But That is Not What I Meant! Too Bad So Sad!
But That Is Not What I Meant! Too Bad So Sad!
As we have written before, reformation, or correction of mistakes in a contract are not a legal right. While a court can order that a contract be rewritten to take into account some mistakes, the court’s ability to do so is limited. The only sure fire way to be certain your contract is consistent with your understanding of your agreement, is to obtain legal consultation before the contract is executed. After execution, you may be bound even to the most egregious of mistakes.
Reformation, is generally only available under two circumstances. The first is where there is a mutual mistake between both parties to the agreement. In such a situation, the court is empowered to reform the contract to reflect the true intention of the parties when they executed the agreement. The second circumstance is where although the mistake is only by one party to the agreement, the other party has engaged in some inequitable behavior to justify the court in reforming the contract to better serve the intention of the innocent and mistaken party. Absent one of these circumstances being proven, the court is without the authority to relieve either party from such mistakes.
Recently, in Bone & Joint Treatment Centers of America v. Healthtronics Surgical Services, Inc., the appellate court explained the burdens on a party seeking to have the court reform a contract to account for mistaken intentions between the parties. In that case, five entities entered into an agreement where Bone & Joint Treatment Centers of America (“BJA”) was granted certain “tag along” rights in the event that one party to the agreement, HTO, disposed of its interests in the agreement to a non-party to the agreement. BJA was not granted any “tag along” rights in the event that Healthtronics Surgical Services, Inc. (“HSS”), the parent company of HTO, transferred its rights under the Agreement.
Five years into the agreement, HSS sold a portion of its business, which was held by its subsidiary, HTO, to a company called SanuWave, and BJA sued to enforce its “tag along” rights. The trial court found that BJA was not provided “tag along” rights as to a sale by HSS either by a mutual mistake of the parties, or through a unilateral mistake by BJA coupled with inequitable conduct by HSS. Specifically, the court found that before negotiations on the agreement were concluded, counsel for HSS assured BJA that the “tag along” provision would be inserted. Taken with the fact that the sale to SanuWave was structured in a way where the sale was by HSS, instead of HTO, the trial court found inequitable conduct to overcome the unilateral mistake of BJA.
On appeal, the appellate court disagreed. First, it was pointed out that to prevail on a claim to reform a contract, showing your entitlement to reformation by a mere preponderance of the evidence is insufficient. Instead, such evidence must be shown by clear and convincing evidence. A standard higher than the normal preponderance standard of civil cases, but less than the beyond a reasonable doubt of criminal cases. This as you might imagine is a difficult standard to meet. It requires that the evidence “be of such weight that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established.” The appellate court did not agree that such standard had been met.
The appellate court pointed out that the “tag along” provision was a heated and integral part of the negotiations between the parties in drafting the agreement. Yet, this provision did not provide any such rights to BJA. Although BJA may have thought it would be inserted, it clearly was not, and BJA should have known this fact upon execution of the agreement. While BJA believed that HTO and HSS were the same entity, there was ample negotiation between BJA and HSS as to any “tag along” rights in the event that HSS transferred its interests under the agreement to place BJA on notice that its understanding of such “tag along” rights was in error.
The appellate court held that under these circumstances, even where one party was clearly mistaken as to its rights, and the confusion was clear, the court was without the power to reform the agreement where both parties were not mistaken as to the intent of the agreement, and the mistaken party was not treated inequitably by the other party to the agreement so as to justify a court rewriting the free will of the parties to the agreement.
So again, the answer to the question of whether if you made a mistake in your contract, do you have the right to fix the mistake, usually remains no. A person who makes a mistake in a contract will generally be held to what is stated in the contract, even when the consequences of the unilateral mistake are rather severe. Being painstaking in preparing your contracts with the assistance of legal counsel is imperative to avoid making such mistakes.