Opinion ID: 1930614
Heading Depth: 1
Heading Rank: 4

Heading: Criteria for Reformation

Text: Courts of equity have the power to grant reformation of a contract. The Court of Chancery may use this remedy to reform a contract in order to express the real agreement of the parties involved. [35] There are two doctrines that allow reformation. The first is the doctrine of mutual mistake. In such a case, the plaintiff must show that both parties were mistaken as to a material portion of the written agreement. [36] The second is the doctrine of unilateral mistake. The party asserting this doctrine must show that it was mistaken and that the other party knew of the mistake but remained silent. [37] Regardless of which doctrine is used, the plaintiff must show by clear and convincing evidence that the parties came to a specific prior understanding that differed materially from the written agreement. [38] This evidence provides a comparative standard that tells the Court of Chancery exactly what terms to insert in the contract rather than being put in the position of creating a contract for the parties. [39] This understanding need only be complete as to the issue involved. It need not constitute a complete contract in and of itself. [40] Thus, Cerberus must show that: (i) MTI thought that the merger agreement gave MTI's stockholders the proceeds of the options and warrants; (ii) either that Apollo was also similarly mistaken, or that Apollo knew of MTI's mistake and remained silent; and (iii) that MTI and Apollo had specifically agreed that the proceeds of the options and warrants would go to MTI's stockholders. The Court of Chancery rightly observed that there is some ambiguity in Delaware caselaw whether a plaintiff must prove each of the elements of a mistake case by clear and convincing evidence, or only the existence of a definite prior agreement. [41] Cerberus must prove each of the required elements by clear and convincing evidence to justify reformation. Courts generally assign the clear and convincing evidentiary burden to the entire request for reformation, rather than to the specific prior agreement element of the mutual (or unilateral) mistake claim. [42] We know of no authority holding otherwise. Indeed, Cerberus concedes this point in its brief.