June 30, 1994
Appeal of
KENNETH F. ZARRILLI
Under Lease Agreement
PSBCA No. 3148
APPEARANCE FOR APPELLANT:
George P. D'Amico, Esq.
APPEARANCE FOR RESPONDENT:
Ruth L. Gottlieb, Esq.
OPINION OF THE BOARD
Appellant, Kenneth F. Zarrilli, has filed an appeal from a decision of a Contracting Officer denying his claim for damages resulting from the termination of a lease with the United States Postal Service (Respondent). Appellant contends the parties did not intend to include a termination provision in the lease and therefore, the Postal Service had no right to terminate the lease before the end of the five year term. As a result, Appellant requests that the Board reform the lease to reflect the parties' intent and grant recovery of money damages sustained by Appellant. Respondent contends that the termination provision was properly included in the lease, that the lease should not be reformed and that Appellant is not entitled to the damages claimed.
FINDINGS OF FACT
1. On January 29, 1959, the Postal Service entered into an agreement to lease a building in Bridgeport, CT, known as the Newfield Station. The original term of the lease ran from October 1, 1958, to September 30, 1978 (Appeal File (AF) Tab 19; Stipulation (Stip.) ¶1). Although the standard form lease executed by the parties (SF No. 2, dated May 26, 1923) included provisions permitting termination upon 90 days notice, those provisions were shown to be deleted from the agreement (AF Tab 19).
2. The lease was renewed for a five-year term beginning October 1, 1978, and extending through September 30, 1983. The renewal agreement included the Postal Service standard Short Form Lease (SF 7417-A dated December 1974) which provided in Paragraph 2B(1) that "the Postal Service may terminate this agreement at any time by giving thirty days written notice to the Lessor" (AF Tab 18; Stip. ¶2; Transcript (Tr.) 20-21). This provision was not deleted from the standard form although it was modified to limit the Postal Service's right of termination to the period after September 30, 1980 (AF Tab 18; Tr. 20-21).
3. In May 1982, Appellant purchased the Newfield Station and so notified the Postal Service (Stip. ¶3; Tr. 22). Subsequent to Appellant's purchase, the lease was again renewed for a five‑year term beginning October 1, 1983, and extending through September 30, 1988 (AF Tab 4A; Stip. ¶4; Tr. 24). This renewal also included the Postal Service Short Form Lease but specifically deleted the termination provision included on the form as paragraph 2B(1) (AF Tab 4A; Stip. ¶4; Tr. 26).
4. Prior to the expiration of the 1983-1988 renewal period, Postal Service real estate specialist Harold Wood notified Appellant that the Postal Service was again interested in renewing the lease for another five‑year term with an additional five‑year option. Mr. Wood requested that Appellant contact him with a proposed unit rental price if he was interested in having the lease renewed (AF Tab 4B; Tr. 26-28, 146).
5. By letter dated February 22, 1988, Appellant advised Mr. Wood that he was willing to extend the lease for a unit rental price of $10.00 per square foot and a total price of $26,200 per year. Appellant's letter stated "[a]ll other terms and conditions of the existing lease will prevail including maintenance, electrical, taxes and water costs." (AF Tab 4C; Tr. 30-31, 149-50, 153).
6. Mr. Wood considered Appellant's letter of February 22, 1988, to be a proposal from which the parties would negotiate the final terms of the lease (Tr. 149-50, 153). The parties thereafter had one or two telephone conversations in which they discussed the rental price, the percentage of postal occupancy of the premises and the payment of real estate taxes and water charges (Tr. 35-36). However, they did not discuss the inclusion of a termination provision in the lease during these conversations (Tr. 37-38, 84-85, 123-24).
7. Shortly after their telephone discussions, Appellant and Mr. Wood met to discuss the terms and conditions of the new lease agreement (Tr. 124-25, 150-52). In preparation for the meeting, Mr. Wood reviewed the 1983-1988 Newfield Station lease (Tr. 125, 144, 159). Mr. Wood had not participated in the negotiation of any of the previous lease agreements for the Newfield Station or for any other property Appellant leased to the Postal Service (Tr. 144). Mr. Wood knew the termination provision had been deleted from the 1983-1988 Newfield Station lease, but he did not know whether the provision had been included in any previous renewal or any other lease agreement between Appellant and the Postal Service (Tr. 159).
8. During the meeting between Appellant and Mr. Wood the termination provision was discussed, but left "an open issue" (Tr. 151-52). It was Mr. Wood's personal policy to include a termination provision in every lease he negotiated for the Postal Service (Tr. 127, 154). Although Appellant testified he would never have entered into a lease with a termination provision (Tr. 49), he did not tell this to Mr. Wood during the parties' negotiations (Tr. 128).
