What is reformation?

Reformation, when used in a discussion of contract law, is considered one of the legal remedies available for use when a breach of contract or contract problem occurs. In a situation where two or more parties have entered into a contract and not all of the written contract matches what the parties understood the agreement to be, a court of law may use reformation to settle the dispute. During this process, the contract is officially and legally modified or revised in order to match the actual agreement as understood by the parties in the original situation.

In some cases, reformation is required simply because a mistake was made and some or all of the written contract was misunderstood. In other cases, fraud may have occurred on some level, and in order to clear the deal and clarify the actual agreement, reformation can be used to adjust the wording of the documentation so that the error(s) can be corrected.

As an example, perhaps one party sells property to another, and within the contract, the property value is stated. However, the stated value is incorrect, either because of a simple mistake or because the seller was attempting to mislead the buyer.

In this case, both parties should take the contract to a court of law, and if reformation is used as a solution, it may simply mean that the court corrects the wording of the documentation to reflect the actual value of the property, should both parties be amenable to this solution. If, on the other hand, fraud occurred, or if both parties are not satisfied with the contract under this new wording, further adjustment may be necessary, and in these cases reformation would not be an adequate solution to reach an agreement; there may also be penalties for the seller and/ or compensation for the buyer due to the misleading nature of the mistake.

If you are involved in a contract dispute and/or a proceeding to reform a contract, you should consult with a lawyer to make sure your rights are protected.

Case Studies: Reformation in Contract Law

Case Study 1: Real Estate Sale Dispute

John sells a residential property to Sarah. The contract states a specific value for the property, but after the sale is completed, Sarah discovers that the stated value is significantly higher than the appraised value. Suspecting a mistake or possible fraud, Sarah consults with a lawyer and decides to pursue a reformation of the contract.

Through legal proceedings, Sarah presents evidence showing that the contract’s stated value does not match the actual agreement between her and John. The court determines that a mistake occurred during the contract drafting process, leading to an inaccurate representation of the property’s value. As a solution, the court orders reformation of the contract to reflect the correct value of the property, ensuring that Sarah is not overpaying for the real estate.

Case Study 2: Employment Agreement Revision

Alex, an employee, signs an employment contract with Tech Corp (Party B). The contract includes a non-compete clause that restricts Alex from working for a competitor for five years after leaving Tech Corp’s employment. However, during the course of employment, Alex and Tech Corp engage in discussions and negotiations to modify the non-compete clause to be less restrictive.

After leaving Tech Corp and finding a new job in the same industry, Alex is sued for breaching the original non-compete clause. Alex countersues, claiming that there was an oral agreement to modify the non-compete clause during their employment. The case proceeds to court, and both parties provide evidence and testimonies of the negotiation discussions.

The court determines that Alex and Tech Corp indeed had discussions about modifying the non-compete clause, but the contract did not reflect these changes. To align the contract with the actual agreement reached between Alex and Tech Corp, the court orders a reformation of the employment agreement to include the revised non-compete clause, as understood by the parties.

Case Study 3: Partnership Agreement Rectification

Two business partners, Emily and Michael, establish a partnership to operate a restaurant. They draft a partnership agreement outlining each partner’s rights and responsibilities and the profit-sharing arrangements. However, a typographical error occurs during the document preparation, resulting in an unequal distribution of profits.

Emily and Michael only realize the mistake when disputes arise regarding the profit-sharing percentages. Both partners agree that the written agreement does not reflect their original understanding. Instead of resorting to costly litigation, they decide to pursue a reformation of the partnership agreement to correct the error.

With the assistance of their respective attorneys, Emily and Michael petition the court for reformation, presenting evidence of their initial discussions and intentions. The court acknowledges the mistake in the agreement and orders its revision to reflect the correct profit-sharing percentages. This ensures a fair and accurate distribution of profits between the partners, strengthening their business relationship.