The Tenth Appellate District Court of Ohio confirms that a court may reform a contract to reflect the parties' true intentions

In Hanuman Chalisa, LLC. v. BoMar Contracting, Inc. [1] the parties executed an agreement for the construction of a hotel in Columbus, Ohio. The contract included a guaranteed maximum price (“GMP”) of $5,172,701 and a “Cost Breakdown Worksheet” attached to the agreement as “Exhibit 1” that limited BoMar Contracting, Inc.’s (“BoMar”) overhead and profit margin to five percent.

The contract required BoMar to submit payment applications on the prescribed AIA payment form. There was no dispute on the first ten payment applications, however, the eleventh payment was not approved. The Owner subsequently terminated the contract by letter citing BoMar’s defective work and delays in the work.

The Owner filed a complaint against BoMar alleging breach of construction contract and personal guarantee. BoMar filed a counterclaim alleging breach of contract, unjust enrichment, and quantum meruit. The trial court entered judgment for BoMar on the counterclaim, which the Owner appealed. The Owner appealed the trial court’s decision asserting that: (1) the trial court erred when it found that the General Conditions document contained a typographical error and thereupon, modified the terms of the agreement; (2) the trial court erred in awarding BoMar twenty-five percent overhead and profit; and (3) the trial court erred in awarding twenty-five percent overhead and profit on the outstanding invoices.

The key issue of this case was whether the contracting parties’ true intentions were not expressed due to a mutual mistake. Courts may reform a contract when it is clear that the parties made a mistake, and the agreement does not actually reflect their intentions.  Reformation is also appropriate when the mistake was caused by a unilateral drafting error, and it is possible to reasonably interpret what the parties intended without looking at any additional evidence. Here, the Owner argued that the trial court erred in reforming the agreement because no evidence was presented relating to the parties' intentions for the sections of the agreement dealing with the termination of the contractor. The Tenth District Court of Appeals rejected this argument on the grounds that the trial court used a reasonable interpretation of the parties’ agreement in light of an obvious typographical error.

The Court of Appeals, however, agreed with the Owner and held that the trial did err when it awarded BoMar a twenty-five percent markup for overhead and profit.  Courts are permitted to consider evidence outside of the contract itself only when the language of a contract is unclear or ambiguous. Here, the Cost Breakdown Worksheet exhibit clearly limited BoMar’s overhead and profit margin to five percent. This reasoning also applied to the overhead and profit for the outstanding invoices.

In sum, the Appellate Court affirmed that courts may reform a contract to match the contracting parties’ true intentions. However, courts will not rewrite a contract to relieve a party that believes it received a bad bargain, in the absence of ambiguous language.