Contract reformation is a specific equitable remedy for cases involving contract disputes, such as a breach of contract (e.g., refusal to perform the actions required by the contract) or a disagreement over a simple mistake. When these contract issues occur, the parties may ask the court to permit them to rewrite or correct a particular portion of the contract to express the parties’ original intentions and consequent needs better. Essentially, reformation is used when the party is trying to make the intentions of the signers of the original contract clearer.
For example, if the parties are mistaken or confused about what one of the terms in the contract means, then either party may be able to ask a court to reform the contract to remedy the issue. Often these confounding troubles are caused by the use in the contract of legalistic words that the parties mistook for meaning something else.
For instance, in a contract, the frequently-used term “consideration,” does not mean something akin to “thoughtfulness” or “attention.” Instead, it means something of value that is exchanged in return for the promise of performance by the other party. Some common law limits exist on what can be reformed and what cannot. Reformation cannot be used to mislead or alter the conditions of the contract in such a way that it hurts or deceives the other party.
What are the Requirements for Contract Reformation?
Before a court may grant a party’s request for contract reformation, all of the following elements must be fully satisfied under the law:
- Valid Contract: A valid contract must exist between the parties. A contract is considered to be valid (i.e., legally enforceable) when it meets the proper requirements of what constitutes a valid contract under contract law:
- There must be an offer to exchange goods or services for money or other remuneration
- The offer is accepted
- Consideration will be mutually exchanged
- The parties have developed the terms and conditions of the contract (e.g., when is performance due and how much money will be paid)
- Performance becomes due or is made.
- If the contract is legally void or voidable (for example, if the contract was entered into because one party pressured the other to make the contract or if there was fraud involved in the creation of the contract), then reformation will not be available to the parties.
- Valid Grounds for Reformation: There must be a valid reason why the parties need or want to rewrite the contract. Generally, there are two grounds that reformation may be based on:
- Mistake: If the parties were mistaken about certain terms in the contract, then the court may grant a request for reformation. Mutual mistakes will always be considered proper grounds for reformation. Unilateral mistakes, however, will only lead to reformation where the non-mistaken party was unaware that the other party was mistaken.
- Misrepresentation: Reformation will be granted if one party misrepresents the contract by fraud or deceit. Reformation will be granted whether or not the misrepresentation was made innocently or intentionally.
- No Defenses are Available: For reformation to occur, no other defenses must be available. Some common equitable defenses include
- Laches: Laches is when the plaintiff unreasonably delayed filing suit, which caused prejudice or harm to the defendant. An example would be if the plaintiff delayed filing suit because there is a witness the plaintiff doesn’t want to testify, so the plaintiff delayed filing a claim, hoping the witness would become unavailable
- Unclean hands: According to this doctrine, a defendant can argue that the plaintiff has no right to obtain relief because they acted unethically or in bad faith concerning the subject matter of the complaint.
- Estoppel: Estoppel arises when one of the parties reasonably relies on a promise made in a contract. That reliance turned out to be detrimental to the party, and if the promise is not enforced, injustice will result.
Additionally, contract reformation will not be available if rewriting the contract will give rise to harmful consequences for either party in the future. For example, a court will not rewrite a contract in such a way that could prevent qualified purchasers from making a bid on real property.
Essentially, if contract reformation will cause economic harm to any of the parties or will lead to a contract that is illegal or only favors one side, then contract reformation will generally not be available.
What If Contract Reformation is Not Available?
If any of the above requirements are missing or if, for some reason, contact reformation is not an option, one or both parties can always ask the court to rescind the contract. This remedy is known as “contract rescission” and simply means that the court will cancel the entire contract. Contract rescission puts the parties back to their original positions before agreeing. This cancels any of the legal responsibilities in the contract and makes the contract void and unenforceable.
The parties can create a new contract with their desired, corrected terms.
Rescission may be a good option in instances where there is a unilateral mistake, but the non-mistaken party does know that the other party is mistaken about the intentions or the terms of the contract.
Contract reformation and contract rescission are equitable remedies, meaning they correct the problem without ordering anyone to pay any money. An equitable remedy means the court uses discretion to devise the penalty. An injured party who cannot seek contract reformation or rescission may opt to receive monetary damages instead. A party will seek these damages when a contract has been breached, which caused the party to suffer economic harm or loss.
Lastly, a judge can deny a contract rescission or reformation if a party has already requested monetary damages. If you ask for a contract to be canceled or altered, you must ask for that before monetary damages.
Do I Need to Hire a Lawyer for Contract Reformation?
Contract reformation is an extremely powerful remedy used by courts. This is because it allows the court to override parts of the prior agreement to create a new one to clarify the parties’ intentions. Proper reformation is important for protecting the contract interests of all involved.
In contract reformation, usually, the contract is not entirely rewritten. Instead, certain paragraphs will be changed to meet the parties’ actual intentions. While that may seem to be a minor event, adjustment of contract terms can dramatically affect the agreement as a whole. For this reason, it is strongly recommended that you contact a contract lawyer in your area if you believe contract reformation may be necessary. Your attorney can guide you through the legal process from start to finish.
A qualified lawyer will be able to determine whether contract reformation is available, whether any defenses may block your petition, and can suggest what other remedies to pursue if, for some reason, contract reformation is not available.
Also, it is generally in your best interest to hire an attorney before you enter into a contract. This will hopefully minimize the need for contract reformation in the future and will help to ensure that your contract is legally enforceable and provides adequate protection right from the start.