
    The City of New York, Appellant, v. James Matthews and Gardner D. Matthews, Doing Business under the Firm Name of A. D. Matthews’ Sons, Respondents.
    First Department,
    May 2, 1913.
    Contract — action on contract with city, permitting owners to construct tunnel beneath street — defense — equitable counterclaim — mutual mistake of fact — evidence—trial of issues raised by equitable counterclaim.
    The owners of buildings situate on opposite sides of a city street applied to the board of estimate and apportionment of the city for permission to connect them by constructing a tunnel beneath the street: The privilege was granted upon condition that the owners execute and file a written agreement to make certain .payments to the city and deposit a sum as security for the performance of the contract. The tunnel was thereafter constructed and maintained by the owners, but they refused to make the payments required by said contract.
    In an action by the city to recover payments due the owners set up a general denial, and for partial defense, and by way of counterclaim, alleged that the agreement was made under a mutual mistake of fact, in that both parties at the time it was executed supposed that the fee of the street through which the tunnel was constrr cted belonged to the city, whereas only fifteen out of fifty feet was owned by it, the remaining thirty-five feet being owned by the defendants. The defendants demanded a dismissal of the complaint; that the agreement be reformed by reducing the amount payable to the city proportionate to the part of the tunnel actually owned by it; that defendants recover that portion of payments already made which was in excess of the amount which would have been due had the contract expressed the intention of the parties, and that an injunction issue restraining the city from applying any portion of the money deposited as security in extinguishment of the payments provided in the contract. The allegations of the counterclaim were put in issue by reply. At the Trial Term the parties stipulated that the action.be tried before the court and one juror, and that each side would move for the direction of a verdict. Defendants did not ask that the equitable issues raised by the counterclaim and reply be first tried at Special Term. A verdict was rendered in favor of the plaintiff for about one-third of the amount to which it was entitled if the agreement were enforced. Evidence examined, and
    
      Held, that the defendants by the contract sued upon accepted the conditions thereof, and promised to pay the amounts therein specified; that, therefore, it is immaterial whether the city fixed a higher sum than it otherwise would had it known of the defendants’ ownership, and there was no basis for reforming the contract; that the defendants failed to establish a mutual mistake; that the judgment should be reversed and a verdict directed in favor of the plaintiff for the full amount claimed.
    In an action at law where the answer sets up facts both as a defense and as the basis of an equitable counterclaim upon which affirmative relief is demanded, the defendant in advance of the trial should apply to the court to have the equitable issue first tried at Special Term.
    Appeal by the plaintiff, The City of New York, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 8th day of July, 1910, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 21st day of September, 1910, denying the plaintiff’s motion for a new trial made upon .the minutes. ,
    
      Terence Farley, for the appellant.
    
      Edward M. Grout, for the respondents.
   McLaughlin, J.:

The defendants were the owners of two buildings situate on opposite sides of Livingston street in the borough of Brooklyn, ■ and being desirous of connecting the same, applied to the board of estimate and apportionment of the city of New York for permission to construct and thereafter maintain a tunnel beneath the street. The board entertained the application and thereafter passed a resolution giving its consent, upon certain conditions, subject to revocation, for a period of twenty-five years. Among the conditions imposed weré that the defendants should pay to the city for the privilege $800 per year for the first five years and an increased sum for each succeeding five years, and, in addition, that they should execute and file with the comptroller of the city a written agreement to make such payments at the time and in the manner provided, and deposit $1,500 as security for performance. The resolution was approved by the mayor, and on the 16th of May, 1906, the agreement was filed and the security deposited. The tunnel was thereafter constructed and has since been maintained by the defendants. They, however, have refused to make the payments provided, except $400, covering a period from May 2 to November 1, 1906, and this action is brought upon the agreement, to recover $2,400, the amount due for the three ensuing years.

