## Facts

- World of Sleep, Inc., a bedding retailer, entered discussions with Zel Seidenfeld to establish a related retail operation.
- Seidenfeld formed Colorado Sleepmasters, Inc., to operate a store as World of Sleep’s licensee; Sleepmasters had no working capital.
- In October 1979, Sleepmasters acquired initial inventory and other assets from World of Sleep and executed a $40,000 installment promissory note payable to World of Sleep.
- Sleepmasters also subleased retail premises from World of Sleep; Seidenfeld signed the sublease and note as Sleepmasters’ president.
- The trial court found the parties previously agreed Seidenfeld would provide a personal written guaranty for payment obligations under both the note and the sublease, and that the documents were intended to include those guaranties.
- The sublease contained a guaranty signature line for Seidenfeld; the promissory note did not. Seidenfeld noticed the omission and did not alert World of Sleep.
- By January 1981, concerned about solvency, World of Sleep took possession of Sleepmasters’ books, records, and checkbook, and checks required signatures from both entities.
- Payments on the note stopped after March 1981, leaving $26,000 principal unpaid; Sleepmasters later ceased operations, owing $26,980 in unpaid sublease rent.
- World of Sleep sued Seidenfeld personally as guarantor; the trial court reformed the note to add his guaranty and entered judgment against him for the unpaid balances on the note and sublease.

## Issues

1. Whether the promissory note could be equitably reformed to include Seidenfeld’s personal guaranty when the original writing omitted guaranty language.
2. Whether the statute of frauds barred reformation or enforcement of the guaranty relating to Sleepmasters’ debt.
3. Whether World of Sleep’s post-default control over Sleepmasters’ financial operations discharged Seidenfeld’s liability as guarantor.

## Decision

- The court affirmed the judgment against Seidenfeld.
- The court held the trial court properly reformed the promissory note to reflect the parties’ agreement that Seidenfeld would execute a personal written guaranty.
- The court concluded the statute of frauds did not bar reformation where clear and convincing evidence showed the omission resulted from mistake (or mistake coupled with inequitable conduct).
- The court held that, as reformed, the note satisfied the writing requirement for a guaranty.
- The court rejected the argument that World of Sleep’s monitoring and control of financial matters discharged the guarantor, deferring to the trial court’s factual findings.

## Legal Principles

- A court in equity may reform a written instrument when, due to mutual mistake (or unilateral mistake plus inequitable conduct), the writing fails to express the parties’ actual agreement.
- Reformation to add a promised written guaranty is permissible upon clear and convincing proof of the prior agreement and the mistaken omission from the instrument.
- The statute of frauds does not prevent reformation in these circumstances because the corrected writing supplies the required written memorial of the guaranty.
- A guarantor is not discharged absent a material alteration or other conduct by the creditor that legally relieves the guarantor; appellate review defers to supported trial-court fact findings on such matters.

## Conclusion

The court upheld equitable reformation of a promissory note to include an omitted personal guaranty and enforced the guaranty as reformed, rejecting statute-of-frauds and discharge defenses where the trial court’s findings showed a prior agreement for a written guaranty and no creditor conduct warranting release of the guarantor.


World of Sleep, Inc. v. Seidenfeld, 674 P.2d 1005 (Colo. App. 1983)