9. After their meeting, Mr. Wood forwarded to Appellant a new lease for a five‑year term beginning October 1, 1988, and ending September 30, 1993 (AF Tabs 1, 12; Tr. 130-31). The lease included the United States Postal Service standard Short Form Lease (SF 7417) and various other forms included in Postal Service leases (AF Tab 1). Paragraph 2B(1) of the Short Form Lease which permitted the Postal Service to terminate the agreement at any time by giving thirty days written notice to the Lessor was not deleted from the standard form (Id.). Mr. Wood intended to include this provision in the lease even though he was aware it had been deleted from the prior renewal (Tr. 156). Mr. Wood believed Appellant would read the lease and contact him for further negotiation if the clause was unacceptable (Tr. 156). However, in the letter of transmittal to Appellant, Mr. Wood did not refer to the inclusion of the termination provision in the lease (AF Tab 12).
10. In the lease agreement, Paragraphs 2A, 2B(2), and 2C of the Short Form Lease, which are located above and below the termination provision contained in Paragraph 2B(1), are crossed through and stamped "deleted" in bold print (AF Tab 1). Paragraph 6 of the Short Form Lease states that Paragraphs 2A, 2B(2), and 2C were deleted in their entirety before signing but does not list Paragraph 2B(1) as being deleted (Id). Both the termination provision in Paragraph 2B(1) and Paragraph 6 appear on the first page of the Short Form Lease which is the same page Appellant was required to sign and date before returning to Respondent (Id.).
11. Upon receiving the lease, Appellant, who has a real estate license which he uses solely to represent himself in real estate transactions, (Tr. 76-79, 85), glanced at the lease and saw the deleted provisions, but did not look carefully to see whether the termination clause, Paragraph 2B(1), had been deleted (Tr. 41, 86-87). Appellant signed the lease believing the termination provision had been deleted (Tr. 40, 42-44, 75-76, 86-87). Appellant would never have signed the lease if he had known that it included a termination clause (Tr. 39, 49).
12. On or about July 26, 1991, the Postal Service notified Appellant that the lease was being terminated effective August 29, 1991 (AF Tab 7; Stip. ¶8). The Postal Service vacated the Newfield Station premises prior to August 28, 1991 (Stip. ¶9). Despite reasonable efforts, Appellant has been unable to obtain a new tenant at the Newfield Station location (Tr. 51-54).
13. On or about October 8, 1991, Appellant submitted a claim to the Postal Service for $46,375 for damages resulting from the termination of the lease (AF Tab 6). In a subsequent letter dated November 19, 1991, Appellant argued he was entitled to the amount requested because the Postal Service wrongfully terminated the lease before its expiration date by exercising the 30-day notice of termination provision, which was mistakenly included in the lease as a result of a clerical and/or typographical error (AF Tab 4).
14. By final decision dated December 10, 1991, the Contracting Officer denied Appellant's claim, stating that since the termination provision had not been deleted from the Newfield Station lease or referenced in Paragraph 6 of the lease, its inclusion was not a clerical and/or typographical error (AF Tab 3).
15. Appellant filed a timely appeal from the Contracting Officer's final decision.
16. Appellant also leased to the Postal Service another building known as the Barnum Station which he acquired in 1973 (App. Exh. 7; Tr. 59). From the time Appellant acquired title to the Barnum Station property, the standard termination provision had been deleted in each renewal agreement except for the most recent renewal which allowed the Postal Service to terminate the lease on 120 days' notice (App. Exhs. 8-11; Tr. 64-70).
Decision
The lease executed by the parties includes a termination provision which permits the Postal Service to terminate the lease upon 30 days written notice. Appellant claims the parties did not agree to include the termination provision in the Newfield Station lease and therefore, its inclusion was the result of a clerical error justifying reformation of the lease.[1] Appellant also contends he did not expect the provision to be included in the lease because (1) during negotiations the inclusion of the termination provision was an "open issue", (2) Appellant had stated in its letter that all terms and conditions would remain the same, and (3) of the long history of either deleting or modifying the termination provision in both the Newfield Station and Barnum Station leases. Appellant also contends that the Postal Service concealed the inclusion of the termination provision in the lease and later took unfair advantage of Appellant by terminating the contract on 30 days notice. As a result, Appellant argues, Respondent is guilty of actual or constructive fraud or inequitable conduct, which he contends serves as a basis for reforming the lease under Connecticut law.
Respondent contends that Appellant is not entitled to have the lease reformed and that he is bound by the terms of the agreement as executed by both parties. According to Respondent, Appellant has not met the evidentiary burden required to support his contention of an error[2] or fraudulent conduct[3] on the part of the Postal Service.
While the parties had not agreed the termination provision should be included in the lease, neither did they agree it should be excluded. Respondent's representative intended for the clause to be included and thus its inclusion was not the result of a mutual mistake or a clerical error.[4] Appellant, however, contends he was justified in believing that the termination provision had not been included in the lease because it had not been included in previous leases except with modifications and the parties had not agreed to its inclusion with or without modification in the 1988-1993 renewal.
The termination clause was a standard printed provision of Respondent's Short Form Lease and had to be specifically deleted if it was not to be included as part of the parties' agreement. Although clauses above and below the termination provision were crossed out and deleted from the lease, the termination clause was neither crossed out nor stated to be deleted. Paragraph 6 of the form which specifically listed the clauses that had been deleted did not refer to Paragraph 2(b)(1), the termination provision, as one of the deleted provisions. While the termination clause appears in small print on the face of the form, it, along with Paragraph 6 which is located directly above the lessor's signature box, should have been noticed by Appellant when he signed the lease. This is particularly true if the inclusion of the provision was as important to Appellant as he now contends.
