Unilateral Mistakes in a Contract

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 What Is A Breach Of Contract?

A breach of contract occurs when one party to a valid contract has failed to fulfill their side of the agreement. The terms of a contract detail what the parties must do, and how and when they should do it in order to maintain their promise. If a party does not do what the contract instructs them to do, the non-breaching party will be allowed to take legal action and can file a lawsuit against them in court.

A breach of contract can occur as either a partial or a complete breach. As such, the court will assess whether the breach was substantial or minor. This will help them determine what type of damages the breaching party will have to pay.

There are three categories for which a party can be held liable for breach of contract:

  • Anticipatory Breach: Often referred to as anticipatory repudiation, this occurs when the breaching party tells the non-breaching party that they will not be fulfilling the terms of their contract. Once the other party has been notified, they can sue for breach of contract;
  • Minor Breach: A minor breach of contract happens when one party fails to perform a small detail of the contract. The entire contract has not been violated and can still be substantially performed, such as when there is a technical error with the contract. An example of this would be the wrong date, price, or typo within the terms of the contract; and
  • Material or Fundamental Breach: These are the most common types of breaches that are cited as the basis of a breach of contract action. This occurs when the breach is so substantial that it essentially cancels the contract because it renders performance by either party impossible.

Some other ways that a contract can be breached include:

  • When the contract is fraudulent;
  • If the contract was formed illegally or is unconscionable; and
  • When there is a mistake of fact present in the contract terms, the parties may also include conditions that are unique to their contract, which will specify when a party’s actions would be considered a breach.

State laws and the type of contract may also indicate other ways that a contract can be breached.

What Is A Unilateral Mistake In A Contract?

In a contract context, the term “mistake” refers to an error associated with either the meaning of the words, laws, or facts within a contract. When a mistake occurs, it causes one or both parties to enter into the contract without fully understanding the outcomes or responsibilities implied by the contract.

More specifically, a “unilateral mistake” is the mistaken belief that is held by only one of the parties, and is not shared by the other party to the contract. Simply put, a unilateral mistake occurs when only one of the parties misinterprets the subject matter or meaning of the terms.

Generally, unilateral mistakes are much more common than other kinds of contract mistakes, such as a mutual mistake. Since only one party holds a mistaken belief, this could give the other party an unfair advantage in the bargaining power that they hold during the contract formation stage. If a contract was entered into on the basis of a unilateral mistake, it could result in a lawsuit that provides the mistaken party with various remedies, such as contract rescission or contract reformation.

Most unilateral mistakes involve one party wrongly assuming the definition of a phrase or word used in the parties’ contract.

An example of this would be how in a contract for the sale of screws, one party may incorrectly believe that the word “screw” refers to a specific brand of screws, such as Phillips-head screws. The term actually means any standard type of screw. If only one party holds this mistaken belief, but the other party is clear on the meaning of “screw,” it could result in a unilateral mistake dispute.

Alternatively, if both parties believed that the word “screw” actually meant “nails,” this would be an example of a mutual mistake. Unilateral mistakes also frequently involve prices, quantities, dates, and errors associated with the description of goods or services included in the contract.

What Are The Legal Effects Of A Unilateral Mistake?

If a unilateral mistake is made during the contracting process, it would be unfair if only one party understands the true meaning implied by the contract while the other party does not.

As was previously mentioned, a court will generally issue one of the following remedies in order to correct the unilateral mistake:

  • Rescission: Contract rescission completely cancels the contract. The purpose of this remedy is to restore the parties to the position that they were in before the contract was formed. When rescission is granted because of unilateral mistakes it generally applies to technical errors or when an unfair position in the bargaining power is present; and
  • Reformation: Alternatively, contract reformation refers to when the written agreement is changed in order to reflect the parties’ original understanding of the terms of the contract. Reformation is generally reserved for mutual mistakes, but will be granted for unilateral mistakes only in cases in which one party was mistaken, and the non-mistaken party was unaware that the other party was mistaken.

The available remedies largely depend on whether the non-mistaken party knew that the other party did not understand a term in their contract.

Can Unilateral Mistakes In A Contract Be Prevented?

In order to prevent unilateral mistakes from happening in a contract, it is essential that the contract be drafted as clearly as possible. During contract negotiations, the parties should review the contract thoroughly, and clarify each other’s interpretation of each clause that is included in the contract.

This can help the parties determine whether there are any existing terms or provisions that they do not agree on, or that could cause misunderstandings resulting in future contract disputes. Any vague or ambiguous language should be replaced by specific descriptions whenever possible. An example of this would be how it is generally preferable that the parties use identification numbers, as opposed to generic descriptions of a product. A contract should never be signed if either party is unclear about any of the terms used in the contract.

Working with a lawyer during the contract formation stage can help the parties avoid making mistakes. They can also assist a party with both drafting and reviewing their contract for any problematic terms. Hiring a lawyer for guidance early on in the process can be beneficial in order to avoid a breach of contract dispute in the future.

Do I Need A Lawyer For Unilateral Mistakes In A Contract?

If a unilateral mistake was made associated with the terms of your contract agreement, there may be legal remedies available to you. You should contact a local contract attorney in order to discuss your legal rights and options according to your state’s specific contract laws. An experienced business attorney can represent you during settlement arrangements, or can provide representation on your behalf in court as needed.

You may want to hire a business lawyer before contract negotiations even begin. This way, your lawyer can draft and review the contract for you, which can reduce the risk of a future contract dispute.

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