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Contract Reformation and Mistakes in Contracts

January 30, 2024 Eric Flaim Contracts


In New Jersey, a valid contract requires several essential elements including: (1) offer; (2) acceptance; (3) consideration; and (4) sufficiently defined terms as to render performance on the
contract. Weichert Co. Realtors v. Ryan, 128 N.J. 427 (1992). Contractual issues can arise when ambiguity leads to confusion among one or even both of the parties. If this happens, it is important to understand your legal rights in either getting out of a contract or requesting a New Jersey court to reform a contract.

Types of Contract Mistakes

There are two types of mistakes when it comes to contracts in the State of New Jersey: (1) Mutual Mistake and (2) Unilateral Mistake.

Unilateral Mistake

A unilateral mistake occurs when only one party is mistaken about a material fact in the contract.

Consider the following scenario. You decide to sell your kids’ Pokémon cards at a garage sale, pricing normal cards at $1 and shiny cards at $5. A buyer, knowledgeable about Pokémon cards, purchases a card for $5 and unbeknownst to you that card is a valuable first edition Holographic Charizard worth six-figures! The buyer, knowing the true value of the card, did not correct your mistake and capitalizes on it by not disclosing its true value. However, because of their knowledge as to the true price, and your mistake as to the price, this contract was formed based on your  unilateral mistake.

Mutual Mistake

A mutual mistake is when both parties were operating, “under the same misapprehension as to [a] particular, essential fact.” Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 608 (1989). A mutual mistake may also be present when the parties to a contract have reached a prior agreement that the written contract fails to express. Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599 (1989).

Consider the following example of a potential mutual mistake. In Frigaliment Importing Co v. B.N.S. Int’l Sales Corp., 190 F. Supp. 116 (S.D.N.Y. 1960) the court ever so succinctly stated the issue as, “what is chicken?” The dispute centered around the term “chicken,” left undefined in the contract, leading to different interpretations of the ambiguous term. One party argued it referred to chickens only suitable for broiling and frying, while the other believed it included birds meeting contract specifications and included “stewing chickens.” Although the court did not explicitly address mutual mistake, this case illustrates how simple terms can become ambiguous, causing varied interpretations.

What is Contract Reformation?

Reformation serves as a legal remedy allowing the court to rewrite a contract to reflect
the parties’ original intent. The purpose behind reformation is, “to effectuate the understanding
and intent of the parties where the document does not reflect that understanding or intent.” Secaucus Town v. Jersey City, 19 N.J. Tax 10, 42 (Tax 2000).

Meeting Reformation Criteria

However, in the State of New Jersey, contract reformation is traditionally only allowed on grounds of either mutual mistake or unilateral mistake by one party coupled with a showing of fraud or unconscionable conduct of the other party. St. Pius X House of Retreats, Salvatorian Fathers v. Diocese of Camden, 88 N.J. 571, 577 (1982). Additionally, if the mistake is the result of the negligence of the party who drafted the contract, the court will not allow reformation. Millhurst Milling &amp; Drying Co. v. Automobile Ins. Co., 31 N.J. Super. 424, 434 (App. Div.1954).

If the facts of the case meets one of the two situations stated above where reformation is allowed, then the party bringing forth the reformation claim must show their right to relief through clear and convincing evidence. Stamen v. Metropolitan Life Ins. Co., 41 N.J. Super. 135, 140 (App. Div. 1956). In civil court, this is a heightened standard that may be difficult to meet depending on the facts of your case. If your case does not meet this criteria, do not be worried as you may still be entitled to relief based on other fundamental contract law principles.

What to do if Your Contract Contains a Mistake

In the event that your contract contains a mistake, unilateral or mutual, it is important to consult with an attorney who has experience in contract law. If you or a loved one finds yourself in this situation, you may be entitled to relief, reformation of the contract, and/or money damages. If you have questions regarding your situation, call the New Jersey law firm Scura, Wigfield, Heyer, Stevens &amp; Cammarota, LLP, for a free consultation.

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