Reformation is an equitable action that seeks to have a deed reformed to reflect the intention and agreement of the parties because the deed did not accurately reflect that intention and agreement.
Grounds for and Elements of Deed Reformation Cause of Action
Generally, deed reformation is allowed when it can be established that the deed does not accurately represent the true intentions of the parties at the time the deed was created or granted. To varying degrees, Illinois, Indiana, and Wisconsin will reform a deed on the basis of mistake or fraud that results in the deed not reflecting the true intentions of the parties. A more specific analysis for each state is detailed below.
In Illinois, to state a cause of action for reformation, a party must prove five things: (1) the existence and substance of an agreement between the parties and the identity of the parties to that agreement; (2) the parties agreed to reduce their agreement to writing; (3) the substance of the written agreement; (4) a variance exists between the parties' original agreement and the writing; and (5) the basis for reformation (for example, mistake or ambiguity). Schaffner v 514 West Grant Place Condominium Ass'n, Inc., 324 Ill App 3d 1033, 756 NE 2d 854, 258 Ill Dec 580 (1st D 2001).
In Schaffner, two condominium owners (defendant owners) stated a cause of action for reformation of a declaration against the third owner (plaintiff owner) of a three-unit condominium. In this case, a condominium consisted of three units and five parking spaces: three indoors and two outdoors. The declaration and plat did not reference the two outdoor parking spaces. In litigation over the outdoor parking spaces, defendant owners counterclaimed for reformation of the declaration to establish their ownership of the outdoor parking spaces. The trial court granted plaintiff's motion to dismiss the claim for reformation.
The appellate court reversed and held that defendant owners had stated a claim for reformation of the declaration. The developer and original purchasers of the three units agreed that the units owned by defendant owners would have exclusive right to the outdoor parking spaces and that the unit owned by plaintiff owner would have no right to use the outdoor parking spaces. Additionally, the developer and original purchasers of the units had agreed to reduce their agreement to writing. Thus, the declaration did not reflect the true intention of the parties because the survey was accidentally omitted from the declaration so the declaration made no mention of the outdoor parking spaces. Therefore, the declaration conflicted with the original agreement regarding the outdoor parking spaces. The appellate court remanded the case to determine whether the defendant owners had provided sufficient evidence to establish the mutuality of the mistake.
Additionally, a court will reform a deed when the grounds are a mutual mistake of fact, common to both parties. Skelly v Ersch, 305 Ill 126, 137 NE 106 (1922). In Skelly, the court found a mutual mistake of fact when two parties to the deed both thought the legal description included 12 acres, but in fact it included 25 acres. The buyer paid $1,200 for 12 acres at $100 per acre, and the buyer farmed only 12 acres. The court reformed the deed to reflect only the 12 acres that the parties intended to be covered by the deed.
Indiana is more restrictive than Illinois in permitting reformation actions, requiring that a party show either mutual mistake or fraud. Meyer v Marine Builders, Inc., 797 NE2d 760 (Ind Ct App 2003). Additionally, Indiana requires a party seeking reformation to "show the original intent or agreement of the parties." Mutual mistake can be shown if there has been the following: (1) a meeting of the minds; (2) an agreement; and (3) the document in its written form does not express what the parties actually intended. Id. In Meyer, a seller discovered that two warranty deeds from the original owner of a property (owner), one to the seller and one to a neighbor, each included overlapping portions of the same property. The seller brought an action to revise the legal description of the property in his deed. The trial court granted summary judgment in favor of the seller and reformed the deed. The neighbor, the holder of the second warranty deed from owner, appealed.
The court of appeals found that a mutual mistake of fact existed because both warranty deeds relied on a faulty survey, which owner had relied on when granting the warranty deeds. As such, the agreement between owner and the seller did not accurately reflect the agreement between the two parties and resulted in a mutual mistake regarding the parties' intent of what property was granted in the seller's warranty deed. Furthermore, the neighbor's warranty deed made reference to the seller's deed and indicated that owner intended to convey the remainder of his property to the neighbor that had not already been conveyed to the seller in the seller's warranty deed. Considering these factors, the court of appeals affirmed the decision of the trial court to reform the seller's deed to reflect the original intent of the agreement between owner and the seller.