The answer set up a general denial and for a “partial' defense and by way of counterclaim ” alleged that the agreement was made under a mutual mistake of fact, in that both parties at the time it was executed supposed that the fee of that portion of the street through which the tunnel was constructed belonged to the city, whereas only fifteen out of fifty feet was owned by it — the remaining thirty-five feet being owned by the defendants; that the amount stipulated to be paid to the city as compensation for the privilege was fixed in accordance' with what both of the parties understood was the area of the city’s property which would be occupied by the tunnel; and that had they been aware of defendants’ ownership of thirty-five feet of the length of the tunnel the amount fixed would have been proportionately less. The judgment demanded. was a dismissal of the complaint and that the agreement be reformed by reducing the amount payable to the city proportionate to the part of the tunnel actually owned by it, and that defendants recover $280, being that portion of the $400 already paid which was in excess of the amount which would have been due had the contract expressed the intention of the parties; and that an injunction issue restraining the city from applying any portion of the $1,500 in extinguishment of the payments provided in the original contract. A reply- put in issue the allegations of the counterclaim.

The action came on for trial at a Trial Term and the parties then stipulated that it be tried before the court and one juror and that each side, at the conclusion of the trial, would move for the direction of a verdict. Defendants did not then, nor had they at any time after issue had been joined, ask that the equitable issues raised by the counterclaim and reply be sent to the equitable side of the court for trial. At the close of the case both sides moved for the direction of a verdict. Thereupon, a verdict was directed in favor of the plaintiff for $835.20, or about one-third of the amount to which it was entitled if the agreement above referred to were enforced. Judgment was entered against the defendants for that amount, with costs, from which the plaintiff appeals.

It may not be out of place to call attention to the fact that the practice adopted is not sustained by any of the authorities cited. In an action at law, as this one was, where the answer sets up facts both as a defense and as the basis of an equitable counterclaim, upon which affirmative relief is demanded, the defendant, in advance of the trial, should apply to the court to have the equitable issue first tried at Special Term. (Goss v. Goss & Co., 126 App. Div. 748; Brody, Adler & Koch Co. v. Hochstadter, No. 1, 150 id. 527; Rubenstein v. Radt, 133 id. 57.) Here, the defendant went to trial on the law side of the court without making any application to have the equitable issues tried at Special Term and was permitted to introduce evidence, against the plaintiff’s objection, to support such issues, and, at the conclusion of the trial, asked that judgment be given for the equitable relief demanded in the answer. The court did not reform the contract, but evidently proceeding upon thé theory that there had been a mutual mistake and for that reason it should be treated as though it had been reformed, directed a verdict for about one-third of the plaintiff’s claim.

Pleadings and the rules of practice for disposing of issues raised in them would serve little purpose if a judgment obtained in this way were permitted to stand. The course pursued is sought to be justified by Bennett v. Edison Electric Ill. Co. (164 N. Y. 131). That case, as I read the opinion, does not sanction the practice here adopted, nor does it in any way sustain the respondents’ contention. There, an action was brought to recover the contract price for digging two wells. The work was done under a contract which provided that the defendant would pay to the plaintiff ten dollars per 1,000 gallons of water per day of twenty-four hours upon completion of the wells. The answer interposed alleged for a defense and by way of counterclaim that the agreement was to pay one dollar per 1,000 gallons of water furnished instead of ten dollars as stated in the contract, and that the signing of the contract by the defendant’s superintendent was procured through false representations made with reference to the contents of the instrument, and with intent on the part of the plaintiff to defraud the defendant. The answer demanded the reformation of the contract by the insertion thereon of one dollar instead of ten dollars. When the case was moved for trial defendant asked that the equitable issues raised be first tried by the court. This was denied and an exception taken, and whether of not the exception were good was the question presented on the appeal. In disposing of it the court said: We do not at this time deem it necessary to determine whether the matter alleged in the answer constitutes an equitable counterclaim. ' For assuming it to be a counterclaim, the matter alleged also constitutes a defense and relieves the defendant as fully as the allowance of the counterclaim. If the signature of the defendant to the contract was procured through fraud, it was not the defendant’s contract and that defense was open and available to. the defendant in any action at law brought upon the contract.”

