Guenther v. Downtown Mercury, Inc. ( 1958 )

This is an action seeking reformation of a contract for an automobile and an accompanying chattel mortgage and an insurance policy, and for judgment for money upon the instruments, as reformed.

All the defendants deny the allegations upon which the plaintiff relies as his cause of action, and the defendants, other than Connecticut General Life Insurance Company, by cross-petition pray for judgment for money on the unreformed chattel mortgage. These issues were tried to the Common Pleas Court without a jury, and, at the conclusion of the trial, the court found the issues in favor of the plaintiff and granted the relief for which he had prayed. That is the judgment from which this appeal on questions of law was taken.

The plaintiff's son, Sherl Guenther, applied to the defendant Downtown Mercury, Inc., for the purchase of an automobile. The negotiations progressed to the point where Sherl made a payment of $200 and gave a note for $500, payable two days after date, on account of the purchase price, and was given possession of the automobile pending the final consummation of the sale which was to take place within two days thereafter. The note was to be paid on the completion of the sale, thereby making the cash payment $700, and the remainder was to be paid in monthly installments, secured by a chattel mortgage upon the automobile. Without doubt, at this first meeting, Downtown Mercury, Inc., raised the question of Sherl's ability to meet the monthly payments of $87.05, and that was the reason for postponing the consummation of the sale, so as to give Sherl time to satisfy Downtown Mercury, Inc., that the obligation for the balance of the sale would be met. It is a fair inference that both parties contemplated that the security would be strengthened by having Sherl's father obligate himself in some way to the payment of the unpaid balance.

Pursuant to this plan, the plaintiff, his wife, and Sherl went to the place of business of Downtown Mercury, Inc., and executed the documents which the plaintiff seeks to have reformed. These documents consist of a chattel mortgage and power of attorney, and these were executed in duplicate. These documents were signed by the plaintiff, and under his name was the signature of his son, Sherl Guenther. In addition, the plaintiff signed a so-called Universal C. I. T. customer's statement. The chattel mortgage and power of attorney were on printed forms, with blank spaces, and it appears that the plaintiff and his son signed before the blanks were filled in, but that fact is not material, as no question is raised as to whether the blanks were properly filled in accordance with the intent of the parties. As signed and filled in, there is no ambiguity or uncertainty in these written documents. They show that the plaintiff and his son purchased this automobile jointly, executed this chattel mortgage jointly, became bound jointly, and, as to the defendant Downtown Mercury, Inc., became equally liable to discharge the debt.

But the plaintiff asserts that it was understood that he was to be only a surety for his son and he was to have no title to the automobile. Analyzing the conversation which took place at the time of this purchase, we find some evidence to support that position. However, in our opinion, the record does not contain that clear and convincing evidence which is required to nullify a written contract into which the parties have integrated their contract. Regardless of whether the writing could be reformed between the original parties, there are others who would be affected, and that raises other questions.

The parties contemplated that the life of one or both of the mortgagors would be insured to the extent of the unpaid balance, so that in the event of death, the unpaid balance would be paid by the insurer. The printed form contained a provision to that effect. Under the printed, bold-type heading, "Designation of Insured," there was this printed statement: "For insurance, if any, to be obtained in connection herewith — customer designates as to the person to be covered the individual whose signature on behalf of the customer first appears below." The first signature below is that of the plaintiff, and under his signature appeared in print this statement: "Person to be insured as above."

Downtown Mercury, Inc., in accordance with what appears to have been usual, immediately thereafter assigned this chattel mortgage to Universal C. I. T. Credit Corporation, and insurance on the life of the plaintiff was taken out with Connecticut General Life Insurance Company, as required in the chattel mortgage.

There is evidence that, before this sale was made, Downtown Mercury, Inc., submitted the credit risk to Universal C. I. T. Corporation, but there is no evidence as to whether the credit risk was as to the plaintiff or Sherl, excepting a financial statement made by the plaintiff upon a form provided by Universal C. I. T. Corporation. Whether this was the basis upon which it accepted the risk does not appear. There is no evidence whatsoever that Connecticut General Life Insurance Company had any knowledge whatsoever about any alleged mistake when it accepted the plaintiff as the insured.

Sherl Guenther died within a month of this purchase, and then, for the first time, was it asserted that this life insurance should have been taken on his life and not on the life of his father. To accomplish this, the plaintiff alleged, and was obliged to prove, that Connecticut General Life Insurance Company had knowledge of this mistake at the time it accepted the insurance. There is a claim that the business relation between these three defendants, as shown by the evidence, was very close, and the evidence does so prove, but there was a point where their interests diverged — and a close relationship is no proof of authority to bind the others by contract. They were three independent business corporations — each pursuing its own business, in its own field.

We find no evidence that Connecticut General Life Insurance Company participated in any way in this transaction at or prior to the execution of this chattel mortgage, and thereafter its only connection was to issue a policy upon the life of the plaintiff in accordance with the terms of the chattel mortgage.

The case then reduces itself to the question of whether this chattel mortgage should be reformed so as to substitute Sherl Guenther for the plaintiff as against Connecticut General Life Insurance Company, so as to charge it with the obligation to pay the mortgage debt, notwithstanding it had no notice of the alleged mistake and had no intention to issue a policy upon the life of Sherl Guenther.

Assuming that there was a mutual mistake by the plaintiff and Downtown Mercury, Inc., and that the instruments could be reformed as to them, that reformation could not be made as against the other defendants who were not parties to the mistake and who had no notice of it. Their contracts cannot be reformed because of a mistake in the contract between the plaintiff and Downtown Mercury, Inc., even though equity would reform the instrument as between them.

In 76 Corpus Juris Secundum, 409, Section 59, the rule is stated that: "An instrument may not be reformed as against a subsequent bona fide purchaser for value without notice." And, in 35 Ohio Jurisprudence, 152, Section 10, it is said, more broadly, that: "It is an almost universally established rule that while a court of equity will reform a deed * * * contract, or other instrument and will make the instrument conform to the intention of the parties, reformation or correction will not be made if it appears that it will prejudice the rights of bona fide and innocent purchasers or of subsequent encumbrancers for a present consideration." See, also: 45 American Jurisprudence, 624et seq., Section 68 et seq., and Haverstick v. Beaver, 34 Ohio Law Abs., 363, 37 N.E.2d 650.

And the burden of proving that the subsequent purchaser had notice of the mistake at the time he became a purchaser rests upon the litigant seeking the reformation.

In the text of Section 112 in 45 American Jurisprudence, 649, it is stated, that: "The party seeking reformation has the burden of showing that a subsequent purchaser or encumbrancer acquired his right with notice of the equity of reformation."

Regardless of the burden of proof, there is no doubt that equity acts sparingly in the reformation of written documents executed by parties, and only when the proof is of a very high degree. This is particularly so when the rights of third persons have intervened.

We, therefore, find that the court erred in overruling the defendants' motion for judgment.

For these reasons, the judgment is reversed, and final judgment will be entered for the defendants.

Judgment reversed.

HILDEBRANT, P. J., concurs.