Romano v. Kelly: Reformation of a Settlement Agreement on Motion Where a Scrivener’s Error Defeats the Parties’ Intended Transfer of Entire Real Property

1. Introduction

Romano v Kelly (2026 NY Slip Op 00042 [3d Dept Jan. 8, 2026]) arises from a property dispute between long-term unmarried partners, Maria L. Romano (plaintiff-respondent) and Patrick J. Kelly (defendant-appellant). After more than 25 years together—during which they acquired four parcels of real property, including rental properties—the parties separated in 2022. Plaintiff sued for, among other relief, partition of the properties.

The litigation settled in December 2023 via a written settlement agreement drafted by plaintiff’s counsel. The central issue on appeal was whether the agreement mistakenly limited defendant’s conveyance to the “second floor” unit of a duplex in Watervliet (the “Watervliet property”), even though (plaintiff contended) the parties intended that plaintiff receive the entire Watervliet property. Plaintiff moved by order to show cause for reformation of the agreement to remove the “second floor” limitation as a scrivener’s error. Defendant opposed and cross-moved to enforce the agreement, including a provision requiring plaintiff to deposit $20,000 into a 529 educational savings account, and sought contractual counsel fees.

Supreme Court (Albany County) reformed the agreement by eliminating the “2nd floor” limitation, ordered plaintiff to fund the 529 account, and denied counsel fees to both sides. Defendant appealed.

2. Summary of the Opinion

The Appellate Division, Third Department affirmed in all relevant respects. It held that plaintiff established by clear and convincing evidence that the agreement failed to reflect the parties’ intent regarding the Watervliet property, supporting reformation to eliminate the “second floor” limitation. The Court also upheld the denial of counsel fees, agreeing that Supreme Court acted within its discretion where plaintiff was in default on the 529 funding obligation but defendant was also in breach by collecting rents inconsistent with the agreement as reformed and the parties’ intended allocation.

Procedurally, the Court acknowledged the “general rule” that reformation of an incorporated-but-not-merged settlement should be brought in a plenary action, but held that resolving reformation on motion here was not “fatal” and dismissal was unwarranted under the circumstances (citing CPLR 2001 and Third Department practice).

3. Analysis

3.1. Precedents Cited

A. The reformation standard (mutual mistake; clear and convincing evidence)

Sunnyview Farm, LLC v Levy Leverage, LLC: Cited for the governing rule that reformation requires “clear and convincing evidence” of mutual mistake (or unilateral mistake plus fraud). The Court used this as the doctrinal entry point and burden-of-proof benchmark.
Matter of Husisian: Quoted for the definition of mutual mistake: the parties reached an oral agreement and, unknown to either, the signed writing does not express it. The Court relied on this formulation to frame the inquiry as one of mismatch between intended deal and written text.
Chimart Assoc. v Paul: Cited both for the mutual mistake reformation framework and for the proposition that, in reformation claims, parol/extrinsic evidence is generally not barred by the parol evidence rule or the statute of frauds because the claim is that the writing is not the agreement. This precedent supplied the doctrinal justification for considering evidence of intent beyond the face of the mistaken phrase—even though, here, the Court ultimately found intent largely “glean[able]” from the document itself and the record’s documentary proof.
Hilgreen v Pollard Excavating, Inc. (210 AD3d 1344) and Hilgreen v Pollard Excavating, Inc. (193 AD3d 1134): Used for two related propositions: (1) the mutual mistake framework, and (2) the requirement that the movant must show “in no uncertain terms” not only that mistake exists, but “exactly what was really agreed upon.” The Court used these to test whether plaintiff proved the “real agreement” was transfer of the entire Watervliet property.
True v True: Cited for the materiality requirement—mutual mistake must involve a “fundamental assumption” of the contract. The Court implicitly treated ownership of the Watervliet property (and rental income/security deposits tied to it) as fundamental to the overall property settlement.
Tompkins Fin. Corp. v John M. Floyd & Assoc., Inc.: Reinforced the “exactly what was really agreed upon” requirement and the need for a concrete showing of the intended terms.

