Court Affirms Reformation of a Settlement Agreement Based on Clear and Convincing Evidence of Mutual Mistake

By: Jeffrey M. Haber

As a general matter, when a contract fails to conform to the agreement between the parties due to the mutual mistake of the parties, however induced, or of the mistake of one party and fraud of the other, a court will reform the contract to make it conform to the actual agreement between the parties. The mutual mistake must be material (i.e., it must involve a “fundamental assumption” of the contract). However, it does not mean that the mistake would have caused the parties not to enter into the contract had they known of it. Rather, a material mistake is one which “vitally” affects a fact or facts on the basis of which the parties contracted.

Reformation is an equitable form of relief. The purpose of reformation is not to “alleviat a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties.”

The burden is high to obtain contract reformation. The party demanding it “‘must establish his right to such relief by clear, positive and convincing evidence.’” Therefore, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.” Only by satisfying this burden can the party seeking reformation “overcome the heavy presumption” that the contract embodies the parties’ true intent.

In Romano v. Kelly, 2026 N.Y. Slip Op. 00042 (3d Dept. Jan. 8, 2026), the Appellate Division, Third Department, affirmed Supreme Court’s order partially reforming the parties’ settlement agreement to eliminate references limiting the conveyance of the subject property to the “second floor,” holding that plaintiff clearly and convincingly established a mutual mistake (i.e., a scrivener’s error) and that the parties’ true intent was to transfer sole ownership of the entire property to the plaintiff.

Plaintiff and defendant were unmarried partners for more than 25 years. Over the course of their relationship, plaintiff and defendant resided together, possessed joint funds and accounts, and maintained common real property. Specifically, the parties acquired four parcels of real property during their relationship, utilizing one parcel as a residence and the other three as rental properties. As relevant to the appeal, in 2013, the parties bought a piece of real property located in the City of Watervliet, Albany County (the “Watervliet property”). The Watervliet property was a duplex with a first and second floor unit and, unlike the other three parcels, was titled in both parties’ names. In 2022, the parties separated, and plaintiff brought an action against defendant seeking, among other things, partition of the various pieces of real property, including the Watervliet property. The parties ultimately settled and signed a settlement agreement authored by plaintiff’s counsel in December 2023.

The primary dispute in the appeal arose from the terms of the settlement agreement; specifically, with respect to the extent of the parties’ ownership of the Watervliet property. The express terms of the settlement agreement purportedly provided plaintiff with, in pertinent part, the “exclusive use and occupancy” of the second-floor unit of the Watervliet property. The agreement further required defendant to sign a warranty deed that conveyed “all of his right, title and interest in and to” the second floor of the Watervliet property and that he would “relinquish any future rental payments, pro-rate any current or due rent as of signing . . . and turn over to any security deposit for the property.” However, plaintiff claimed that the parties had intended to convey the entire Watervliet property and that inclusion of the second-floor reference, where she was residing after the separation and at the time of the settlement agreement, was the product of a scrivener’s error. Plaintiff learned of the error after defendant collected rents from the tenant located in the first-floor unit of the Watervliet property for the first two months of 2024. Plaintiff contacted defendant through counsel, disputing defendant’s right to do so and asserting that an addendum to the settlement agreement was necessary to reflect the parties’ true intent that she be the sole owner of the entire Watervliet property. Defendant refused that request and proposed that plaintiff pay him further monies for the remainder of the property.

Plaintiff then moved, by order to show cause, for reformation of the settlement agreement and further sought counsel fees in connection with the order. Defendant opposed plaintiff’s order to show cause and cross-moved for enforcement of the settlement agreement, asserting that plaintiff had violated a provision in the agreement requiring her to deposit $20,000 in a 529 educational savings account for the parties’ children. Defendant also sought an award of counsel fees pursuant to a clause in the agreement allowing for such fees in the event of a party’s default or breach.

