Reformation in Contract Law: Everything You Need to Know
Reformation in contract law is a legal remedy in which the court rewrites the contract to ensure both parties' true intentions are reflected.3 min read
Reformation in contract law is a legal remedy in which the court rewrites the contract to ensure both parties' true intentions are reflected. This is an alternative to equitable remedies, such as monetary damages. In a breach of contract case, the injured party often must choose between an equitable and legal remedy. The latter is often a good option if one or both parties misunderstood one or more of the contract terms or a mistake was made in the contract.
How Contract Reformation Works
If fraud has occurred, reformation can be used to correct the contract if an equitable remedy is called for. For example, if a real estate contract incorrectly states the value of the property to mislead the buyer, the buyer can sue for breach of contract. If both parties agree, the court can adjust the contract to reflect the property's true value.
If both parties are not amenable to a new contract, reformation would not work as a remedy. Instead, the buyer would likely receive compensation or the seller would be subject to penalties. The court may not impose a contract on a party who does not agree with its terms.
Reformation is used only when the court has clear, convincing evidence of intent on behalf of both parties. This strategy may only clarify, not change, the terms of the contract. If changes are made, each party must initial the revision. A rider can be created to correct the mistake or an entirely new version of the contract can be drafted. Courts often encourage parties to agree on reformation and will enforce the new contract if another dispute arises.
Contract Reformation Requirements
All elements must be satisfied for a contract to be eligible for reformation, including:
- A valid contract exists.
- A valid reason exists to rewrite the contract, typically either error or misrepresentation on behalf of one or both parties. Reformation will be granted for both purposeful and accidental misrepresentation as well as for bilateral error. However, if only one party made an error, the contract can be reformed only if the other party was unaware of the other.
- No defenses are available.
A contract cannot be reformed if doing so will cause future harm to either party or lead to an illegal or one-sided contract.
Other Types of Contract Remedies
If reformation is unavailable, the court could completely cancel the contract (rescission). This may be the remedy if one party makes a mistake of which the other party is aware. Sometimes, the injured party can opt for monetary damages depending on the facts of the case and the types of violation. However, if an entity takes this route, he or she cannot later request reformation or rescission.
Seeking Legal Assistance
Even for those familiar with legal agreements, contract remedies can be complicated and hard to understand. However, this is a powerful strategy through which courts can create a new agreement. This can have a major impact on the terms of the agreement, so it's important to seek the input of an experienced contract attorney. In addition, having a lawyer draft the original contract can prevent the need for later reformation.
When a Disagreement Exists
Parties often disagree about whether a mistake has occurred if the error benefits one party and disadvantages the other. The latter may bring a reformation lawsuit in combination with a breach of contract claim. This should be done as soon as possible once a mistake is discovered to avoid the defense of an unreasonable delay for reasons of prejudice (laches).
The party suing for reformation bears the burden of proof, which often requires the true intent of both parties in writing and/or other clear and convincing evidence. However, the party may succeed on the breach of contract claim independently if the agreement is found to be unclear by the court.
Avoiding Contract Errors
Important contracts must be error-free. When creating a new contract from an old template, check the language carefully. Have an attorney who is familiar with your industry draft the contract or review and revise your initial draft. Be aware of grammar errors that can change the meaning of a contract.
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