[The following article was excerpted from John T. Blanchard's law school textbook,
California Remedies: Commentary, Materials and Problems (3d ed. ©1997)]
"Reformation" is an equitable remedy available to a party to a written contract
when, through fraud, a mutual mistake of the parties, or unilateral mistake
of which the other knew or suspected, the contract does not truly express
the intention of the parties. Thus, its underlying factual basis is similar
to what is required for Rescission, an equitable remedy that enforces the
"unwinding" of a voidable contract. Reformation also presupposes the existence
of a contract that failed to express the actual intention of the parties; that
is, the parties' true intention must have existed before the imperfect reduction
of that intention to the writing (contract) that conflicts with the parties'
true intentions. As its name suggests, Reformation is the equitable
"re-formation" of the parties' contract. However, a court never has the
right to impose a contract on parties who never agreed to the terms of the
"re-formed" contract; instead, the court has only the right to impose upon
the parties that which they already agreed upon (but which is not accurately
expressed in the parties' written agreement).
"Reformation also presupposes the existence of a contract
that failed to express the actual intention of the parties."
Other than the conceptual difficulties attendant to the formulation of the requisite underlying mistake or fraud, there are two features of Reformation that make it a relatively rare remedy:
- Because of the courts' understandable caution in imposing contractual obligations on parties who did not agree to the terms being imposed (and, likely, with some disdain for the party who was so careless, etc., as to have signed a contract that did not accurately embody the terms of the deal) Reformation requires "clear and convincing" evidence of the parties' true intentions;
- More important, this remedy contemplates the continuation of the contractual relationship on the basis which the parties truly intended. That is, the parties - one of whom, in the absence of mutual mistake, already attempted to take advantage of the other (and, since litigation is necessary to correct the situation, even in the case of genuine mutual mistake, sought to take advantage of the contract's mistaken language) - are going to continue to operate with each other under the reformed contract. This may prove uncomfortable and unwise where the contract requires performance over a long period of time.
Reformation may, and often is, joined with requests for other remedies. A litigant may, for example, seek both Reformation of a contract and Specific Performance of the reformed contract.
Even assuming that Reformation would otherwise be an appropriate remedy (as between the parties to the contract in issue) the remedy will be denied if its imposition would operate to the disadvantage of innocent third persons. A written contract may be revised only so far as it can be done without prejudice to rights of third parties that were acquired in good faith (without actual or constructive notice of the rights of the party seeking reformation), for value, after the execution of the contract in issue.