It is often said that in the exercise of this jurisdiction a court of equity is merely substituting the real transaction between the parties for the apparent one, but the explanation is inadequate. Even if it were granted that mental assent is essential to the formation of contracts,44 it certainly cannot be claimed that mental assent, which is unexpressed, constitutes a contract; and though parties have arrived at a definite understanding as to the terms of the proposed bargain, if they contemplate a writing as the first obligation binding upon them their mutual understanding prior to the writing will not make a contract.45 Nor can even a fully expressed intention operate as a conveyance of land. Moreover, if there is, as undoubtedly is often the case, a contract prior to the erroneous writing expressing the actual intent, the writing has subsequently been accepted and agreed to as the contract or conveyance which shall be substituted for the original agreement. It is a confusing fiction to imagine that equity in reforming this later instrument is specifically enforcing an existing contract. An examination of the chancery cases shows no insistence on a binding agreement prior to the writing of which reformation is sought. Equity does insist that the parties shall have come to a complete mutual understanding of all the essential terms of their bargain, for, otherwise, there would be no standard by which the writing could be reformed.46 Knowledge by one party of the other's
39 Eustis Manufacturing Co. v. Saco Brick Co., 198 Mass. 212, 219, 84 N. E. 449, citing Livingstone v. Murphy, 187 Mass. 315, 72 N. E. 1012, 105 Am. St. Rep. 400; Hadlock v. Williams, 10 Vt. 570; DenyB v. Shuckburgh, 4 Y. & C. 42; Colchester v. Culver, 29 Vt. Ill; McNaughten v. Partridge, 11 Ohio, 223, 38 Am. Dec. 731; Remington v. Higgins, 54 Cal 620; Blakeman v. Blakeman, 39 Conn. 320; Haussman v. Burnham, 59 Conn. 117, 22 Atl. 1065, 21 Am. St. Rep. 74; Sparta School v. Mendell, 138 Ind. 188, 37 N. E. 604.
40 Gaylord v. Pelland, 169 Mass. 356, 359, 47 N. E. 1019, citing Bernard's Township v. Stebbins, 109 U. S. 341, 349, 27 L. Ed. 956; Bullock v. Whip, 15 R. I. 195, 2 Atl. 309; Conover v. Brown, 49 N. J. Eq. 156; Lebanon Savings Bank v. Hollenbeck, 29 Minn. 322; Springfield Savings Bank v. Springfield Congregational Society, 127 Mass. 516; Chase v. Peck, 21 N. Y.
581. See also Harding v. Jewell, 73 Me. 426; Parsons v. Parsons, 230 Mass. 544, 119 N. E. 1020.
41 Williams v. Everham, 90 la. 420, 57 N. W. 901; Stephenson v. Elliott, 53 Kan. 550, 36 Pac. 980.
42 Zuspann v. Roy, 102 Kan. 188,170 Pac. 387. Other reservations were inserted in Warrick v. Smith, 137 111. 504, 27 N. E. 709; Stines v. Hays, 36 N. J. Eq. 369; Uiklein v. Matthews, 93 N. Y. App. D. 57, 86 N. Y. S. 924; Marshall v. Homier, 13 Okl. 264, 74 Pac. 368; Baab v. Houser, 203 Pa. 470, 53 Atl. 344; Pulaski Iron Co. v Palmer, 89 Va. 384, 16 S. E. 275.
43 Schneider v. Bulger (Mo. App.), 194 S. W. 737, 739, citing Sicher v. Rambousek, 193 Mo. 113,129,91S. W. 68. See also Osincup v. Henthorn, 89 Kan. 58, 130 Pac. 652, 46 L. R. A. (N. S.) 174, Ann. Cas. 1914 C. 1262.
44 See supra, Sec.Sec. 20, 94, 95.
4S See supra, Sec. 28.
