
    J. Langdon Ward and Others, as Trustees under the Last Will and Testament of Mary Mason Jones, Deceased, Appellants, v. Union Trust Company of New York, Respondent.
    First Department,
    March 12, 1915.
    Trial — separate trial of equitable issues raised, by counterclaim — mutual mistake — contract not expressing intent of parties — when reformation of contract necessary to defeat legal action thereon.
    Where a tenant sued by its landlord for the recovery of moneys expended by the latter in the payment of taxes, which by the terms of the lease were to be paid by the tenant, alleges as a separate defense and counterclaim that through mutual mistake the lease required the tenant to pay the taxes, while it was the real intention of the parties that said taxes should be paid by the defendant for two years only, the plaintiff, having put the counterclaim in issue by a reply, is entitled to a separate trial of the equitable issues raised thereby before the trial of the legal issues proffered by the complaint. This, because a defendant may not admit the execution of a contract in writing, and at the same time, without reforming it, show in defense of an action at law thereon, not that there was no agreement upon the subjects embraced in the contract, but that the agreement was not as evidenced by the writing.
    
      It seems, however, that a party sued on a contract may, without obtaining a decree annulling it, defend on the ground that it was induced by fraud, or that the instrument was void, or that it never became a binding obligation, or that the minds of the parties did not meet on the contract as pleaded, so that in fact the contract was never made. But it is different where the defendant admits the execution and the validity of the contract, but claims that it does not express the agreement of the parties.
    Appeal by the plaintiffs, J. Langdon Ward and others, etc., from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 22d day of December, 1914, denying their motion for a separate trial of the issues arising on a counterclaim pleaded by the defendant.
    
      W. K. Post, for the appellants.
    
      Wolcott G. Lane [Charles A. Sawyer with him on the brief], for the respondent.
   LauGHLIN, J.:

This is an action on a lease in writing and under seal, executed on the 2d day of December, 1908, by the then trustees under the will of the plaintiffs’ testatrix to the Plaza Bank, by which they leased to the bank the premises known as Nos. 2 and 4 East Fifty-eighth street, in the borough of Manhattan, New York, for a term commencing at noon on the 1st day of May, 1909, and ending at the same hour on the 1st day of May, 1914. The defendant succeeded by merger to the rights and obligations of the Plaza Bank under said lease on the 22d day of December, 1911. It is provided in the lease that the lessee should pay the rent reserved and “pay and discharge all annual taxes as shall during said term be imposed on said premises hereby demised as soon as they become due and payable,” The plaintiffs allege that the annual taxes for the year 1914, aggregating $10,235, were duly imposed upon the premises on the 27th day of March, 1914, and that one-half thereof became due and payable on the 1st day of May, 1914, at half-past nine o’clock in the forenoon, “and the other half of the said' taxes became payable at the same time,” and that defendant has failed and refused to pay the same, or any part thereof; that the 29th day of May, 1914, was the last day on which the first half of the taxes could be paid, without penalty or interest, and that on that day, after the refusal of the defendant to pay the taxes, the plaintiffs paid the receiver of taxes the sum of $5,117.50, being one-half of the whole amount. Judgment is demanded against the defendant for the entire amount of the taxes, together with interest on one-half of the amount from the 29th day of May, 1914, and on the other half from the 1st day of November, 1914.

The defendant admits the execution of the lease, and that by merger it became liable on the covenants and agreements of the lessee; and pleads as a separate defense and “by way of counterclaim ” that by the negotiations between the parties preliminary to the execution of the lease it was understood and agreed that the lessee was to pay the taxes only for the years 1909 to 1913, inclusive; that the trustees undertook to draw the lease in accordance with said agreement, but in so doing 1 used language which inadequately and imperfectly described the common intention of the said trustees and the said Plaza Bank” on this point and “that by mutual mistake the said trustees and the said Plaza Bank executed and delivered the said lease with the language of the same inadequately and imperfectly describing their common intention as aforesaid,” and' prays that the provisions of the lease with respect to the payment of taxes be reformed so as to provide specifically that the lessee was to pay and discharge the annual taxes for said five years only, and pleads a formal provision for thus reforming the lease and demands judgment for its reformation in accordance therewith and for a dismissal of the complaint.

