Legal Definitions - reformation

Reformation is a legal remedy where a court modifies a written contract or agreement to make it accurately reflect what the parties originally intended to agree upon.

This remedy is typically sought when there's a clear mistake in the written document—such as a typo, an omission, or a misunderstanding—that does not match the actual agreement reached by both parties. It can also apply when one party made a mistake and the other party engaged in unfair or deceptive conduct. Reformation is considered an "equitable" remedy, meaning courts use it to achieve a fair and just outcome when the written word fails to capture the true spirit of the agreement.

Here are some examples:

• Real Estate Purchase Agreement: Imagine a couple agrees to purchase a house and the adjacent empty lot from a seller. During negotiations, both parties clearly discuss and agree that the sale includes both parcels of land. However, when the lawyer drafts the final purchase agreement and deed, a clerical error leads to only the house's parcel number being listed, accidentally omitting the adjacent lot.

  If the buyers discover this error after signing, they can ask a court for reformation. The court, upon reviewing evidence like emails, prior drafts, or witness testimony confirming the mutual intent to sell both parcels, would modify the written agreement and deed to include the adjacent lot. This corrects the mistake in the document to align with what both the buyer and seller truly intended.

• Business Supply Contract: Two companies negotiate a long-term contract for the supply of specialized components. They verbally agree on a price of $50 per unit for a five-year term. When the written contract is prepared, a data entry error mistakenly lists the price as "$5.00 per unit" and the term as "one year." Both parties sign the contract without noticing these significant discrepancies.

  When the supplier company realizes they are only being paid $5.00 per unit, they can seek reformation. A court would examine the negotiation records and communications to confirm the original agreement of $50 per unit for five years. The court would then reform the written contract to reflect these correct terms, ensuring the document accurately represents the mutual understanding of the parties.

• Insurance Policy: A small business owner applies for a comprehensive liability insurance policy, specifically requesting coverage for a unique risk associated with their operations. The insurance agent, understanding the request, intentionally drafts a policy that excludes this specific risk, hoping the business owner will not read the fine print. The owner signs the policy, believing it provides the requested coverage.

  If the business later suffers a loss related to the excluded risk, and discovers the discrepancy, they could seek reformation. A court might reform the insurance policy to include the coverage the owner originally requested, especially if there's evidence of the agent's knowledge and the owner's reasonable belief, thereby correcting a unilateral mistake coupled with the insurer's inequitable conduct.