Reformation [Equitable]: Revision of Contracts

Reformation is an equitable remedy that involves the revision of a contract by the court when the written terms of the contract do not accurately reflect what was agreed upon.

Reformation is an equitable remedy by which a court revises a written contract in instances where the documented terms fail to capture what the parties actually intended and agreed upon. This usually occurs due to mutual mistake or fraud that skews the contract terms.

The Concept of Equitable Remedy

An equitable remedy is a judicial redress that aims to provide fair outcomes, often through actions like injunctions or specific performance, rather than monetary compensation.

Conditions for Reformation

For reformation to be decreed:

• Mutual Mistake: Both parties must have shared a misconception regarding the terms.
• Unilateral Mistake and Fraud: If only one party was mistaken, reformation is applicable only if the mistake arose due to the other party’s fraud.

Mutual Mistake

A mutual mistake occurs when:

$$ A \neq B $$

where \( A \) represents the agreed terms, and \( B \) represents the written terms. Both parties intended \( A \), but mistakenly wrote \( B \).

Unilateral Mistake

Unilateral mistake coupled with fraud:

$$ B = B_{\text{fraud}} $$

Here, one party’s mistake \( B \) was induced by the other party’s fraudulent actions.

Examples of Reformation

• Real Estate Contracts: If a property description mistakenly omits a portion of the property, courts may reform the contract to rectify this.
• Business Agreements: In complex commercial contracts, if supplementary schedules are incorrect, reformation corrects these to reflect the actual agreement.

Historical Context

The concept of reformation has roots in equity law developed in English courts to remedy injustices that the rigid common law could not address. It aimed to ensure fairness in contractual dealings.

Applicability and Limitations

Applicability

Reformation applies in situations such as:

• Mistakenly drafted marital settlements
• Incorrect inheritance distributions
• Business mergers and acquisitions with documentation errors

Limitations

However, reformation is not suitable if:

• Only one party was mistaken without fraud
• If enforcing reformation would contravene public policy
• The original contract itself is illegal

Related Terms

• Mistake: A false understanding by one or more parties about a fundamental matter.
• Fraud: Intentional deception resulting in harm or loss to another party.
• Equity: A body of law providing remedies other than monetary damages.

FAQs

Can reformation change the whole nature of the contract?

No, reformation corrects specific errors to reflect the true intent, without altering the contract’s nature.

Is reformation available in all jurisdictions?

While common in many jurisdictions, its availability and criteria may vary depending on local laws.

How is mutual mistake proven?

Through clear and convincing evidence, such as pre-contract negotiations and agreements.

Summary

Reformation stands as a judicial instrument to correct and align written contracts with the actual agreement and intention of the parties involved. It ensures justice by addressing and amending errors resulting from mutual mistakes or fraudulent activities, thus maintaining the integrity of contractual obligations.

References

1. Dobbs, Dan B. “Law of Remedies: Damages, Equity, Restitution.” West Publishing Company, 1993.
2. Farnsworth, E. Allan. “Contracts.” Aspen Publishers, 2010.
3. “Restatement (Second) of Contracts.” American Law Institute, 1981.