In a contract setting, a mistake is an error in the meaning of words, laws, or facts which causes one or both parties to enter into the contract without fully understanding the outcomes or responsibilities implied by the contract. A “unilateral mistake” is such an error that is held by only one party and not shared by the other party.
In other words, a unilateral mistake occurs when only one party is mistaken as to the subject matter or the terms contained in the contract agreement. This type of mistake is generally more common than other types of contract mistakes, such as a mutual mistake (an error that is shared by both parties).
The essential point is that only one party is mistaken while the other is not. Since only one party is mistaken, it could lead to an unfair advantage in bargaining power. Therefore, if a contract was entered into on the basis of a unilateral mistake, it may lead to various types of contract remedies such as contract rescission or contract reformation.
Unilateral mistakes can occur with regards to any of the terms and provisions contained in a contract. Most unilateral mistakes involve the definition of a phrase or word.
For example, in a contract for the sale of screws, one party may incorrectly believe that the word “screw” refers to Phillips-head screws, when in fact the term refers to standard-type screws. If only one party holds this mistaken belief, but the other is clear on the meaning of “screw”, then this could be called a unilateral mistake.
On the other hand, if both parties believed that the word “screw” referred to nails, then this is an example of a mutual mistake.
Unilateral mistakes also frequently involve prices, quantities, dates, and the description of goods or services.
If a unilateral mistake occurs during the contracting process, it could affect the outcome of the contract. It is unfair if one party understands the contract while the other party does not- therefore a court will usually issue one of two remedies to correct the unilateral mistake:
- Rescission: Contract rescission is where the contract is completely cancelled and the parties restored to their position before the contract was entered into. Rescission is only available if the non-mistaken party knows or should have known about the unilateral mistake.
- Reformation: Contract reformation is where the written agreement is changed to reflect the parties’ original understanding. Reformation is granted only if one party was not aware that the writing does not conform to the actual agreement.
In other words, it makes a significant difference whether the non-mistaken party is aware that the other party does not understand a term in the contract. If the non-mistaken party knows that the other party has made a unilateral mistake, the result is usually contract rescission (cancellation). On the other hand, if the other party was not aware of the mistake, the contract can usually be reformed (rewritten).
In order to avoid unilateral mistakes in a contract, it is essential that the contract be written as clearly as possible. During contract negotiations, the parties should review the contract thoroughly and double check each other’s interpretation of the clauses. This will allow them to determine if there are any terms or provisions that they do not agree upon or that might cause misunderstandings.
Any vague or ambiguous language should be replaced with specific descriptions. If possible, identification numbers (such as bar code readings) of products are preferred over general descriptions of products. The contract should not be signed if either party is unclear about any terms.
Working with a lawyer during contract formation can help the parties avoid a unilateral mistake. A lawyer can help a party draft and review the contract to identify any problematic terms. Ending up in a breach of contract dispute can be costly for both parties.
If you have discovered a unilateral mistake in your contract agreement, there may be a number of remedies available to you. You may wish to contact a business lawyer who can represent you in court so that you obtain the proper relief. You may also wish to work with an attorney before contract negotiations begin, so that your lawyer can draft and review the contract for you.