The First Department, reversing Supreme Court, determined questions of fact precluded summary judgment in this breach of contract action concerning the issuance of warrants to purchase shares in defendant GeoResources. The facts of the dispute are too complex to summarize here. The First Department explained the requirements for reformation of a contract, the doctrines of mutual mistake and novation, and the liabilities of assignees:
A claim for reformation of a written agreement must be grounded upon either mutual mistake or fraudulently induced unilateral mistake,'” and to succeed, the party seeking relief “must establish by clear, positive and convincing evidence’ that the agreement does not accurately express the parties’ intentions” … . “Reformation based upon a scrivener’s error requires proof of a prior agreement between [the] parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement”… . The parties’ course of performance under the contract, or their practical interpretation of a contract for any considerable period of time, is the most persuasive evidence of the agreed intention of the parties … .
Given the need for “clear, positive and convincing evidence” of mutual mistake … , we find that issues of fact are present that should have prevented summary judgment … . …
Based on the plain language of the purchase agreements … , any reformation claim that the original purchasers held was assigned … since it qualifies as one of the “rights and benefits incident to the ownership” of the warrants. …
The elements of a novation are a previously valid obligation, agreement of the parties to the new obligation, extinguishment of the old contract, and a valid new contract … . “A novation will not discharge obligations created under a prior agreement unless it was so intended, and this question may be determined from the writings and conduct of the parties or, in certain cases, from the documents exclusively” … . The party claiming a novation has the burden of proof of establishing that it was the intent of the parties to effect a novation … .
We find that defendant presented no evidence that it and its counterparties intended to effectuate a novation before issuing [the] warrants … .Warberg Opportunistic Trading Fund L.P. v GeoResources, Inc., 2017 NY Slip Op 04537, 1st Dept 6-8-17
CONTRACT LAW (CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)/REFORMATION (CONTRACT LAW, CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)/MUTUAL MISTAKE (CONTRACT LAW, CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)/NOVATION (CONTRACT LAW, CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)/ASSIGNEES (CONTRACT LAW, CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)/SECURITES (CONTRACT LAW, CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)/WARRANTS (SECURITIES, CONTRACT LAW, CRITERIA FOR REFORMATION, DOCTRINES OF MUTUAL MISTAKE AND NOVATION, AND THE RIGHTS OF ASSIGNEES EXPLAINED IN THIS BREACH OF CONTRACT ACTION CONCERNING THE ISSUANCE OF WARRANTS TO PURCHASE SHARES IN DEFENDANT GEOSOURCE)