Supreme Court partially granted plaintiff’s motion and, in relevant part, reformed the agreement, eliminating the reference to the “2nd floor” of the Watervliet property in the settlement agreement. The court also partially granted defendant’s cross-motion ordering plaintiff to fully fund the educational account. However, the court denied both parties’ requests for counsel fees. Defendant appealed.

The Third Department affirmed.

The Court held that the language of the settlement agreement belied defendant’s contention that the parties intended defendant to have the second floor as reflected by the references to the second floor throughout the agreement and that he would not have surrendered the entire property “without any consideration.” The Court found “that defendant’s assertions flatly contradicted by the language of the agreement itself.” “As to the numerous references to the second floor,” said the Court, “the context of those references within the first few mentions of the Watervliet property is revealing.” “Specifically, the first reference, which identifie plaintiff’s current address, omit the appropriate reference to the second floor.” “More importantly,” noted the Court, “the second reference mistakenly state that the parties were the joint owners of only the second floor of the Watervliet property, which indicative that the prevailing use of the second-floor qualifier in error.”

The Court also looked at “the manner of conveyance provided in the settlement agreement, which”, it said, “further controvert defendant’s suggestion of the parties’ intent to only convey the second floor.” The Court explained that the “agreement specifically provided that defendant would provide a warranty deed, as well as any other documents necessary, that effectuated a transfer of ‘sole ownership.’” According to defendant, “this language should be disregarded as the transfer of the first floor of the Watervliet property could be accomplished by executing a warranty deed that established a ‘Tenants in Common’ arrangement.” The Court held that “egardless of whether such an arrangement was feasible, the implication that it was intended by the parties not supported by the record when one considers that there is no mention of it anywhere in the agreement; to the contrary, as noted by Supreme Court, it is directly controverted by the aforementioned ‘sole ownership’ language with respect to the contemplated transfer.”

The Court also held that “the language in the settlement agreement concerning obligation to remove any encumbrances on the Watervliet property” belied his contentions. The Court found, as did Supreme Court, that “Defendant agreed to satisfy any liens or mortgages on the property … would provide no benefit to defendant if he were maintaining ownership of the first floor.” Moreover, said the Court, “the agreement indicate that defendant would ‘relinquish any future rental payments, pro-rate any current or due rent’ as of the date of signing ‘and turn over to any security deposit for the property.’” “That language,” said the Court, was “particularly notable inasmuch as plaintiff did not reside in the property pursuant to a rental agreement, rendering that provision meaningless if the parties solely intended to transfer the second floor.”

Regarding defendant’s contention that he “would not have transferred the Watervliet property without consideration,” the Court noted that “the parties elected to proceed without the benefit of any property valuations and, as noted by Supreme Court, defendant agreed to execute the appropriate affidavit for a no-consideration transfer.”

“Finally, and perhaps most significant,” concluded the Court, “the settlement agreement purport to articulate the parties’ rights to the four properties that they collectively amassed during their relationship, and defendant fail to provide any reasonable explanation as to why the parties would omit any reference to the first floor of the Watervliet property as part of their intent to transfer sole ownership of that floor to defendant.” “To the contrary,” explained the Court, “there no indication that defendant would receive sole ownership in the first floor of the Watervliet property by virtue of any language in the agreement when, prior to the agreement, he only possessed a joint ownership interest, which would remain the case if the language in the agreement were to remain unchanged.” “Rather,” said the Court, “in order to effectuate defendant’s suggested intent, it would require some action on the part of plaintiff with respect to her remaining interest in the first floor and, as is the case with defendant’s proposal for a tenancy in common, that not contemplated by any language contained within the four corners of the document, nor indicated in any other proof.”

In conclusion, the Court held that “defendant’s suggestion that the references to the second floor were intentional belied by the context of the agreement, and the record provide ample support for Supreme Court’s determination that plaintiff clearly and convincingly established the need for reformation of the agreement.”