Appellant's reliance on the terms of the prior renewals of the Newfield and Barnum Station leases does not excuse his failure to carefully read the 1988-1993 renewal before signing. While past practices may be useful in interpreting contract provisions, they do not provide a basis for disregarding the terms of a subsequently negotiated agreement.[5]
Appellant's contention that the lease should be reformed because Respondent is guilty of actual or constructive fraud or unequitable conduct under Connecticut law is also not persuasive. Although Federal, rather than state law applies to the formation and interpretation of Postal Service leases,[6] under either law[7] the record does not establish that Respondent is guilty of any improper conduct which would serve as the basis for reforming Appellant's contract. Respondent's inclusion of the termination provision in the lease forwarded to Appellant for signature, even though its inclusion had been left an open issue, cannot be considered fraudulent or unequitable conduct justifying reformation of the contract.
As previously stated, the clause is a standard printed provision of Postal Service leases and although included in somewhat small print, appears on the face of the Short Form where it should have been noticed by Appellant when he signed the agreement. Although it would have been preferable for Respondent to refer to the inclusion of the termination provision in the letter of transmittal, the failure to do so does not establish either actual or constructive fraud on the part of the Postal Service or any other improper conduct justifying reformation of the lease agreement.[8]
Conclusion
We are not persuaded that the termination provision was included in Appellant's lease as the result of a mistake or that any fraudulent conduct took place which would give rise to an actionable claim by Appellant. Accordingly, Appellant's appeal is denied.
James A. Cohen
Administrative Judge
Chairman
I concur:
James D. Finn, Jr.
Administrative Judge
Vice Chairman
I concur:
David I. Brochstein
Administrative Judge
Board Member
[1]Reformation is appropriate when the written agreement does not reflect the true agreement of the parties. See Philippine Sugar Estates Development Co., Ltd. v. Government of the Philippine Islands, 247 U.S. 385, 389 (1918); American Employers Insurance Co. v. United States, 812 F.2d 700, 705 (Fed. Cir. 1987); Olson Plumbing & Heating Co. v. United States, 602 F.2d 950, 958 (Ct. Cl. 1979).
[2]Before a contract will be reformed, the party seeking reformation must establish by clear and convincing evidence that there was in fact a mutual mistake and the terms actually intended by the parties. See Philippine Sugar, 247 U.S. at 391; United States v. Hamilton Enterprises, Inc., 711 F.2d 1038, 1046 (Fed. Cir. 1983); National Union Fire Insurance Co. of Pittsburgh v. D & L Construction Co., 353 F.2d 169, 174 (8th Cir. 1965), cert denied, 384 U.S. 941 (1966).
[3]Public officials are presumed to act properly and overcoming that presumption requires "well-nigh irrefragable proof." See Arrowhead Metals, Ltd. v. United States, 8 Cl. Ct. 703, 712 (1985); Kalvar Corp., Inc. v. United States, 543 F.2d 1298, 1301-02 (Ct. Cl. 1976), cert. denied, 434 U.S. 830 (1977); Knotts v. United States, 121 F. Supp. 630, 631 (Ct. Cl. 1954); GE Government Services, Inc. v. United States, 788 F. Supp. 581, 591 (D.D.C. 1992).
[4]See Fraass Surgical Mfg. Co., Inc. v. United States, 571 F.2d 34, 38 (Ct. Cl. 1978); Schoeffel v. United States, 193 Ct. Cl. 923, 934 (1971); United States v. Dwyer Lumber & Plywood Co., 353 F.2d 351, 353 (9th Cir. 1965).
[5]See Fraass Surgical, 571 F.2d at 38; Schoeffel, 193 Ct. Cl. at 934; Dwyer Lumber, 353 F.2d at 353 (reliance on previous contract terms does not justify failure to read new contract).
[6]See Prudential Ins. Co. v. United States, 801 F.2d 1295, 1298 (Fed. Cir. 1986), cert. denied, 479 U.S. 1086 (1987); Forman v. United States, 767 F.2d 875, 879 (Fed. Cir. 1985); Kelley v. United States, 19 Cl. Ct. 155, 161-62 (1989); M.R. Kaplan, PSBCA Nos. 1147, 1293-94, 1296, 1298-1310, 1331, 87-3 (BCA ¶19,969, 1001,161, 101,162 appeal sustained in part, 88-3 BCA ¶20,827.
[7]See Puro v. Henry, 449 A.2d 176, 179 (Conn. 1982); Miller v. Appleby, 438 A.2d 811, 813 (Conn. 1981); Papile v. Robinson, 231 A.2d 91, 94 (Conn. 1967) (fraud must be proven by clear precise and unequivocal evidence). See also Lopenta v. Haines, 441 A.2d 151, 155 (Conn. 1981) (reformation of an instrument secured by fraud requires evidence of a very high order).