Mary M. Miller sued the Hob Tea Room, Inc., and Henry P. Burrows, Jr., for reformation of plaintiff's written release of the individual defendant from further claims under a contract for plaintiff's sale of stock of the corporate defendant to the individual defendant. The Court of Chancery in and for New Castle County, Seitz, Chancellor, held that plaintiff was entitled to reformation of the release for the parties' mutual mistake of fact in including a release of plaintiff's rights under a provision of the contract for payment to her of all receipts, including tax refunds, due defendant corporation, though the parties intended the release to relate solely to reduction in and acceleration of the purchase price, and that plaintiff was not required to show a pre-existing agreement that the parties intended to exclude the subject-matter of such provision.
Order reforming the release.
William E. Taylor, Jr., of Wilmington, for plaintiff.
Edwin D. Steel, Jr. (of Morris, Steel, Nichols & Arsht), Wilmington, for defendants.
This is an action seeking reformation of a release dated December 31, 1947 given by plaintiff to the individual defendant Burrows.
Various aspects of this matter have previously been before this court. See Miller v. Hob Tea Room, Inc., Del.Ch., 75 A.2d 577.The present matter comes on pursuant to an amendment granted by this court permitting plaintiff to raise solely the question of the reformation of the release. This matter is of importance because plaintiff is now suing at law to recover amounts allegedly due [32 Del.Ch. 270] under Par. 10 of the agreement dated October 5, 1945 by which she sold the stock of the corporate defendant Hob to the individual defendant Burrows. The purchase price was to be paid over a period of years. Par. 10 of the contract provided: ‘ Tenth. Buyer agrees that all receipts, including refundments of taxes, from any source whatsoever due said corporation at the date of this agreement, shall be paid over to Seller, with adjustment for any increased taxes to the corporation incurred by the receipt thereof.’
In May 1946 Hob filed claims for tax refunds for 1943 and 1944 under the carryback provisions of the Internal Revenue Code based upon losses incurred in 1945.
On December 31, 1947 Burrows paid plaintiff $20,561.45. The release agreement under which the payment was made stated that plaintiff acknowledged the payment
‘ in full settlement and satisfaction under the above-mentioned contract (of October 5, 1945), thus terminating and ending the said Agreement.’
The last paragraph of the December 31, 1947 agreement provided: ‘ The Buyer and the Seller hereby agree to forever release and discharge each other, their Heirs, Executors, Administrators and Assigns from any further claim or demand whatsoever pertaining to the above recited agreement bearing date the Fifth day of October, A.D. 1945.’
In 1948 the claims for refunds for 1943 and 1944, based upon the carry-back provisions of the I.R.C., were paid to defendant Hob and plaintiff seeks to recover some of these payments in her law action on the basis of the quoted Par. 10 of the Oct. 5, 1945 agreement. She seeks to reform the release because as presently written, it is my conclusion that it would be a bar to her law action. No question of fraud is raised by the evidence.
As a basis for reformation the complaint alleges that the release agreement of December 31, 1947: [32 Del.Ch. 271] ‘ does not express the actual agreement reached by the parties thereto, and should be reformed by this Court in order to express accurately the parties' intentions and to embody the terms of the agreement actually ...