Takeaway

Romano underscores both the power and limits of contract reformation under New York law, and serves as a reminder that courts will correct drafting errors—but only when the proof is clear and convincing. Reformation remains an equitable remedy, available not to rescue a party from a bad deal, but to ensure that a written agreement accurately reflects the agreement the parties actually made.

Romano illustrates that mutual mistake does not require proof that the parties would have refused to contract had the error been known. Instead, the mistake must concern a material and fundamental assumption underlying the agreement. In Romano, the alleged error – a scrivener’s error limiting a real‑property conveyance to a single floor rather than the entire parcel – went to the heart of the settlement, making it the type of mistake that could justify equitable relief when clearly established.

Critically, the Third Department reaffirmed that the burden on a party seeking reformation is exceptionally high. The movant must prove, by clear, positive, and convincing evidence, not only that a mistake occurred but exactly what the parties had actually agreed upon. The “heavy presumption” that a signed writing reflects the parties’ true intent remains firmly in place, and reformation is only appropriate when that presumption is overcome with compelling proof.

What makes Romano notable is that plaintiff succeeded largely through the four corners of the agreement itself, not through extrinsic testimony or post-agreement explanations. The Court relied heavily on the terms of the settlement agreement – such as references implying joint ownership of only a “second floor,” the requirement that defendant deliver a warranty deed conveying “sole ownership,” and provisions addressing liens, rents, and security deposits that made no practical sense unless the entire property was being transferred. Romano therefore reinforces the principle that a court may find clear and convincing proof of mutual mistake from the text and structure of the agreement alone, when the document contradicts the interpretation urged by the resisting party.

The Court also rejected a common argument in reformation cases advanced by the resisting party: the party would never have agreed to the transaction “without consideration.” The Court’s decision confirms that courts will look to what the parties actually did and agreed to do, not what one party later claims would have been economically irrational. In Romano, the fact that the parties knowingly proceeded without formal valuations and contemplated a no‑consideration conveyance undermined that objection to reformation.

Finally, Romano reinforces the point that reformation is fundamentally about intent. The Court was unpersuaded by defendant’s post‑settlement conduct (e.g., collecting rent) or bargaining positions taken after the mistake was uncovered. Once the record established that the written agreement failed to express the mutual intent at the time of contracting, equity required that it be corrected, regardless of the strategic advantage one party sought to extract afterward.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

Janowitz v. 25-30 120th St., 75 A.D.2d 203, 214 (2d Dept. 1980).

Id. (quoting 13 Williston, Contracts <3d ed>, § 1544). See also True v. True, 63 A.D.3d 1145, 1147 (2d Dept. 2009).

Id.

Id. (citing 13 Williston, Contracts <3d ed>, § 1544, at 96).

In prior articles, this Blog examined cases involving the reformation of contracts: Reformation of Contracts; Contract Reformation: Mutual Mistake or A Scrivener’s Error; and First Department Reminds Practitioners that “proofreading is an essential, indispensable tool in the drafting of contracts.”

George Backer Mgt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 219 (1978).

Schultz v. 400 Coop. Corp., 292 A.D.2d 16, 19 (1st Dept. 2002) (quoting, Amend v. Hurley, 293 N.Y. 587, 595 (1944)). See alsoSunnyview Farm, LLC v. Levy Leverage, LLC, 223 A.D.3d 955, 960 (3d Dept. 2024).

Id.See alsoHilgreen v. Pollard Excavating, Inc.,  210 A.D.3d 1344, 1347 (3d Dept. 2022); Hilgreen v. Pollard Excavating, Inc., 193 A.D.3d 1134, 1137 (3d Dept 2021), appeal dismissed, 37 N.Y.3d 1002 (2021); Tompkins Fin. Corp. v. John M. Floyd & Assoc., Inc., 144 A.D.3d 1252, 1256 (3d Dept. 2016). 

Id.

Slip Op. at *3.

Id.

Id.

Id.

Id.

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Id.

Id.

Id.

Id.

Id.

Id. at *3-*4.

Id. at *4.

Id.

Id.

Id. (citations omitted).