B. Parol evidence, statute of frauds, and documentary proof

Chimart Assoc. v Paul (again), plus: Iskalo Elec. Tower LLC v Stantec Consulting Servs., Inc., Potsdam Cent. Schools v Honeywell, Inc., and Vasilakos v Gouvis: These authorities collectively support the proposition that reformation claims are not typically barred by parol evidence rule or statute of frauds concerns. The Court referenced them to show that, even in a real property context, the inquiry may consider extrinsic proof to establish the intended agreement.

C. Applying reformation to settlement/stipulation language; examples of granting reformation

Gunther v Vilceus, True v True, Vasilakos v Gouvis, Matter of Rosenblum, and NCCMI, Inc. v Bersin Props., LLC: Cited as illustrative/supportive authority that reformation is appropriate where the record demonstrates, clearly and convincingly, that the writing diverges from the parties’ intent. Their role here is confirmatory: they anchor the Third Department’s conclusion that the “second floor” limitation was inconsistent with the deal the agreement otherwise describes.

D. Procedure: reformation by motion vs. plenary action; harmless error approach

Caldwell v Caldwell: Stated the “general rule” that, where a settlement is incorporated but not merged into a judgment, reformation should be pursued by plenary action to develop an adequate record. The Court treated this as the default procedural expectation.
MacDonald v Guttman, Banker v Banker, and Brender v Brender: These Third Department cases temper Caldwell by recognizing that altering a stipulation without a plenary action is not necessarily fatal. They provided the Court’s doctrinal basis to affirm despite the absence of a separate plenary reformation action.
CPLR 2001: Used to justify declining dismissal based on a correctable procedural irregularity where substantial rights are not prejudiced. In effect, the Court treated the motion practice posture as non-dispositive given the adequate record.

E. Need (or lack thereof) for a hearing on reformation/intent

Montero v Montero, Brender v Brender, and Lambert v Lambert: Cited for the proposition that a hearing is the “preferred course” where credibility issues may matter.
Marcella v Glowacki and Asset Mgt. & Capital Co., Inc. v Nugent: Cited to support that, in appropriate circumstances, intent can be determined from the document’s four corners and documentary proof without a hearing.
Stache Invs. Corp. v Ciolek, Walker v Walker, Caldwell v Caldwell, and Lambert v Lambert: Used as contrasts/comparators on when paper resolution may or may not be sufficient; the Court emphasized that here there was no indication Supreme Court relied on evidence outside the record and the agreement/documentary proof sufficed.

F. Counsel fees under a contractual “default/breach” fee clause

Momberger v Momberger and Parnes v Parnes: Offered as general support for discretionary denial of fees under the circumstances presented.
Kirk v Kirk and Matter of Neuhauser v Eisenberger: Cited in a “compare” parenthetical to illustrate contrasting outcomes in other contexts; here, the Court emphasized that Supreme Court found both sides at fault (default/breach), supporting denial of fees.

3.2. Legal Reasoning

The Court’s analysis is driven by a practical reconciliation of the settlement agreement’s internal logic. Although the agreement repeatedly referenced the “second floor,” the Court treated those references as inconsistent with multiple other provisions that only make sense if the parties intended a transfer of the entire Watervliet property to plaintiff.

Key textual/contextual points the Court found persuasive:

An early reference identifying plaintiff’s address omitted the “second floor” qualifier, suggesting the phrase was not carefully or consistently used.
The agreement mistakenly described the parties as joint owners of only the “second floor,” which is not a coherent ownership description for a duplex parcel titled in both names. The Court treated this as an indicator that the “second floor” phrasing was a drafting error rather than a negotiated limitation.
The agreement contemplated conveyance via warranty deed and “any other documents necessary” to effect a transfer of “sole ownership,” language the Court read as incompatible with defendant’s theory that plaintiff would receive only part of the property while defendant retained other interests.
Defendant’s obligation to remove encumbrances (liens/mortgages) on the Watervliet property would confer “no benefit” to him if he retained ownership of the first floor—supporting that he was relinquishing the property, not keeping part of it.
The rent/security deposit clause (defendant to relinquish “any future rental payments,” pro-rate rent, and turn over “any security deposit for the property”) was functionally meaningless if only the “second floor” was being conveyed, because plaintiff did not occupy the premises as a tenant under a rental agreement and rental income was tied to the first-floor tenant.
The broader settlement structure addressed the parties’ rights in four properties. The Court found it implausible that the parties intended to leave the first-floor unit effectively unallocated and unaddressed, especially where defendant’s interpretation would require additional conveyancing steps by plaintiff (to give him sole rights in the first floor) that the agreement never mentions.

