.: This action is ejectment to recover the second story of a brick building and the yard in the rear of an adjoining building. The plaintiff claims under a lease made by the defendant to himself and one William Murray of “all that certain brick -building situate at the southwest corner of California and Main streets, in the City of Stockton, together with the lot on which the same stands, and the rear yard to the depth of seventy feet.”

When the lease was executed the plaintiff and William Murray were in possession of the building, which had then but one story, using it as a store under a former lease, which had yet six months to run. Shortly afterwards, and within the six months, the defendant erected the second story, and made an entrance to it by an outside stairway.

It was proved, against the objection of the plaintiff, that during the negotiations for the lease it was expressly understood between the parties that only the building as it then was, with the fifteen feet in the rear of it, was to be embraced -in the lease; that the defendant was to have the right to build a second story for his own use; that one of the lessees procured the lease to be written, and when it was read to the defendant he objected to signing it, because it did not reserve his right to erect the second story; that* he was answered by the lessees that it would make no difference whether the right were reserved in the lease or [647]not, as it was plainly understood and agreed that he was to have the right, and might exercise it freely; that upon these assurances he signed the lease; that the second story was afterwards built, without objection from the lessees, and without any claim being then made to it by them, but with their expressed assent and approval.

In his cross-complaint the defendant set up these facts and asked that the lease be reformed so as to express the true contract as made by the parties.

The Court directed the lease to be reformed as prayed for and rendered judgment for the defendant.

The only questions presented on the appeal relate to admissibility of the testimony objected to.

There is no doubt as to the general rule that parol testimony is inadmissible to contradict, add to, or vary a written contract. The rule does not, however, exclude proof by parol testimony of fraud or mistake in the execution of the contract when a reformation of the instrument is sought. For this purpose the testimony is always admissible, and the only question is whether it establishes such fraud or mistake as will induce a Court of equity to interfere and correct the writing.

Murray v. Dake

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