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Mulvihill v. Pepperidge Farm, Incorporated

A-3575-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS; REFORMATION — A court may reform a contract upon a mutual mistake where both parties were in agreement at the time they attempted to reduce their understanding to writing, but the writing failed to correctly express their understanding.

A company sold baked goods to retail stores through self-employed distributors pursuant to consignment agreements. As described in the company’s consignment agreement, each distributor had the exclusive right to distribute company products to customers within the distributor’s own territory. One distributor, with company approval, reached an agreement to purchase a part of another distributor’s territory. According to the company, it approved the sale with the understanding that the portion being sold included four major specific supermarkets within the territory. The company certified that it communicated this information to the distributor and the purchase price reflected this condition. The distributor signed a route sale summary. It contained a representation that the distributor was satisfied with the material facts inherent in the purchase of the distributorship.

At the contract closing, the parties signed a consignment agreement. It erroneously described additional territory encompassing several other stores. A company representative accompanied the distributor for two weeks after closing, and during that time the other stores were neither serviced nor discussed. During that first three month period, the distributor used a mobile computer terminal which he certified listed only the four supermarkets previously serviced by the former distributor.

Seven years later, the distributor certified that he first realized that his territory actually included the other stores and this raised the possibility of increasing his business. He soon contacted the bakery company and claimed an exclusive right to service these extra stores. The company responded that the two stores in question would remain with another distributor as no consideration had been paid to acquire those stores. The distributor then filed a breach of contract action against the company, also seeking a declaration that the disputed stores were within his territory. The lower court dismissed the complaint, holding the relevant agreements should be reformed because neither party intended for the disputed territory and the two disputed stores within it to be included in the agreements.

The Appellate Division affirmed, holding that reformation predicated upon mutual mistake can be done when both parties were in agreement at the time they attempted to reduce their understanding to writing, but the writing failed to correctly express their understanding. The Court found the lower court’s findings were supported by the record which demonstrated that the distributor had no reasonable or subjective expectation at the time of contracting, or for the subsequent seven years, that the additional territory was available to it for business under the purchased route.


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