Beck v. Reynolds ( 1995 )

HODGES, Justice.

The issue in this case is whether the trial court erred in reforming the contract based on a finding of constructive fraud.

I. Facts

In 1978, defendant Dr. Reynolds prescribed a drug known as Comid to plaintiff Margaret Beck. As a result of taking the drug, Mrs. Beck developed tardive dyskine-sia. Mr. and Mrs. Beck sued Dr. Reynolds alleging medical malpractice. They also sued the druggist and the drug manufacturer, and these claims were settled early and are not part of this appeal.

From 1978 to 1980, Dr. Reynolds purchased malpractice insurance from Hartford Insurance Company (Hartford) for the policy limit of $100,000.00 for each year. From 1980 through 1986, Dr. Reynolds purchased malpractice insurance from Physicians Liability Insurance Company (PLICO). The policy limit for the PLICO coverage was $100,000.00 except for the year 1984 when the policy limit was $1,000,000.00.

The case went to trial. During the trial, the parties reached a settlement agreement. During the settlement negotiations, the Becks offered to settle for $499,000. This offer was rejected, and the parties continued negotiating. During the negotiations, PLI-CO represented to both Dr. Reynolds and the Becks that the limits on the policies were $100,000.00. There is no allegation that this misrepresentation was done with intent to mislead, but all the evidence shows it was an honest mistake. Based on this representation, the parties reached a settlement and the Becks dismissed the case.

PLICO asserts the agreement was for $201,000.00 which has been paid. Hartford paid $100,000.00, PLICO paid $100,000.00, and Dr. Reynolds paid $1,000.00. The plaintiffs assert that the agreement was for the policy limits which they avow was $1,000,-000.00 under the PLICO policy. Based on the settlement agreement, the plaintiffs signed a release of all claims in consideration of the payment of $201,000.00. The release reflected that it was a complete recitation of the parties’ agreement.

After discovering the limit of the 1984 PLICO policy was $1,000,000.00, the plaintiffs filed a Motion to Compel Settlement requesting the trial court to enter judgment against PLICO for $900,000.00, the policy limit in 1984 less the $100,000.00 previous paid. Over PLICO’s objection, the district court entered the judgment for $900,000.00 based on constructive fraud. The Court of Appeals reversed the judgment of the trial court. The Court of Appeals found the settlement agreement was void based on a mutual mistake.

II. The Contract

We agree with PLICO that the agreement was for $201,000.00. The written release of claims stated that the consideration for the contract was $201,000.00. Mrs. Beck testified she agreed to the $201,000.00 settlement because she believed the limits for the two insurance policies were $100,000.00 each. There is no evidence that the Becks thought they were settling for $1,101,000.00.

Further, the release of the claims states it “contains the ENTIRE AGREEMENT between the parties hereto, and the terms of [the] Release are contractual and not a mere recital.” It also stated: “We further state that we have carefully read the foregoing Release and know the contents thereof, and sign the same as our own free act.” The release is not only signed by both the Becks but is also signed by the bankruptcy trustee and the Becks’ attorney.

Because the release was in writing, it supersedes all oral stipulations or negotiations which preceded its execution. Okla. Stat. tit. 15, § 137 (1991). Parol evidence was not admissible to show a previous contradictory oral agreement. Johnston, Inc. v. Wilson, 358 P.2d 205, 206, 208 (Okla.1959). For these reasons, we find that the agreement was for $201,000.00.

III. Mutual Mistake of Fact

The Becks, Dr. Reynolds, and PLICO agreed to the settlement of $201,000.00 under a mistake that the policy limits for all the years PLICO provided coverage was $100,-000.00 when it was $1,000,000 in 1984. The evidence shows that the parties intended to settle the ease for $201,000.00. The Becks were paid $201,000.00 and then dismissed the case. The Becks admit they thought they were settling the case for $201,000.00. Likewise, the evidence shows PLICO intended only to be responsible for $100,000.00 of the settlement. PLICO would never have settled for $1,000,000.00.

We are not deciding whether the 1984 policy limit applies. That issue is not before this Court. Nonetheless, it is clear the parties thought the policy limits for all years of the PLICO coverage was $100,000.00 and based the settlement agreement on this mistaken belief.

In order to have a valid contract there must be mutual consent, or a meeting of the minds. Okla.Stat. tit. 15, §§ 2, 66 (1991); Cimarron Pipeline Construction, Inc. v. United States Fidelity & Guaranty Ins. Co., 848 P.2d 1161, 1164 (Okla.1993); Smalley v. Bond, 92 Okla. 178, 218 P. 513, 515 (1923). “The consent of the parties must be mutual, and consent is not mutual unless the parties all agree upon the same thing in the same [sense].” Smalley, 218 P. at 515; Raffles v. Wichelhaus, 2 H. & C. 906, 159 Eng.Rep. 375 (Ex. 1864). Because the parties did not “agree upon the same thing in the same sense,” there was no mutual consent, and thus no contract to reform.

Section 233 of title 15 provides that a party may rescind a contract when consent was given by mistake. Rescission, not reformation, is the proper remedy when an apparent contract is made because of mutual mistake of fact even when the contract has been executed. Watkins v. Grady County Soil and Water Conservation Dist., 438 P.2d 491, 495 (Okla.1968).

When a contract is subject to rescission, the injured party may either (1) enforce the contract or (2) rescind the contract and all the parties will be restored to their original positions. Dusbabek v. Bowers, 173 Okla. 53, 43 P.2d 97 (1935). Because the $201,000.00 settlement agreement has been executed, the Becks may adhere to the agreement or void the contract and have the dismissal set aside. However, they are attempting to “compel” a different settlement agreement than the one which the parties intended. This they may not do.

Because the proper remedy in this case is to allow the Becks, the injured parties, to either adhere to the agreement or rescind the contract, the trial improperly reformed the contract and entered judgment against PLICO. The Court of Appeals correctly found the contract was formed based on a mutual mistake but did not apply the proper remedy. Thus, the opinion of the Court of Appeals is vacated, the judgment of the trial court is reversed, and the case is remanded to the trial court.

CERTIORARI PREVIOUSLY GRANTED; COURT OF APPEALS’ OPINION VACATED; REVERSED AND REMANDED WITH INSTRUCTIONS.

WILSON, C.J., and LAVENDER, SIMMS, HARGRAVE and OPALA, JJ., concur. KAUGER, V.C.J., concurs in part, dissents in part. SUMMERS and WATT, JJ., dissent. (I would affirm the decision of the trial court.)