Contract reformation is a distinct type of remedy for cases involving contract disputes. Reformation means that the court permits the parties to rewrite a piece of the contract to reflect the parties’ original intentions more closely.
Contract reformation is a type of equitable remedy, meaning that the parties must make some effort to correct the discrepancy. This contrasts with legal remedies (i.e., a monetary damages award to reimburse for losses). In a breach of contract case, the non-breaching party usually must select between legal and equitable remedies.
When Is Reformation Available?
Contract reformation is available in cases involving:
- Mistakes (usually only for mutual mistakes or unilateral mistakes where the non-mistaken party wasn’t cognizant of the mistake)
- Use of misrepresentation
For misrepresentation cases, reformation can be a remedy for both intentional conduct and unintentional misrepresentation.
When Is Contract Reformation Not Available?
Contract reformation won’t be granted if it will cause economic damage to any of the parties in the future. For example, the court won’t let the parties rewrite a contract in a way that restricts the legal privileges of either party. Also, courts will not permit reformation if it will lead to an agreement that is unfair or one-sided.
What Are Some Other Types of Contract Remedies?
Another remedy related to reformation is rescission (a total contract cancellation). Rescission may be given where there is a unilateral mistake, but the non-mistaken party knows about the mistake.
As mentioned, parties can occasionally select to receive damages. Yet, this depends on miscellaneous elements, including the type of violation and the overall facts of the case. Usually, if a party elects to sue for damages, they can’t seek rescission afterward.
What Is a Breach of Contract?
A proper contract is a legally binding agreement formed by two or more parties. A contract’s main purpose is to guide the contracting parties by outlining the terms and conditions of their earlier negotiated promises and ensuring they are on track to meet them. The terms and conditions of the contract become legally enforceable once the parties sign the final draft.
The term “breach of contract” refers to a legal cause of action in contract law when a party to an existing valid contract violates one of its terms or conditions.
For instance, if a party fails to fulfill a promise, hinders another party’s ability to perform a promise, or repudiates a promise contained in the contract, their acts may lead to a breach of contract claim. Therefore, a non-breaching party may seek damages by filing a breach of contract lawsuit against the breaching party in court.
In general, there are several ways to breach a contract.
Some common types of breach of contract actions include:
- Anticipatory breach: An anticipatory breach is when a breaching party informs a non-breaching party that they will not complete the contract’s performance or fulfill their legal obligations. If this happens, the non-breaching party can file a lawsuit against them for breach of contract.
- Minor or partial breach: A minor breach is when a party performs a substantial part of the contract but fails to satisfy a minor condition. Unlike a material or total breach, a minor breach does not seriously change the terms of a contract. For example, an inaccurate price or similar mistake may result in a minor breach.
- Material or total breach: A material or total breach happens when a breach is so influential that it renders contract performance impossible and is powerful enough to give the non-breaching party grounds to sue.
In addition, some other ways that a contract can be breached include when a contract is dishonest, is formed illegally, contains subject matter that is unconscionable, or when there is a mutual or unilateral mistake about a material fact in the contract. The parties may also specify certain conditions that will trigger a breach of contract action.
Finally, whether a contract has been breached may hinge on various state contract law provisions and the kind of contract formed (e.g., lease agreement, government contract, sales contract, etc.).
What Are the Types of Damages Awarded in Breach of Contract Cases?
While a plaintiff in a breach of contract case must define the damages they seek in their complaint, it is ultimately up to the court to decide what type of damages (if any) a plaintiff should obtain.
A court will typically consider one distinct factor above all others is whether a breach was substantial or only a partial one. This question can help a court resolve the kind and amount of damages a plaintiff should recover.
The most common remedy for a breach of contract case is a monetary damages award.
A simple monetary damages definition is as follows:
- Monetary damages, also known as legal damages, are the amount of money awarded to the injured and prevailing party in a lawsuit. These damages are usually paid by the party who caused the injuries and can be imposed as a penalty, restitution, or both.
Additionally, monetary damages apply to a broad range of legal remedies.
Some types of damages and legal remedies beneath this more extensive category include:
Compensatory damages are the most popular remedy requested in breach of contract cases. Compensatory damages are meant to reimburse a non-breaching party for financial losses suffered from a contract breach. They are used to make the non-breaching party whole again and can include expenses for loss of future earnings, hiring new parties to finish the contract, and so forth.
A court may order the offending party to pay a plaintiff restitution. Restitution aims to restore an injured party to the position they were in before a contract was formed. Since restitution is only used to return the injured party to their initial status, additional damages, such as those for loss of earnings or profits, will not be included in this amount.
Some contracts have provisions called a liquidated damages clause. The parties will select a pre-set amount of damages (i.e., liquidated damages). This pre-set amount is meant to mirror an estimate of the actual damages a party should obtain in the event of a contract breach. These typically occur in contracts where the subject matter may make it more difficult to foretell the number of actual damages.
Nominal damages are more of a symbol than any actual type of compensation. These are awarded when no genuine harm was done due to the breach of contract since nominal damages can be as low as a dollar since they represent more of a symbolic victory or matter of contract principles.
Remedies in equity
Remedies in equity refer to a different form of legal remedies, which have nothing to do with monetary awards.
A court may allocate punitive damages when there is an incentive to penalize and deter the offending party from re-committing such outrageous and offensive actions. Therefore, these damages are seldom awarded in contract cases, and if they are, many states have placed limitations on their amounts.
Do I Need a Lawyer for Help with Contract Reformation?
Contract remedies can often be more complex and difficult to understand when compared to other areas of law. You may wish to hire a contract lawyer if you need help resolving a contract dispute. Your lawyer can provide you with legal advice for your claim and represent you if you need to attend court hearings.