REFORMATION: WHEN COURTS WILL CHANGE A WRITTEN CONTRACT

REFORMATION: WHEN COURTS WILL CHANGE A WRITTEN CONTRACT.

 

Illinois Courts do not favor changing written contracts between parties – also known as reformation of a contract.  Kolkovich v. Tosolin, 19 Ill.App.3d 524, 527-28 (4th Dist. 1978) (stating that “courts should proceed with great caution in reforming written instruments”).  Nevertheless, reformation is within the jurisdiction and duty of a court of equity if the contract does not reflect the parties’ mutual intent.  Id.

A contract is presumed to express the parties’ intent and will not be reformed without clear and convincing evidence of mutual mistake.  U.S. Bank Trust, N.A. v. Colston, 2015 IL App (5th) at ¶ 26.  Reformation is generally based on mistakes of fact.  Patrick Media Group, Inc. v. City of Chicago, 255 Ill.App.3d 1, 5 (1st Dist. 1993).  However, in some circumstances reformation can be based on a mistake of law.  CitiMortgage, Inc. v. Parille, 2016 IL App (2d) 150286 at ¶ 31.

Despite Courts’ conventional reluctance to reform written instruments, one instance where reformation is more routinely granted is correcting minor mistakes in the legal description of property encumbered by a mortgage.  See Colston, 2015 IL App (5th); First Midwest Bank v. First Midwest Bank, 2016 IL App (1st) 151930-U (unpublished); CitiMortgage, Inc. v. Vinarov, 2018 IL App (1st) 170279-U (unpublished).

In Colston, the Court found clear and convincing evidence of mutual mistake in a mortgage’s legal description when the description did not include the house, detached garage, and all five acres of the property.  Colston, 2015 IL App (5th) at ¶ 26.  The Court used an appraisal prior to the mortgage and defendants’ bankruptcy schedules (that listed the house) to reform the legal description.  Id.

The First Midwest Bank Court used the legal description from previous deeds and a survey of the property as grounds to reform a legal description in a mortgage that included the terms “Northwest” and “Block L,” rather than the correct “Northeast” and “Block 1.”  First Midwest Bank, 2016 IL App (1st) 151930-U at ¶ 27.  Vinarov also used the legal description from previous conveyances to correct typographical errors in a mortgage legal description.  Vinarov, 2018 IL App (1st) 170279-U at ¶ 21.

In addition, most mortgages today also refer to the encumbered property’s common address and permanent index number (“PIN”).  Along with a tax map, the common address and PIN can be used to correlate the property to its correct legal description.

Other fact patterns make it more difficult to meet the clear and convincing standard that a mortgage should be reformed.  See Parille, 2016 IL App (2d) 150286.  In Parille, a husband and wife owned the property as tenants by the entirety.  Id. at ¶ 3.  The wife’s signature on the subject mortgage was not qualified with any additional language.  Id. at ¶ 7.  However, the husband executed the mortgage “for the sole purpose of waiving homestead rights.”  Id.

Plaintiff argued that the mortgage should be reformed to remove the qualification on the husband’s signature.  Id. at ¶ 29.  After a 735 ILCS 5/2-615 motion to dismiss the plaintiff’s reformation count, the Court outlined elements required to plead reformation:

(1) The existence and substance of an agreement between the parties and the identity of the parties to the agreement; (2) that the parties agreed to reduce their agreement to writing; (3) the substance of the written agreement; (4) that a variance exists between the parties’ original agreement and the writing; and (5) the basis for reformation (e.g. mutual mistake).”  Id.

Although the Parille Court overturned the lower Court’s dismissal of the plaintiff’s reformation count, it did note that its reversal was not a suggestion that the plaintiff could establish reformation of the mortgage by clear and convincing evidence.  Id. at ¶ 29.  Indeed, this would be a difficult standard for plaintiff to meet with the husband claiming no mutual mistake and that he intended to execute the mortgage only to waive homestead rights.

Illinois Courts appear more willing to reform a contract to correct small or typographical errors.  Reformation of a contract to change the capacity in which one of the parties executed the document seems a steeper hill to climb.  Especially if the other party denies any mutual mistake occurred.

For additional reading on reformation see:

 

Quist v. Streicher, 18 Ill.2d 376 (1960);

Shelor v. Witt, 69 Ill.App.3d 172 (3rd Dist. 1979); and

Goodwine State Bank v. Mullins, 253 Ill.App.3d 980 (4th Dist. 1993).