Chapter 29 REFORMATION
Jurisdiction | New York |
Chapter Twenty-Nine
Reformation
I. Nature and Purpose
The purpose of reformation is to restate the intended terms of an agreement when the writing that memorializes the agreement is at variance with the intent of both parties.5044 Granted as equitable relief, reformation is an extraordinary remedy, afforded under only the most limited circumstances, such as where the inaccuracy of the writing is due to a mutual mistake, a fraudulently induced unilateral mistake, or an error in reducing the agreement to writing. Absent some such indicia of fraud or other circumstance warranting equitable intervention, the duty of the court is to enforce, rather than reform, the bargain into which the parties entered.5045
Speranza v. Repro Lab Inc.5046 explained the nature and purpose of reformation:
Reformation is an equitable remedy which emanates from the maxim that equity treats that as done which ought to have been done. The purpose of reforming a contract on the basis of mutual mistake is to make a defective writing conform to the agreement of the parties upon which there was mutual assent. While the erroneous instrument must be made to correctly express the real agreement between the parties, no court can make a new contract for the parties (27 Williston on Contracts § 70:19 (4th ed.)).
. . . .
The equitable remedy of reformation will not make a new agreement for the parties but, instead, will establish and perpetuate the true, existing contract by making the instrument express the real intent of the parties. Reformation is only available to correct a mutual mistake in order to conform an agreement to the original intent of the parties" (27 Williston on Contracts § 70.20 (4th ed.)). 5047
II. Mistake, Unilateral and Mutual
Simkin v. Blank5048 was the first case wherein the appeals court reviewed the issue of mutual mistake in marital agreements, holding that mutual mistake applies to marital agreements.5049
The Restatement (Second) of Contracts § 151 defines mistake as "a belief that is not in accord with the facts." Section 154(a) and (b) state:
A party bears the risk of a mistake when:
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient.
An allegation of mutual mistake or fraudulently induced unilateral mistake describes the classic grounds for reformation5050 wherein the movant must show that the other party was deliberately misleading or otherwise deceptive and that the subsequent writing did not express the intended agreement.5051 Reformation is designed to bring a written contract into conformity with the actual agreement of the parties, where the writing is inaccurate because of mutual mistake or fraudulently induced, unilateral mistake. It cannot be utilized to vacate a portion of an agreement which, in fact, does comport with the parties' intention. The principle thus formulated is applicable where the parties have a real and existing agreement on particular terms and subsequently find themselves signatories to a writing which does not accurately reflect that agreement, as opposed to a situation where there is a mistake as to the agreement itself on the part of one of the parties.5052 Lord, Williston on Contracts, (4th ed.), 70:104, noted:
Where a contract signer becomes acquainted with the words of the document, but makes a mistake in its interpretation or legal effect, this unilateral error affords no more relief than does ignorance of the words. A mistake of only one of the parties to a contract as to the subject matter does not affect its binding force, and ordinarily affords no ground for its avoidance. The issue of whether a party has made a unilateral mistake of fact despite the exercise of ordinary care remains a factual issue. Absent intentional, culpable conduct (e.g., fraud, duress, or undue influence), a unilateral mistake is ordinarily not a ground for relief from a contract. To justify relief, mistake must be common to both parties (i.e., mutual), or the error of one party must be known to the other. Even if a party is mistaken as to a term of the contract, this merely amounts to a unilateral mistake that is insufficient to void the contract.
Equity will not reform a written contract except upon the mistake of both parties, but may rescind and cancel one upon the ground of a mistake by either. Thus, a mistake on one side may be grounds for rescinding, but not for reforming, a written agreement. In cases where there was no mutual mistake, or mistake of one side with knowledge on the other, there must be some undue influence, misrepresentation, surprise, or abuse of confidence, or the contract must be so oppressive as to be unconscionable. Moreover, while a contract is still executory parties can be put in status quo, unilateral mistake may ord grounds for rescission, just as the discretionary remedy of specific performance may be denied.
A doctrine permitting the rescission of a contract for unilateral mistake nearly contradicts the objective theory of mutual assent in the formation of contracts (toward which the law has evolved and to which it is largely committed). Certainty, the interpretation of a contract does not include its modification or the creation of a new or different one. Courts cannot make for the parties better or worse agreements than they themselves have been satisfied to make or, by construction, relieve one of the parties from the terms to which that party has voluntarily consented.
Even the powers of the court, when acting in equity, are constrained. ". . . [T]he long arm of the law cannot, in all cases, reach far enough to protect the unfortunate, the unwise, the improvident, the shortsighted or the unwary from the results of definite legal contracts into which they have entered to their detriment. A person of legal age and mental competency is as free to make bad bargains as good ones without interference from the courts. '
Standing alone, a unilateral mistake is not a ground to reform or rescind a contract, unless the mistake has been induced by fraud, deceit, misrepresentation, concealment, or by imposition of the party opposed to rescission (without negligence on the part of the party claiming rescission), or unless mistake is accompanied by very strong and extraordinary circumstances that would make it a great wrong to enforce the agreement.
Equity evolved the doctrine because an action at law afforded no relief against an instrument secured by fraud or as a result of mutual mistake.5053 It is almost impossible to state in detail the circumstances constituting a fraud where those circumstances are peculiarly within the knowledge of the party against whom the defense is being asserted.5054 A high level of proof of a mutual mistake is required to overcome plain and unambiguous language of a stipulation.5055 "A bare claim of unilateral mistake, unsupported by legally sufficient allegations of fraud, does not state a cause of action for reformation."5056 To overcome the heavy presumption that a deliberately prepared and executed written instrument manifested the true intention of the parties, evidence of a very high order is required.5057
The idea is that the agreement as expressed, in some material respect, does not represent the "meeting of the minds" of the parties,5058 and neither side should profit from a mistake jointly perceived and acted upon.5059 When parties purposely contract based upon an uncertain and contingent event, mutual mistake will not operate to relieve the plaintiff of the disadvantageous contract.5060 This is similar to the distinction between general and specific merger clauses where a general merger clause may be challenged while a specific merger clause may not.5061
Reformation is not designed for the purpose of remaking the contract agreed upon or alleviating a hard or oppressive bargain but rather solely for the purpose of stating correctly a mutual mistake shared by both parties to the contract; in other words, it provides an equitable remedy for use when it clearly and convincingly appears that the contract, as written, is at variance with the intent of both parties and does not embody the true agreement as mutually intended, so that the intentions of neither are expressed in it—and well that it is, for freedom to contract would not long survive courts' ready remaking of contracts that parties have agreed upon.5062
In order to obtain reformation of a written instrument, it must be shown that the parties came to an understanding, but in reducing it to writing, through mutual mistake, or through mistake on one side and fraud on the other, omitted some provision agreed upon, or inserted one not agreed upon.5063
A court has no power to reform a contract if it is such that one of the parties intended to make and the one it understood the other also intended to make, under such circumstances it would be making a new contract for the parties, and unjust to the one who made no mistake.5064
In the absence of fraud, the mistake shown must be one made by both parties to the agreement, so that the intentions of neither are expressed in it. Thus, in the context of a reformation action, the court must look to the four corners of the document and any evidence establishing the parties' intention.5065
Reformation is not available for void provisions in contracts; nor are contracts reformed by fashioning them so that they will become void.5066 If a clause is severable, it is possible that other paragraphs in the agreements may be capable of reformation.5067 Reformation is not a mechanism to interject into the writings, terms, or provisions not agreed upon or suggested by one party but rejected by the other.5068
III. Reformation Not Available Due to Attorney Error
Reformation is unavailable merely upon a showing that a client or...
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