46 Mackenzie v. Coulson, L. R. 8 Eq. 368, 375; Hunt v. Rousmaniere's Adm'r, 1 Pet. 1, 14, 7 L. Ed. 27; Robertson v. Walker, 51 Ala. 484; GuHmartin v. Urquhart, 82 Ala. 570, 1 So. 897; Louis Werner Sawmill Go. v. Seesoms, 120 Ark. 105, 170 S. W. 185; Burt v. Los Angeles Olive Growers' Assoc., 175 Gal. 668, 166 Pac. 983; Allen v. Kitchen, 16 Idaho, 133, 100 Fac. 1052; McGinnis v. Boyd, 279 111. 283, 116 N. E. 672; Citizens' Nat. Bank v. Judy, 146 Ind. 322, 43 N. E. 259; White v. Shaffer, 130 Md. 351, 99 Atl. 66; Wood v. Standard Drug Store, 192 Mich. 456, 158 N. W. 844; Ellison v. Fox, 38 Minn. 454, 38 N. W. 358; Frits v. Fritz, 94 Minn. 264, 102 N. W. 705; Meek v. Hurst, 223 Mo. 688, 122 8. W. 1022, 135 Am. St. Rep. 531; Sfobodisky v. Phenix Ins. Go., 52 Neb. 395, 72 N. W. 483; Ray v. Durham County, 110 N. G. 169, 14 S. E. 646; Allen v. Roanoke, etc., Go., 171 N. G.
339, 88 S. E. 492; Mitchell v. Holman, 30 Ore. 280, 47 Pac. 616; Boyoe v. Hamburg-Bremen Fire Ins. Go., 24 Pa. Super. 589; Darden v. Vanland-ingham (Tex. Civ. App.), 189 S. W. 297; Ledyard v. Hartford Fire Ins. Go., 24 Wis. 496; Anderson v. Freeman, 88 Wash. 608, 153 Pac. 307; Grant Marble Go. v. Abbot, 142 Wis. 279,124 N. W. 264.
In Le Gendre v. Scottish Union & Nat. Ins. Co., 95 N. Y. App. Div. 562, 564, 88 N. Y. S. 1012, the court infringed upon this principle. The following extracts from the opinion explain the case: "We regard this as a plain case for the reformation of the policy. It is manifest that the plaintiff intended to insure the property contained in his residence. He doubtless knew, although even that has not been shown, that his house was on the north instead of the south side of the road; and it is evident that the erroneous description in the policy locating mistake regarding the expression of the contract is equivalent to mutual mistake. Thus if one party before the execution of the instrument knew of or discovered the error in it, reformation will be allowed against him though the mistake is not strictly mutual.47 And so reformation may be allowed to make an instrument conform to fraudulent misrepresentations.48 Doubtless the mistake is one of law, but this should not preclude relief.49
It is not enough to justify reformation that the court is satisfied that the parties would have come to a certain agreement had they been aware of the actual facts.60 Nor will equity his house on the south side of the road was, at least so far as he is concerned, the result of some inadvertence or mistake. The defendant, however, contends that there was no mistake on his part. . . . Assuming . . . that the defendant meant to act in good faith and that it had no knowledge concerning the location of the property except that presented in the application, . . . plaintiff intended to procure insurance upon the household property in his residence and that is the property the defendant intended to insure, but in reducing their agreement to writing the word 'southerly' was erroneously inserted instead of the word 'northerly' as indicating the location of the residence of the assured with reference to the highway. The case, therefore, falls within the doctrine of the authorities that where there was no mistake in the agreement but merely a mistake in reducing it to writing the contract will be reformed." The answer to this is that the defendant never indicated any willingness to insure the plaintiff's property unless in a house on the southerly side of the road. Doubtless the correct description would not have prevented the defendant from issuing a policy; but the court is enforcing an agreement which it thinks the defendant would have been willing to make - not one it ever expressed a willingness to make. See infra, n. 50.
47 Wasatch Min. Co. v. Crescent Min. Co., 148 U. S. 293, 37 L. Ed. 464, 13 Sup. Ct. 600; Scott v. Spurr, 160 Ky. 575, 184 S. W. 866; Welles v. Yates, 44 N. Y. 525. Cf. supra, Sec. 1407.
