Opinion ID: 1907442
Heading Depth: 1
Heading Rank: 4

Heading: Reformation of Settlement Agreement

Text: In Alabama, reformation of contracts is governed by § 8-1-2, Ala.Code 1975; that Code section provides: When, through fraud, a mutual mistake of the parties or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised by a court on the application of the party aggrieved so as to express that intention, so far as it can be done without prejudice to the rights acquired by third persons in good faith and for value. This Court has stated that [t]he terms of the statute [§ 8-1-2] are plain and unambiguous and give the equity court power to reform or revise a written contract only when the requirements of the statute have been met. American Liberty Ins. Co. of Birmingham v. Leonard, 270 Ala. 17, 21, 115 So.2d 470, 473 (1959). Moreover, it is the burden of the party seeking reformation to establish by clear and convincing evidence that those requirements have been met. Clemons v. Mallett, 445 So.2d 276, 279 (Ala.1984). GM & C argues that it has produced clear and convincing evidence establishing that the true intention of the parties was for Reliance Insurance Company, not GM & C, to fund the $275,000 payment to Markel that the settlement agreement requires GM & C to pay, and that the failure of the settlement agreement to reflect that intention is due either to a mutual mistake of the parties or to a mistake on GM & C's part of which Markel knew or suspected. The settlement agreement states that [ GM & C ] agrees to pay to Markel ... the sum of [$275,000].... (Emphasis added.) Nowhere in the settlement agreement is Reliance Insurance Company mentioned. [4] In spite of the absence of any mention of Reliance Insurance Company, GM & C argues that it was the parties' true intention for Reliance Insurance Company to make the $275,000 payment the settlement agreement provides that GM & C would make to Markel. In support of this proposition, GM & C has produced evidence indicating that all of the parties knew that Reliance Insurance Company was providing insurance coverage to GM & C. The other parties to the settlement negotiations (Vance and Mountain Movers) have acknowledged that they knew Reliance Insurance Company was to pay the amount required to be paid by GM & C pursuant to the settlement agreement; however, Markel denies being aware of that fact. GM & C argues that Markel's denial is not credible. [5] However, regardless of what knowledge Markel had of Reliance Insurance Company's role in the settlement, GM & C has not established by clear and convincing evidence that Markel's intention in executing the settlement agreement was to look only to Reliance Insurance Company for payment of the $275,000 it was due. It may be true that Markel expected that the $275,000 payment ultimately would be funded by Reliance Insurance Company. However, as Markel notes in its brief, it is one thing to expect that proceeds of a Settlement Agreement would be funded by insurance, and quite another to agree to forgive and excuse a settling party's obligation in the event that insurance proceeds are not available. GM & C has presented no evidence, much less clear and convincing evidence, indicating that it was Markel's intention to adopt such a forgiving posture. The Court of Appeals in Hyatt v. Ogletree, 31 Ala.App. 8, 11, 12 So.2d 397, 399 (1942), stated: [T]o entitle a complainant to [reformation of a contract], the proof must be clear, exact and convincing that the intention and agreement [the complainant] would have substituted in the instrument was, in fact, that of both parties thereto. If the proof is uncertain in any material respect, relief will be denied. Kelley v. Spencer, 213 Ala. 612, 105 So. 802 [(1925)]; Lipham v. Shamblee, 205 Ala. 498, 88 So. 569 [(1921)]. Even if GM & C intended that Reliance Insurance Company, and not it, would make the $275,000 payment to Markel, there is no clear and convincing evidence indicating that this intention was, in fact, that of both parties. Indeed, the inference to be drawn from the evidence before this Court, including the plain language of the settlement agreement, is that it was Markel's intention in signing the settlement agreement to bind GM & C. If GM & C's obligation was satisfied by Reliance Insurance Company, so be it; what was important to Markel was that it would receive the $275,000 GM & C agreed to pay, not who paid it. GM & C also argues that the settlement agreement should be reformed because, it says, its attorney, Bruce Rogers, had no authority to bind GM & C to the payment obligation of the settlement agreement. In support of this argument, GM & C has presented evidence indicating that GM & C never authorized Rogers to obligate it to pay any amount in connection with this action. Pursuant to the rule established in Blackwell v. Adams, 467 So. 680, 684-85 (Ala.1985), GM & C might well have had a basis on which to ask the trial court to rescind the settlement agreement. (`Although an attorney of record is presumed to have his client's authority to compromise and settle litigation, judgment entered upon an agreement by the attorney may be set aside on affirmative proof that the attorney had no right to consent to its entry . . . .' (quoting Bradford Exchange v. Trein's Exchange, 600 F.2d 99, 102 (7th Cir.1979))). However, GM & C has consistently maintained that the settlement agreement should be enforced. Indeed, in its initial brief to this Court, GM & C states: It has been the consistent position of both parties that the Settlement Agreement is enforceable and should be enforced. Thus, neither party requested that the trial court rescind the Settlement Agreement. The only issue is whether the $275,000 payment obligation is enforceable against GM & C or Reliance. As we stated in Norman v. Bozeman, 605 So.2d 1210, 1214 (Ala.1992), [o]ur review is limited to the issues that were before the trial court  an issue raised on appeal must have first been presented to and ruled on by the trial court. Because the trial court was never asked to rule on whether Rogers's lack of authority to bind GM & C mandates that the settlement agreement be rescinded, that issue is not before us. What we can affirmatively state, however, is that this Court will not reform a settlement agreement on the ground that the attorney was not authorized to settle the dispute. A court has power to reform a contract only when the requirements of [§ 8-1-2, Ala.Code 1975] have been met. Leonard, 270 Ala. at 21, 115 So.2d at 473. GM & C has not established that those requirements are met. Because GM & C has failed to show by clear and convincing evidence that it was entitled to reformation of the settlement agreement pursuant to § 8-1-2, we cannot say that the trial court erred in denying GM & C's motion for reformation, and we affirm the trial court's order on that point.