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In cases of mutual mistake, the decision whether to allow reformation of the contract involves a judgment as to the materiality of the alleged factor, and as to whether the parties made a definite assumption that it existed and made their agreement in the belief that there was no risk with respect to it. Opinions are almost sure to differ on both of these matters, so that decisions must be, or appear to be, conflicting. The court's judgment on each of them is a judgment on a matter of fact, not a judgment as to law.
Plaintiff, Aluminum Company of America (ALCOA), brought the instant action against defendant, Essex Group, Inc. (Essex), seeking either an equitable reformation of the contract price due to the effects of inflation on the cost of producing aluminum, or enforcement of an oral amendment and an award of damages for Essex's breach of the modification, or recognition of the termination of the agreement.
Was ALCOA entitled to reformation of its contract with Essex?
The court found that ALCOA was entitled to relief under the doctrine of impracticability. The court used a four factor test when deciding to allow reformation of the contract, analyzing the parties' prevision of the problems that eventually upset the balance of the agreement and their allocation of the associated risks, the parties' attempts to limit the risk, the existence of severe out-of-pocket losses, and the customs of the industry. The court formulated a remedy modifying the price term of the contract in light of the circumstances that upset the price formula.