Wisconsin allows reformation of a contract, which includes a deed, if there is mutual mistake, or mistake by one party and fraud by another. Findorff v Findorff, 3 Wis 2d 215, 88 NW2d 327 (1958) (reformation of construction contract); City of Milwaukee v Milwaukee Civic Developments, Inc., 71 Wis 2d 647, 239 NW2d 44 (1974)(reformation of a trust agreement). Wisconsin requires the mistake to be proved and will not reform for a mistake, unless proof that such mistake was actually committed in reducing the agreement to writing. Lake v Meacham, 13 Wis 355 (1861). In Lake, the Wisconsin Supreme Court would not reform a sales contract for a farm between buyer and seller. Seller alleged that the sales contract was supposed to contain the clause, "with interest, payable annually." The Court refused to find a mistake in the contract agreement for the following reasons: (1) both buyer and seller had attested to its correctness after it had been signed; (2) the actual value of the farm and actual profit of the farm was fair in relation to the price of the farm paid without interest; and (3) some time had lapsed before the alleged mistake was even noticed.
Wisconsin also requires the mistake to be mutual or common to all parties to the instrument. Breeden v Breeden, 6 Wis 2d 149, 93 NW2d 854 (1959). In Breeden, the plaintiff and his mother signed a real estate contract and took title to property as joint tenants on the advice of a real estate agent. Later they discovered that the joint tenancy was not appropriate for their situation when the property was encumbered with the mother's old age assistance lien. The son brought an action for deed reformation, but the court would not reform the deed because both the plaintiff and his mother intended to be joint tenants. The court stated that the fact that parties to a contract do not foresee all the legal consequences of their acts does not establish mutual mistake, and here, the fact that the parties relied on the incorrect opinion of a layperson was not sufficient to establish mutual mistake.
Regarding the issue of deed reformation, the general rule is that parol, or extrinsic, evidence cannot be used to add to, deduct from, change, or contradict the terms of a deed. The primary goal of a deed, after all, is to effectuate the intent between the parties. Thus, the parol evidence rule prevents extrinsic evidence from being admitted that would affect the terms of a complete, unambiguous, and properly executed deed. The underlying basis of the rule is that written evidence, a properly executed deed for example, is an accurate and legally valid expression of the agreement between the parties. There are some exceptions to the parol evidence rule and these are detailed below.
Illinois will consider parol evidence to contradict the acknowledgement of payment of consideration in a deed or conveyance. Killean v Beaupre, 187 Ill App 407 (1st D 1914). Parol evidence can also be admitted for the purpose of establishing that the written instrument does not truly express the intention of the parties due to a mutual mistake. For a discussion of mutual mistake, see the discussion of Schaffner above.
A third exception is available when the written instrument contains a latent ambiguity, which arises when the writing appears clear and unambiguous on its face, but extrinsic evidence shows that the deed is ambiguous. In such a case, extrinsic evidence can be admitted to prove the existence of a latent ambiguity. Cory v Minton, 49 Ill App 3d 312, 364 NE2d 311, 49 Ill App 3d 312 (1st D, 1977). For example, in Evans v Gerry, 174 Ill 595, 51 NE 615 (1898), the court admitted extrinsic evidence to prove a latent ambiguity in a contract for the exchange of a tract of land described as a certain lot in "block 75." On its face, the contract seemed plain and unambiguous. However, extrinsic evidence established that there was no block by that number in the original plat for the city, but there was a block 75 in an addition to the city. As such, the court reformed the contract to reflect the description to "block 75 of the addition to the city," as the parties intended.