The plaintiffs replied, putting in issue the allegations of the counterclaim upon which the reformation of the lease is demanded, and thereupon moved for an order directing a separate trial of the equitable issues presented by the counterclaim and staying the trial of the other issues in the meantime and they appeal from the order denying the motion.

The learned counsel for the defendant, in opposing the motion and in attempting to sustain the order, relied upon dicta in the opinions in certain decisions in the Court of Appeals and in the Appellate Division, which tend to sustain his contention that a party to a contract in writing may without having the contract reformed defend an action brought thereon on the ground that the agreement as reduced to writing does not express the true agreement of the parties, but which, when considered in the light of the facts presented by those cases, and the points decided therein, do not sustain it.

It has always been the rule that a party sued on a contract may, without obtaining a decree annulling it, defend on the ground that his signature thereto was induced by fraud, which if established vitiates the contract, or on the ground that the instrument purporting to be a contract was, for any reason, void, or that it never became a binding obligation, as for want of consideration or failure of delivery. (Thomas v. Scutt, 127 N. Y. 133; Bennett v. Edison Electric Ill. Co., 164 id. 131; Johnson v. Johnson, 157 App. Div. 289, 291.) It has also been held that in an action at law based on a contract in writing the defendant may show to avoid liability that the minds of the parties did not meet on the contract as pleaded, and that, therefore, the alleged contract was never made (Walker v. American Central Ins. Co., 143 N. Y. 167; City of New York v. Dowd Lumber Co., 140 App. Div. 358. See, also, Cohen v. American Surety Co., No. 1, 129 App. Div. 166); and it was held in this department by a divided court that it may be shown in defense of such an action that the minds of the parties did not meet with respect to a particular provision of a contract in writing, and that, therefore, such provision came into the contract through inadvertence or mistake and was not binding. (Loewenthal v. Haines, 160 App. Div. 503.) None of those authorities, however, sustain the contention made in behalf of the respondent that a defendant may admit the execution and validity of a contract in writing and at the same time, without reforming it, show in defense to the action at law thereon, not that there was no agreement at all on a particular subject embraced in the contract, but that the agreement thereon negotiated by the parties was not as evidenced by the writing; and all of the authorities are, I think, to the contrary. (Born v. Schrenkeisen, 110 N. Y. 55; Studwell v. Bush Co., 206 id. 416; Thomas v. Scutt, supra; City of New York v. Matthews, 156 App. Div. 490; Rubenstein v. Radt, 133 id. 57; Johnson v. Johnson, supra; Kraus v. Smolen., 46 Misc. Rep. 463.)

If the doctrine for which counsel for the respondent contend were to prevail, then in every action at law based on a contract in writing it would be open to the defendant to claim before a jury that certain agreements upon which the minds of the parties met in the preliminary negotiations were through inadvertence or by mistake omitted from the formal contract, and thus contracts, without being reformed, would always be subject to such defenses, and no contract which a jury would consider inequitable or unjust or harsh could ever be enforced. There is no precedent for such a theory, and none should be established. If the agreement, as reduced to writing, does not embody the agreement of the parties with respect to the payment of the taxes, then a court of equity should reform it, and as reformed it will be a complete defense to the action. In such case our practice requires that the issue arising on the equitable counterclaim should be tried first. (Goss v. Goss & Co., 126 App. Div. 748; Brody, Adler & Koch, Co. v. Hochstadter, No. 1, 150 id. 527; Harrison v. Loeser & Co., Inc., 164 id. 116; Epstein v. Rockville Centre Imp. Co., Id. 177.) If the defendant, having opposed the motion for the separate trial of its counterclaim, insisted upon the trial of the issues raised by the complaint and answer first, the evidence upon which it relies would be inadmissible as a defense to the action for the taxes. The defendant could, of course, waive its counterclaim; hut as it would then have no defense it is manifest that it did not intend to do so. The plaintiffs, therefore, pursued the proper practice, and their motion should have been granted.

It follows that the order should be reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs.

Ingraham, P. J., McLaughlin, Clarke and Scott, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.  