On defendant’s “no consideration” argument, the Court emphasized that the parties proceeded without valuations and defendant agreed to execute a no-consideration transfer affidavit, and that the settlement was an integrated allocation of rights across multiple properties—i.e., “consideration” was embedded in the global compromise rather than a single-parcel cash exchange.

3.3. Impact

Substantive impact (reformation): The decision reinforces that New York courts will reform settlement agreements where a scrivener’s error produces an internally inconsistent instrument and the intended allocation can be established by clear and convincing evidence—especially where provisions about “sole ownership,” encumbrances, rents, and deposits collectively point to a single coherent deal. It also underscores that repeated erroneous phrasing does not immunize a mistake if the agreement’s structure and surrounding provisions show the phrase is misapplied.

Procedural impact (motion practice): Although acknowledging the “general rule” favoring a plenary action when a settlement is incorporated but not merged, the Third Department again signals that courts may correct/alter a stipulation on motion where the record is adequate and no substantial right is prejudiced, treating the procedural vehicle as a non-fatal irregularity (with CPLR 2001 as a safety valve).

Fee clause administration: The ruling cautions that even a facial “prevailing/non-defaulting party” fee clause may not yield fees where the court finds both sides engaged in default/breach behavior tied to performance and enforcement—making counsel fees outcomes less automatic and more fact-sensitive.

4. Complex Concepts Simplified

Reformation: A court’s equitable power to rewrite a contract so it matches what the parties actually agreed to, used when the written document is wrong due to mistake (or fraud). It is not about making a “fair” deal; it is about making the writing reflect the real deal.
Mutual mistake: Both parties share the same mistaken belief that the written contract accurately states their agreement when it does not. In this case, the “second floor” limitation was treated as inconsistent with what the agreement otherwise shows the parties meant to accomplish.
Scrivener’s error: A drafting/clerical mistake (e.g., wrong unit, wrong description) that slips into the document, even if repeated.
Clear and convincing evidence: A heightened proof standard—more than “more likely than not,” less than “beyond a reasonable doubt.” The evidence must be highly persuasive.
Parol evidence rule / Statute of frauds (in reformation): Normally, courts hesitate to use outside statements to change a written agreement, and real property agreements typically must be in writing. But in reformation, the claim is that the writing is wrong, so courts may consider extrinsic proof to show what was actually agreed.
Incorporated but not merged: A settlement can be referenced in a judgment (“incorporated”) while still remaining a separate enforceable contract (“not merged”). This status can affect procedure—often suggesting a separate lawsuit for reformation—though this case shows courts may still act on motion when appropriate.
Warranty deed: A deed that conveys title with warranties (promises) about the quality of title. Language contemplating “sole ownership” via deed can signal an intent to transfer an entire parcel.
529 educational savings account (26 USC § 529): A tax-advantaged education savings account. Here it was a bargained-for settlement obligation, separate from the property conveyance dispute.

5. Conclusion

Romano v Kelly stands as a practical reformation decision: where a settlement agreement’s repeated but contextually incoherent property description conflicts with provisions indicating “sole ownership,” transfer of rents/security deposits, and satisfaction of encumbrances, the court may find—by clear and convincing evidence—that the writing contains a material mutual mistake and reform it to match the intended deal. The opinion also confirms the Third Department’s willingness, in appropriate circumstances, to permit reformation of an incorporated-but-not-merged settlement via motion practice rather than insisting on a plenary action, and it highlights that contractual counsel-fee provisions may be neutralized where both parties are found to have defaulted or breached in the performance/enforcement sequence.