48 See supra, Sec. 1525.
49 See infra, Sec. 1581.
50 In Barrow v. Barrow, 18 Beav. 529, Romilly, M. R., said: "I am not aware of any case, and none has been produced to me, where, in the absence of fraud, such as the suppression of a fact that ought to have been communicated, this court has interfered to make a settlement conformable with what would have been the contract between the parties if all the facts material to be known by them had been there present to their minds."
In Curtis v. Albee, 167 N. Y. 360, 365, 60 N. £. 660, the court expressed this: "In the case before us both parties assented to the same thing, the one to sell and the other to buy a claim for $2,036.54, and the assignment expresses precisely that and nothing else. Neither agreed to buy or sell a claim for $1,191.28, and there was no mistake on the part of either in not thus describing the thing sold. A claim for the smaller amount was not in the mind of either party, for neither supposed it to exist, and hence their reform a contract where acquired rights of bona fide purchasers for value would be disturbed.51 But neither creditors 52 nor a trustee in bankruptcy53 are such purchasers, and reformation may be had in spite of their adverse interest. Reformation nearly always involves rescission. If the instrument of which reformation is sought had no validity or effect, there would be no occasion to apply to equity unless by a bill quia timet in the cases where that might be appropriate to prevent an invalid document from injurious operation by its appearance of validity. Generally, therefore, the instrument of which reformation is sought is valid until avoided, and the first step towards the desired relief must be to rescind the written contract or conveyance into which the parties have entered; but where the parties clearly intended an instrument of a different tenor as to which their minds were at one, it is inequitable to destroy the transaction into which the parties actually entered except upon the terms of establishing a transaction into which they inminds could not have met on the transfer of such a claim. What the parties did not agree to cannot be added by the court. The defendant paid a small sum for a doubtful claim, large in amount, and ran the risk of Joeing what he paid for the chance of realising a great profit. He is entitled to the contract in the form in which it was made without interference by the court in the guise of reformation. The plaintiff got what he agreed to take and assigned what he agreed to assign, and he has no more right to a reformation of the contract than he would have to strike out a warranty of soundness from a bill of sale of a horse, because he and the purchaser both believed the horse to be sound when in fact it was unsound." See also Snell v. Insurance Co., 98 U. S. 85, 25 L. Ed. 52; St. Anthony Falls Water Power Co. p. Merriman, 35 Minn. 42, 27 N. W. 199; Webster v. Stark, 10 Lea, 406, 413; Hendricks v. Goodrich, 15 Wis. 679. Cf. cases of alteration cited infra, Sec.1913, ad fin.
51 Maiden v. Menill, 2 Atk. 8; Early v. Owens, 68 Ala. 171; Davidson v. Davidson, 42 Ark. 362; Allen v. Elder, 76 Ga. 674, 2 Am. St. Rep. 63; Mayor, etc., of Macon v. Dasher, 90 Ga. 195, 16 8. E. 75; Pence v. Armstrong, 95 Ind. 191; Dart v. Barbour, 32 Mich. 267; Robertson v. Smith, 191 Mich. 660,158 N. W. 207, Ann. Cas. 1918 D. 145; Martin v. Nixon, 92 Mo. 26, 4 S. W. 503; Quick v. Stuyvesant, 2 Paige, 84; Ray v. Durham County, 110 N. C. 169, 14 S. E. 646; Coates v. Smith, 81 Or. 556, 568, 160 Pac. 517; Fanners' & M. Bank v. Citizens' Nat. Bank, 25 S. D. 91, 125 N. W. 642; Farley v. Deslonde, 69 Tex. 458, 6 S. W. 786; Robinson v. Braiden, 44 W. Va. 183, 28 8. E. 798. Thus where a note secured by mortgage had been transferred to a holder in due course, the mortgage could not be reformed. Dunham v. W. Steele, etc., Co., 100 Mich. 75, 58 N. W. 627.
52 Coates p. Smith, 81 Or. 556, 568, 160 Pac. 517.
53 Zartman v. First Nat. Bank, 216 U. S. 134, 54 L. Ed. 418, 30 Sup. Ct. 368.
tended to enter.54 Circumstances may have supervened, however, making this impossible or inequitable, and in such a case rescission only is allowable.55