Breach of Contract

Reformation of Settlement Agreement Terms Improper Equitable Remedy Regardless of Breach

It is well established in Indiana that the reformation of terms of a contract as an equitable remedy for a breach is an extreme remedy.  Courts may only reform a written contract if (1) there has been a mutual mistake by the parties in the formation; or (2) one party makes a mistake while the other party commits fraud or inequitable conduct.  See Meyer v. Marine Builders, Inc., 797 N.E. 760, 722 (Ind. Ct. App. 2003); see also New Life Cmty. Church of God v. Admomatis, 672 N.E.2d 433, 438 (Ind. Ct. App. 1996).  Misconduct by a party that amounts to a breach does trigger a court’s ability to reform a contract.

For example, in Wagner v. Wagner, a court attempted to modify a settlement agreement provision that was in breach by one of the parties, but was reversed because the facts did not trigger the availability of the equitable remedy of reformation.  Here, a father and son were general partners of numerous partnerships that owned apartment buildings.  A business dispute arose between them which resulted in litigation.  The father alleged during this litigation that funds had been misappropriated from the business.  Ultimately the matter was settled, and one provision that was incorporated in the settlement agreement was that the father would prepare all partnership tax returns.

A subsequent suit was filed by the son because the father failed to prepare partnership tax returns as required by the settlement agreement.  After a bench trial, the court concluded that the father breached the agreement because he refused to prepare the tax returns, which was an obligation he agreed to undertake under the settlement agreement.  As a result of this breach, the trial court entered an order stating that the son was entitled to use a different account for future tax returns.  However, the Court reversed this equitable remedy imposed by the trial court because there was no basis to support rescission or modification of the contract as there was no fraud, illegality, mutual mistake, or a contract provision providing for rescission in the event of breach. 

Wagner v. Wagner, 02A03-1610-PL-2473 (Ind. Ct. App. 2017).