When a Party to a Contract Makes a Unilateral Mistake

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 What's a Unilateral Mistake?

Mistakes in a contract of any kind can often give rise to various legal problems. Under contract law, a contract mistake can either be mutual or unilateral. A mutual mistake is where both parties are mistaken about some aspect of the contract. A unilateral mistake is the situation in which only one party is mistaken about some aspect of the contract.

Unilateral mistakes tend to raise very specific concerns in a contractual agreement. Because only one party is mistaken, there is a danger that the non-mistaken party could take advantage of the other party’s mistake. For instance, a common mistake is where one party has an incorrect understanding about the type of product called for by the contract. If they end up receiving a different product than was expected, it can lead to a legal dispute.

Essentially, a “mistake” is an error made by one of the parties to a contract about any of the following:

  • The Meaning of Contract Terms: The exact meaning of certain terms in the contract;
  • Mistake of Fact: A mistake about a fact that is relevant to the contract, e.g. the price of the goods that are the subject of the contract;
  • A Mistake of Law: In most cases, a mistake of law is not accepted as a reason to void a contract. Proving that an innocent party was misled in the contract process can be difficult and does not often succeed in court. The rare times when a mistake of law can be argued successfully are:
    • If the law is not publicly published for a person to confirm;
    • If a person entered into a contract relying on a law that is no longer in effect;
    • If a person entered into a contract because of a court decision;
    • If a person entered into a contract with a false impression of the law provided by a non-mistaken official.

A contract signed on the basis of a unilateral mistake means that one of the contracting parties did not fully appreciate the terms of the contract, understand the legal ramifications of it, or recognize the scope of their obligations under the contract.

Unilateral mistakes are commonly made as to the following aspects of a contract:

  • The price of goods that are the subject of the contract;
  • The quantity of goods that are the subject of the contract;
  • The date when the goods are to be delivered;
  • The exact features or description of the goods;
  • The scope of services to be provided.

Typically, mistakes relating to the material elements of a contract may lead to litigation between the parties as there was a mistake as to the main reason for which one party contracted in the first place.

If the mistake is not material, it may be collateral. A collateral mistake is a type of mistake that is important but does not affect the main purpose or object of the contract. The distinction is important, because a collateral mistake might not lead to the right of rescission. It could, however, be grounds for such remedies such as a reduction in price or changes to other legal obligations.

For example, a person may enter into a contract for the purchase of real estate, because they believe the property they are buying is zoned for residential use. If it turns out that the property is not zoned for residential construction, the person would have made a unilateral mistake.

Another example arises when a person purchases a complex software system believing that its implementation in their business is included in the purchase price, but it is not. This would be a mistake as to the scope of the services provided by the contract.

An example arises in a case from Singapore. An employee of the defendant mistakenly uploaded the contents of a training template onto the defendant’s website. This resulted in the actual retail price of $3,854 for a commercial laser printer being advertised as $66. The six plaintiffs could not order 1,606 printers fast enough. They then wanted to enforce the contracts for the purchase of the printers when the defendant refused to complete the sale at the price that had been advertised in error.

The court held for the defendant who had refused to sell the printers at the mistakenly advertised price, finding that it was a case of unilateral mistake. The judge believed that the plaintiffs had constructive knowledge of the mistake and could not pretend to be unaware of the obvious error in the advertised price.

The plaintiffs could not have any legitimate expectation that the contract in question would be enforced by the court. In fact, the plaintiffs had known all along or believed that an error had been made by the defendant in the advertising of the very low price. They were all well-educated professionals, who had even admitted that they made Internet searches through various search engines to calculate the profits they could make by selling the printers themselves.

What Are the Remedies for a Unilateral Mistake?

When a party to a contract makes a unilateral mistake, it may require legal intervention to remedy the dispute that results. In most cases, a claim can be filed so that the courts can determine the nature of the mistake. In some cases, the court may devise a solution for the dispute depending on the type of mistake. In addition, remedies for a unilateral mistake may include:

  • Refusal of Enforcement: A court may refuse to enforce the contract when one of the parties sues for breach of contract, if it was based on a unilateral mistake, as happened in the case reported above;
  • Contract Reformation: This is where the mistaken part of the contract is re-written, or “reformed” in legal terminology. This is available for mistakes where only one party is mistaken and the other party was completely unaware of the mistake;
  • Contract Rescission: This where the entire contract is canceled, or rescinded, and the parties are “restored” to their original position before the contract was made. This is most often done in situations in which the non-mistaken party knows of the mistake, or should have known about the mistake.

Courts may have to look back into the parties’ prior dealings to determine whether the other party knew or should have known about a mistake. This might involve much deliberation on the part of the court. It may require that the court examine various business documents from past interactions, e.g. contracts from past transactions of the same or similar type. In some cases, an award of money damages may be required to help return the parties to their original positions.

Do I Need a Lawyer for Help with Unilateral Mistakes in a Contract?

Mistakes in a contract are very specific legal issues, and would require the help of a lawyer. You may wish to enlist the services of an experienced contract attorney for help in resolving a dispute that involves a unilateral mistake, mutual mistakes, or other issues.

Your lawyer can represent you in negotiations in order to resolve the issue without litigation. If litigation becomes necessary, your lawyer can represent you in court proceedings.

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