## Facts

- GRJH, Inc. owned a gas station and convenience store that it offered for lease.
- Ravinder Sharma, acting through Lakshmi Grocery & Gas, Inc., negotiated with GRJH’s officers, including Alicia Metz and James Metz, based on prior successful business dealings.
- During negotiations, Sharma sought information about the store’s “inside sales” (non-fuel sales) as a key indicator of profitability.
- Alicia Metz emailed Sharma inside-sales figures stated as $22,000 for the prior month; the figure was mistakenly taken from the prior year, while the actual current-month inside sales were about $15,500.
- Lakshmi entered into a combined lease/contractor agreement and made initial payments to GRJH in reliance on the represented sales.
- After taking over operations, Sharma found records showing lower sales, attempted to modify the contract terms, then vacated the store and demanded return of the initial payments; GRJH refused.

## Issues

1. Whether the trial court properly granted a motion under CPLR 3025(c) to conform the pleadings to the proof by adding mutual mistake as a rescission theory at trial.
2. Whether the parties’ shared erroneous belief about inside-sales figures was a mutual mistake of material fact warranting rescission.
3. Whether the monetary award returning initial payments was proper restitution incident to rescission, and whether rescission required dismissal of GRJH’s third-party breach-of-contract claims.

## Decision

- The Appellate Division affirmed the judgment for Lakshmi.
- The court held the trial court acted within its discretion in allowing the pleadings to conform to proof because GRJH showed no prejudice and the relevant facts were fully litigated.
- The court upheld the finding of mutual mistake as to a material historical fact (inside-sales figures) existing at the time of contracting and central to the bargain.
- The court affirmed rescission and the return of initial payments as restitution consistent with rescission.
- The court affirmed dismissal of GRJH’s third-party breach-of-contract claims because rescission left no enforceable contract to breach.

## Legal Principles

- Under CPLR 3025(c), pleadings may be conformed to the proof at trial and should be liberally permitted absent prejudice to the opposing party.
- Mutual mistake supports rescission when both parties share an erroneous belief about a material fact existing at contract formation that goes to a basic assumption of the agreement and materially affects the exchange.
- Where rescission is granted, restitution may be ordered to restore the parties to their pre-contract position, including return of consideration paid.
- Rescission of the underlying agreement defeats claims premised on enforcing that contract, including breach-of-contract claims.

## Conclusion

The court affirmed rescission of the lease/contractor agreement because both sides proceeded under a material mistaken belief about the store’s inside-sales figures, permitted amendment of the pleadings to add mutual mistake due to lack of prejudice, and upheld restitution returning initial payments while dismissing breach claims dependent on the rescinded contract.


Lakshmi Grocery & Gas, Inc. v. GRJH, Inc., 138 A.D.3d 1290, 30 N.Y.S.3d 743 (3d Dep’t 2016)