What is Reformation?

Reformation in contract law is a legal remedy that allows a court to revise a written contract to accurately reflect the true intentions of the parties involved, to remedy certain types of misconduct on the part of a party, or to eliminate unconscionable terms.

When is Reformation Used?

Reformation is commonly used in the following situations when there has been a: 

• Mutual Mistake: This occurs when both parties have a different understanding of a term or condition in the contract, which isn't accurately represented in the written document.
• Unilateral Mistake: This occurs when one party is mistaken about a fundamental aspect of the contract, and the other party knows or should have known about this mistake.
• Misrepresentation: This refers to when a party was induced into the contract based on false statements or claims by the other party, leading to a contract that doesn't reflect what was actually agreed upon.
• Duress: This occurs when a contract is signed under coercion or threats, such that the agreement does not truly represent the party's intent.
• Unconscionable Contracts/Clauses: These are contracts, or clauses within contracts, that contain terms so unfair and imbalanced that they exploit a significant disparity in bargaining power or sophistication between the parties.

Scope of Reformation

The scope of contract reformation by courts is limited. Courts typically exercise discretion and focus on specific terms or aspects of a contract when considering reformation, including:

• Pricing Terms: Contracts often involve complex pricing structures that can be prone to mistakes or misrepresentations. When evidence suggests that pricing terms were based on a mutual mistake or a misrepresentation (intentional or unintentional), courts may intervene to reform these terms. This is particularly relevant in contracts involving real estate, large quantities of goods, or complex service agreements.
• Deadlines and Performance Obligations: Misunderstandings or errors regarding deadlines and the nature of performance obligations are common grounds for reformation. For instance, if a contract for construction work specifies an unrealistic completion date due to a mutual error in calculating the time needed, a court may reform the contract to reflect a more accurate timeline. Similarly, if the description of the obligations of one party is based on incorrect information or misunderstandings, reformation can be used to clarify these terms.
• Terms Affecting Fundamental Fairness: Courts are particularly likely to scrutinize terms that significantly affect the contract's fairness. This includes clauses that might have been included due to fraud, duress, or undue influence. .
• Provisions Involving Third Parties: Sometimes, contracts involve terms that affect third parties. If these terms were included based on a misunderstanding or misrepresentation of the third party's role or responsibilities, reformation might be considered to rectify these aspects.

Example: A contractor intentionally misrepresents the quality of building materials to be used in a renovation project. The client, relying on these false statements, signs the contract. The client can seek reformation to require the contractor to use the promised materials or adjust the contract price.