Here, fraud was not alleged in the answer, proved upon the trial, or claimed upon the argument of the appeal. Defendants’ relief was based entirely upon the assertion that both parties, at the time the agreement was executed, labored under a mistake of fact, and for that reason it did not express their intention. But assuming that to be so, the defendants, until the contract had been reformed so as to express the intention, were not in a position to obtain the relief here given. • So long as the ageement remains in force defendants are under an obligation to make the payments thereiri. provided.

Upon the merits the defendants did not establish that the agreement was the result of a mutual mistake of the parties. A finding to that effect would be against the evidence. In this connection it appeared that the defendants authorized the contractor who was to construct the tunnel to obtain the necessary permit from the city. He drafted the application for permission to construct and maintain the tunnel, which was signed by one of the defendants. It was thereafter submitted to the board of estimate and apportionment, which in turn referred it to the bureau of franchises for investigation. An assistant engineer of that department made a report in which he advised the hoard to grant the permission upon certain conditions, among which were the annual payments above stated. The board, acting upon this report, imposed the conditions suggested and in the contract sued on defendants agreed, in general terms, to comply with them. It is suggested by counsel for the respondents that the city fixed the amount to be paid in accordance with what the hoard supposed was the area or space of the city’s property occupied by the tunnel — that is, that the whole space to be occupied belonged to the city instead of about one-fifth of it. There is no evidence whatever as to what took place at the meeting of the board of estimate and apportionment when the resolution was passed. The assistant engineer in the bureau of franchises, whose report the board followed, testified that he had no recollection of this particular case but it had been his custom in determining the amount of annual compensation to consider the superficial area of the tunnel. There does not, however, seem to have been any accurate method by which he fixed the sum to be paid. While from all the evidence it may fairly be inferred that he did not know of defendants’ ownership of any part of the space, any finding that he, or the board of estimate and apportionment, would have fixed a different amount had they known of that fact, would he pure speculation. Where an agreement is sought to be reformed by reason of a mutual mistake, the party asserting the claim must support it by proof which is clear and convincing, or as is sometimes said, by proof “of the most substantial and convincing character.” (Christopher St. R. R. Co. v. Twenty-third St. R. Co., 149 N. Y. 51; Albro v. Gowland, 98 App. Div. 474; Jamaica Savings Bank v. Taylor, 72 id. 567.) Defendants’ application for permission to construct and maintain the tunnel provided that “The compensation for the privilege to be-such amount as may be determined as an equivalent thereof by the board of estimate and apportionment,” The contractor who represented defendants in obtaining the permission testified that he knew nothing about the method by which the city determined the amount to be paid, nor was any suggestion made to him by the board in reference thereto. The situation, therer fore, was this—the defendants applied for the permission and left it to the city to determine, by any method it saw fit, the amount to be charged. The city, by the resolution, granted the privilege conditioned upon the payment of certain amounts. Defendants, by the contract sued on, accepted the conditions and promised to pay the amounts therein specified. It is, therefore, as it seems to me, entirely immaterial whether the board fixed a higher sum than it otherwise would had it known of the defendants’ ownership. The sum which it did fix for the privilege of constructing and maintaining the tunnel defendants agreed to pay. The minds of the parties met upon that subject. This being so, there was no basis for reforming .the contract. The proof failed to established a mutual mistake (Curtis v. Albee, 167 N. Y. 360; Nevius v. Dunlap, 33 id. 676), and the court should have directed a verdict in favor of the plaintiff for the full amount claimed.

The judgment and order appealed from, therefore, are reversed, and there being no dispute as to the facts upon which defendants’ liability depends, a verdict is directed in favor of the plaintiff for $2,400, with interest as prayed for in the complaint, together with the costs in this court and in the court below.

Ingraham, P. J., Laughlin, Clarice and Scott, JJ., concurred.

Judgment and order reversed and verdict directed for plaintiff as stated in opinion, with costs. Order to be settled on notice.  