In a contract setting, the term “mistake” refers to an error made regarding 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 having a full understanding of the outcomes or responsibilities that are implied by the contract.
More specifically, a “unilateral mistake” is a mistaken belief held by only one of the parties, and not shared by the other party to the contract. In other words, a unilateral mistake occurs when only one of the parties misinterprets the subject matter or meaning of the terms contained in the contract agreement.
In general, unilateral mistakes are much more common than other kinds of contract mistakes, such as a mutual mistake (i.e., an error that is shared by both parties).
The key takeaway about unilateral mistakes is that only one party is mistaken, whereas the other is not. Thus, since only one party holds a mistaken belief, this could end up giving the other party an unfair advantage in the bargaining power they hold during the contract formation stage.
Therefore, 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 options for contract remedies, such as contract rescission or contract reformation.
What is an Example of a Unilateral Mistake?
A unilateral mistake can be made with regard to any of the terms or provisions contained in a contract. Most unilateral mistakes involve a party wrongly assuming the definition of a phrase or word in the parties’ contract.
For example, in a contract for the sale of screws, one party may incorrectly believe that the word “screw” refers to a specific brand of screws (e.g., Phillips-head screws), when in fact the term really means any standard type of screw. Thus, if only one party holds this mistaken belief, but the other party is clear concerning the meaning of “screw”, then it could result in a unilateral mistake dispute.
On the other hand, if both parties believed that the word “screw” actually meant “nails”, then this would be an example of a mutual mistake.
In addition, unilateral mistakes also frequently involve prices, quantities, dates, and errors pertaining to the description of goods or services included in the contract.
What are the Effects of a Unilateral Mistake?
If a unilateral mistake is made during the contracting process, it could have an effect on the outcome of the contract. The rationale behind this premise is that it would be unfair if only one party understands the true meaning implied by the contract while the other party does not.
As previously mentioned, a court will usually issue one of two of the following remedies in order to correct the unilateral mistake:
- Rescission: Contract rescission is a remedy that completely cancels the contract. The purpose of this remedy is to restore the parties to the position they were in before the contract was formed. Rescission will be granted in various situations, however, when it pertains to unilateral mistakes it usually only applies to technical errors (e.g., errors in calculations) or where an unfair position in the bargaining power is present.
- Reformation: On the other hand, contract reformation is when the written agreement is changed to reflect the parties’ original understanding of the terms of the contract. Reformation is typically reserved for mutual mistakes, but it will be granted for unilateral mistakes only in cases where one party was mistaken and the non-mistaken party was unaware that the other party was confused.
Basically, the remedies afforded depend a lot on whether the non-mistaken party knew that the other party did not understand a term in their contract.
Therefore, if the non-mistaken party knew that the other party had made a unilateral mistake, then the result is usually contract rescission (cancellation). In contrast, if the non-mistaken party was not aware of the other party’s error, then the remedy will typically involve reformation (i.e., rewriting the agreement).
How 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 go over the contract thoroughly and double check each other’s interpretation of each clause included in the contract.
This can help the parties to determine whether there are any existing terms or provisions that they do not agree on or that could cause misunderstandings that lead to future contract disputes.
Any vague or ambiguous language should be replaced by specific descriptions if possible. For instance, it is generally preferable that the parties use identification numbers (e.g., barcode readings), 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 to avoid any mistakes. A lawyer can also assist a party with both drafting and reviewing their contract for any problematic terms. Hiring a lawyer for guidance early on can be beneficial for the parties’ contract process, because a breach of contract dispute in the future can be costly for both parties.
Do I Need to Hire a Lawyer for Unilateral Mistakes in a Contract?
If you discover that a unilateral mistake was made in regard to the terms of your contract agreement, there may be a number of remedies available to you. To find out what those remedies are and which one is most appropriate for your matter, it may be in your best interest to contact a local business attorney.
An experienced business attorney will be able to represent you during settlement arrangements or can provide representation on your behalf in court, so that you can obtain the proper relief for your troubles.
Additionally, you may want to seek out the help of 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 contract dispute arising in the future.