Under New York law, courts have the authority to grant the remedy of reformation and impose new contractual terms on the parties. Reformation was developed as an equitable remedy because actions at law provided no relief against contracts secured through fraud or mistake.1 To prevent misuse of this remedy to gain relief from unfavorable or inconvenient contractual obligations, courts impose a strong presumption that a properly prepared and executed contract reflects the actual bargain struck by the parties.2 Courts generally use reformation only to bring inaccurately drafted contracts into conformity with the actual agreement between the parties. Thus, courts limit the remedy of reformation to three situations: (1) scrivener’s error, or an inadvertent mistake in reducing the agreement to writing, (2) mutual mistake of fact, and (3) unilateral mistake of fact induced by the fraud of the counterparty.
The third circumstance has been the subject of much recent judicial activity in both the Appellate Division and Commercial Division. As part thereof, the Kings County Commercial Division has heard two cases in the past year in which a plaintiff sought the reformation of a contract to adjust the contractual sales price based on the alleged inequitable conduct of the counterparty. Although longstanding Court of Appeals precedent allows courts to reform contracts based on fraud “or other circumstances warranting equitable intervention,”3 these recent cases show that the Commercial Division is relying heavily on the fraud requirement for granting reformation based on unilateral mistake, and is unlikely to reform a contract unless the plaintiff proves actual fraud.
Recent Appellate Precedent
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