Once the elements of reformation are proved, the instrument will be reformed so that it conforms to the agreement of the parties. Goodwine State Bank v Mullins, 253 Ill App 3d 980, 625 NE2d 1056, 192 Ill Dec 901 (4th D 1993). In Goodwine State Bank, the court denied the bank's request to reform a deed where the bank argued that the owner had agreed to convey his contingent remainder interest to the bank and the deed did not properly reflect that agreement. The court decided that reformation would have been proper only if the parties' prior agreement, as reduced to writing, required the owner to convey his contingent remainder to the bank. The court held that the bank failed to prove the agreement actually required the owner to convey his contingent remainder to the bank and so the bank failed to meet an element of reformation: that the agreement was not accurately reflected in the writing.
Similarly, Indiana admits parol or extrinsic evidence to reform written instruments only when there has been a showing of fraud, mistake, ambiguity, illegality, duress, or undue influence. Orme v Estate of Kruwell, 453 NE2d 355 (Ind Ct App 1983). In Orme, the court barred the plaintiff's suit because the language of a 1952 contract of settlement related to a previous suit released "all claims of every kind or character." The court of appeals denied admission of extrinsic evidence because the clause was unambiguous about all claims being dismissed, even though the plaintiff alleged that the document releasing any claims failed to specifically reference the real estate that was involved in the current action.
Wisconsin also finds that the "parol evidence rule" prohibits introduction of extrinsic evidence to contradict express language of unambiguous contract. Caulfield v Caulfield, 183 Wis2d 83, 515 NW2d (Wis App 1994). One may note, however, the Wisconsin appellate court has indicated that the parol evidence rule is an exclusionary rule, not favored by law and its application is limited and its use narrow. Cobb State Bank v Nelson, 141 Wis 2d 1, 413 NW2d 644 (Wis App 1987). Also, Wisconsin allows extrinsic facts to correct a deed into trust where mistakes in the names of the beneficiaries occur. Syndor v Palmer, 29 Wis 226 (Wis 1871).
Burden of Proof
The party seeking reformation of any written instrument has a higher burden of proof than in an ordinary civil lawsuit. Farmer City State Bank v Guingrich, 139 Ill App 3d 416, 487 NE2d 758, 94 Ill Dec 1 (4th D 1985). Additionally, the Fourth District appellate court has noted the possibility that the party requesting reformation of a deed or other instrument affecting land must provide evidence that eliminates all reasonable doubt regarding the mutual intention of the parties. Farmer City State Bank, 139 Ill App 3d, at 428. Specifically, in Farmer City State Bank, the court noted: "Those cases in which the courts have required satisfactory evidence, leaving no reasonable doubt as to the mutual intention of the parties, have generally involved actions to reform a deed or other instruments affecting land rather than actions to reform written instruments affecting contractual obligations or personal obligations." Id.
Indiana requires the mutual mistake or fraud to be proven by clear and convincing evidence. Meyer v Marine Builders, Inc., 797 NE2d 760, 771 (Ind Ct App 2003). In Meyer, a vendor brought action to quiet title in its name and to revise the legal description of a property. The two parties had relied upon an inaccurate survey and the deed did not express the actual intent of the contracting parties. The Meyer court affirmed the finding of the trial court for deed reformation because there was clear evidence of a mutual mistake. For more information, see the preceding discussion of Meyer above.
Wisconsin requires "the most clear and positive proof" of mutual mistake to reform a written instrument. Lake v Meacham, 13 Wis 355 (1861). Thus, in Lake, the Wisconsin Supreme Court held that the plaintiff had failed to show a mistake for the following reasons: (1) both buyer and seller had attested to its correctness after it had been signed; (2) the actual value of the farm and actual profit of the farm was fair in relation to the price paid without interest; and (3) some time had lapsed before the alleged mistake was noticed.
Given the deference reviewing courts grant to properly executed written instruments, an action for reformation of a properly executed deed should be approached carefully. Regardless of the specific elements required in your state, the main thrust of a deed reformation action is that the deed does not accurately depict the agreement of the contracting parties. For the most part, courts will reform a deed on the basis of mutual mistake or fraud. As illustrated, the burden of proof is relatively high and you will want to be sure that you will be able to illustrate that an actual mistake exists or fraud has occurred.
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