3-1-2-9 APPALACHIAN INSURANCE CO. ET AL., PLAINTIFFS AND APPELLANTS, V. MCDONNELL DOUGLAS CORPORATION ET AL., DEFENDANTS AND APPELLANTS (Super.Ct.No. 481712)

III Reformation

Appalachian contends article 14, as written, does not reflect the true intent of the parties which was to adopt only the inter-party waiver as required by the Launch Services Agreement between Western Union and NASA. Appalachian argues article 14 should be reformed to reflect this "true agreement" of the parties.⁸

As a general rule, a written contract, having been deliberately executed, is presumed to correctly express the parties' intentions. (California Trust Co. v. Cohn (1935) 9 Cal.App. 2d 33, 40.) "The presumption is not conclusive and may be overcome by satisfactory evidence which shows that the written instrument is not in conformity with the true agreement of the parties." (Ibid.) Civil Code section 3399 allows reformation of a contract when, through mistake, it fails to express the true agreement of the parties. "[The] mistake may be the mutual error of both parties to the contract, or the oversight of one party which the other knew or suspected at the time of entering the agreement." (American Home Ins. Co. v. Travelers Indemnity Co. (1981) 122 Cal.App. 3d 951, 961.)

When reformation is sought, "the Court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be." (Civ. Code, § 3401; First American Title Ins. & Trust Co. v. Cook (1970) 12 Cal.App. 3d 592, 598.) Thus, "[t]he fact that the parties used the very words which they intended to use is not always sufficient cause for refusing relief of this character. There may be no mistake as to the words used or to be used, and at the same time there may have been a mutual mistake as to some other matter of fact affecting the meaning or application of the words, and by reason thereof the contract may not truly express the real intention of both parties, and in that case it may be revised and reformed at the instance of the aggrieved party and enforced accordingly, although the words were carefully chosen. [Citations.]" (F.P. Cutting Co. v. Peterson (1912) 164 Cal. 44, 47-48; see also Holmes v. Anderson (1928) 90 Cal.App. 276.)

Since reformation is an equitable remedy, it may be denied if the mistake was the result of " ' " the want of that degree of care and diligence which would be exercised by persons of reasonable prudence under the same circumstances. " ' " (Fraters G. & P. Co. v. Southwestern C. Co. (1930) 107 Cal.App. 1, 6; see also Miller v. Laniz (1937) 9 Cal. 2d 544, 548 [reformation denied to defendant who failed to explain long delay in discovering the alleged defect in the writing, why he was precluded from reading or fully comprehending the meaning of the contract and language used and his cross-complaint showed only a unilateral mistake]; Roller v. California Pacific Title Ins. Co. (1949) 92 Cal.App. 2d 149, 154 ["We are inclined to the view, therefore, that where the failure to familiarize one's self with the contents of a written contract prior to its execution is traceable solely to carelessness or negligence, reformation as a rule should be denied." (emphasis omitted)]; Taff v. Atlas Assur. Co. (1943) 58 Cal.App. 2d 696, 702 ["The reformation of (an insurance policy) on the ground of mistake without the exercise of reasonable care on the part of the insured is not to be encouraged."]; Nelson v. Meadville (1937) 19 Cal.App. 2d 68 [one seeking reformation must offer a satisfactory explanation for the failure to read or familiarize one's self with the terms of a contract].)

"If the written instrument accurately reflects the agreement of the parties, albeit an agreement based upon a mistaken assumption of fact, an action for reformation does not lie. [Citations.]" (Getty v. Getty (1986) 187 Cal.App. 3d 1159, 1178.) Finally, "[a]lthough a court of equity may revise a written instrument to make ti conform to the real agreement, it has no power to make a new contract for the parties, whether the mistake be mutual or unilateral [citation]." (Shupe v. Nelson (1967) 254 Cal.App. 2d 693, 700; Stare v. Tate (1971) 21 Cal.App. 3d 432, 438.)

Here, the evidence offered by Appalachian in support of reformation consists of (1) statements by the parties prior to the incorporation of article 14 into the contract of their intent to comply with the inter-party waiver NASA would require in the Launch Services Agreement,⁹ and (2) the variance in the scope of the inter-party waiver required by NASA in the Launch Services Agreement (i.e., waivers of liability between NASA and the Space Shuttle customers and their respective contractors and subcontractors and among the Space Shuttle customers and their contractors and subcontractors) and the scope of the waiver contained in article 14 (i.e., waivers not only among Western Union and its contractors and subcontractors, NASA and other Space Shuttle customers but also waivers between Western Union and McDonnell Douglas and McDonnell Douglas's contractors and subcontractors).

This evidence is insufficient to support reformation. This evidence shows only that the parties intended to comply with NASA's requirement that Space Shuttle customers obtain an inter-party waiver of liability relating to other customers, NASA and the respective contractors and subcontractors so as to be able to launch the Westar VI satellite on the Space Shuttle. Article 14 certainly accomplishes this purpose. The fact that it acts to do more than the bare minimum required by NASA does not in and of itself establish the existence of a mistake so as to support a reformation. The parties may well have decided to extend the scope of the waiver exactly as reflected by the language used in article 14. The record here is silent as to the intended scope of the article 14 waiver. In the absence of any evidence showing a contrary intent, we must presume article 14, as written, reflects the intent of the parties.

Basic to a cause of action for reformation is a showing of a " 'definite intention or agreement on which the minds of the parties had met [which] pre-existed [and conflicted with] the instrument in question.' " (Bailard v. Marden (1951) 36 Cal. 2d 703, 708; see also Treadaway v. Camellia Convalescent Hospitals, Inc. (1974) 43 Cal.App. 3d 189, 197 ["Reformation, on the ground of mutual mistake, presupposes actual agreement (i.e., no mistake) between the contracting parties as to what they intend, . . ."].) The evidence offered by Appalachian does not establish the existence of a definite preexisting intention or agreement to which the written contract should be reformed.

Nor has Appalachian presented evidence explaining how the mistake occurred, i.e., to explain the alleged negligence in drafting article 14 or Western Union's failure to uncover the error. Western Union itself drafted the article and submitted it to McDonnell Douglas for approval. While it is true a written contract may be reformed even though the party seeking reformation drafted it, the party seeking reformation must offer some excuse. (See Roller v. California Pacific Title Ins. Co., supra, 92 Cal.App. 2d 149, 154.)¹⁰ Here, Appalachian offered no excuse. For example, there is no claim (nor evidence showing) the "mistake" was caused by misrepresentations by McDonnell Douglas as to the language which should be used (ibid.), or was due to an oversight or due to an error of a scribner (see McClure v. Cerati (1948) 86 Cal.App. 2d 74). Rather, the record reflects Western Union formally submitted article 14 as well as other amendments to the contract to McDonnell Douglas for approval and that McDonnell Douglas reviewed and accepted the inter-party waiver as written by Western Union. There is no evidence in the record that during this review process that either party did not conduct a careful review of the language or expressed any doubts as to the language chosen in article 14 and its possible failure to reflect the parties' "true" agreement. Indeed, even after the failed launch here, when Western Union again reviewed the language of its contract and had an incentive to inform McDonnell Douglas of any error in article 14 as written, Western Union did not assert article 14 failed to reflect the agreement of the parties.¹¹

In sum, what Appalachian seeks is not reformation of article 14 to reflect an agreement the parties had for a more limited waiver of liability which was not accurately reflected in article 14 as written. Rather, Appalachian seeks to create a new agreement for the parties, an agreement that Western Union might have made, but did not. This we cannot do. The trial court properly ruled against Appalachian on the reformation issue.