Which reason justifies the act of reformation in contract law?

The act of reformation in contract law is primarily justified to correct a mutual mistake. This means that when both parties involved in a contract have a shared misunderstanding regarding an essential fact or term that is integral to the agreement, reformation allows the contract to be modified to reflect the true intent of the parties.

This legal remedy aims to ensure that the written contract accurately represents what both parties originally intended, which can prevent unjust enrichment or unfair outcomes resulting from the mistake. For instance, if a contract mistakenly includes the wrong property description due to both parties being unaware of a factual error, reformation allows the document to be corrected, ensuring that the agreement fulfills its purpose as intended by both sides.

In contrast, the other choices do not align with the doctrine of reformation. Adding new terms would typically require a new contract or an amendment rather than a reformation of the existing terms. Terminating an agreement involves ending the contract rather than modifying it. Increasing penalties does not reflect the intent of reformation as it does not correct misunderstandings or errors in the contract's formation but rather imposes harsher terms that were not originally agreed upon.