Contract reformation is a specific type of equitable remedy for cases involving contract disputes, such as a breach (a.k.a. violating) or a mistake. When these sorts of contract issues occur, the parties may ask the court to permit them to rewrite or correct a particular portion of the contract so that it better expresses the original intentions and fits the needs of the parties.
For example, if the parties were mistaken as to what one of the terms in the contract meant, such as the delivery date or a definition of a certain word in the contract, then the parties may be able to “reform” the contract in order to remedy the issue.
Essentially, reformation is used when the party is trying to make a portion of the contents and intentions of the original contract clearer. 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.
Before a court may grant a party’s request for contract reformation, all of the following elements must be satisfied:
- 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 laws.
- If the contract is void or voidable, due to reasons like duress or fraud, then reformation may not be available to the parties.
- Valid Grounds for Reformation: There must be a valid reason for 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: Contract reformation will be granted if one party made a misrepresentation in the contract by fraud or deceit. In this instance, reformation will be granted whether or not the misrepresentation was made innocently or intentionally.
- No Defenses are Available: For reformation to occur, there must be no other defenses available. Some common equitable defenses include laches, unclean hands, and estoppel.
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.
If any of the above requirements are missing or if for some reason reformation is not available, the parties can always ask the court to rescind the contract. This remedy is known as “contract rescission” and simply means that the parties can cancel the entire contract. The parties are then free to create a new contract with their desired terms.
Rescission may also 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.
Finally, while this will depend on different factors and the case itself, an injured party who cannot seek contract reformation may opt to receive monetary damages instead.
Monetary damages are known as legal remedies, as opposed to equitable ones. A party will seek these when a contract has been breached and the breach caused the party to suffer some kind of harm or loss.
Contract reformation is an extremely powerful remedy used by courts. This is because it basically allows the court to override parts of the prior agreement in order to create a new one, but only in the sense that it makes the parties’ intentions clearer.
While the contract is not usually completely rewritten, the adjustment of contract terms can have a dramatic effect on the agreement as a whole.
For this reason, it is strongly recommended that you contact a contract lawyer if you believe that contract reformation may be necessary.
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.