Key Takeaways

  • A unilateral mistake occurs when only one party is mistaken about a contract term.
  • Courts may allow rescission or reformation if the non-mistaken party knew or should have known about the mistake.
  • Unilateral mistakes must generally involve a material fact, not an opinion or value judgment.
  • Examples include clerical errors, misunderstandings about contract terms, or miscommunication of critical facts.
  • Preventing unilateral mistakes involves clear communication, documentation, and legal guidance.
  • Certain mistakes, such as those regarding value or due to negligence, typically do not void contracts.
  • Courts assess whether enforcing the contract would be unconscionable or unfair.
  • Legal counsel can help determine if a contract affected by unilateral mistake is enforceable.

A unilateral mistake is a mistake or misunderstanding, which results from one party's misinterpretation of the terms of a contract or one party's unintentional provision of erroneous information when forming a contract. In other words, a unilateral mistake can be made by only one party to a contract. If a contract mistake involves more than one party, it's a bilateral mistake, a common mistake, or a mutual mistake.

Unilateral Mistake Overview

Since a unilateral mistake involves only one contracting party, it could lead to a one-sided bargaining advantage. Some of the remedies for a unilateral mistake are contract reformation (forming the contract afresh) and contract rescission (canceling the contract). For instance, if someone verbally offers to pay $15,000 for a duty in a contract, and the other party to perform the duty thinks they said $50,000 instead of $15,000, a unilateral mistake occurs, which can be remedied.

Common Unilateral Mistake Examples

Unilateral mistake examples help illustrate how courts evaluate contracts when only one party is misinformed or confused about a key term. Below are real-world scenarios where unilateral mistake may apply:

  • Clerical or Mathematical Error: A subcontractor submits a bid of $50,000 for a job, but a typographical error omits a zero, and the bid is read as $5,000. If the general contractor accepts, knowing the bid was abnormally low, a court may void the contract due to the obvious mistake.
  • Misunderstanding of Contract Terms: One party believes the contract allows monthly cancellation, while the other intends a year-long commitment. If only one party misunderstood but the term was ambiguous or misrepresented, rescission may be possible.
  • Wrong Item or Quantity: A supplier mistakenly sends 5,000 units instead of 500 due to a data entry error. If the buyer realizes the discrepancy but proceeds without clarification, the supplier may have grounds to void the contract based on unilateral mistake.
  • Incorrect Assumption About Subject Matter: A person buys what they think is a vintage painting for $10,000, believing it’s authentic based on a seller’s vague description. If the seller knew the buyer’s assumption and remained silent, this could support a claim of unilateral mistake.

These unilateral mistake examples demonstrate that not all errors void a contract—only those where the mistake is material, and the other party knew or should have known about it.

Palpable, Unilateral Mistake

As a general rule, when dealing with a unilateral mistake, if the non-mistaken party is aware of or should have been aware of the other party's mistake, it becomes a “palpable, unilateral mistake,” making the contract voidable by the mistaken party.

Voidable, Palpable, Unilateral Mistake

For instance, the Department of Defense is accepting bids from tech companies to develop a system to detect nuclear activities and report their locations and intensities anywhere on the planet. Different tech companies turn in their bids. Most of the bids fall within the range of $2.5 billion and $3 billion. 

One bid, however, comes in at $500 million. The Department of Defense quickly accepts the $500 million bid and awards the contract to the bidding company. A couple of days later, the company finds out some mistakes in the calculation that resulted in their erroneous $500 million budget that should have been $2 billion. 

In a case like that, the contract is voidable by the company because the sharp difference between the $500 million bid and the next lowest bid should have served the Department of Defense as a clear indication of an error somewhere. Therefore, the Department of Defense either knows or ought to know about the mistake, which makes it a palpable, unilateral mistake that renders the contract voidable.

Legal Requirements to Void a Contract for Unilateral Mistake

For a court to void a contract due to unilateral mistake, the following legal elements typically must be met:

  1. The Mistake Relates to a Material Fact: The mistake must involve a fundamental term or element of the agreement, not a minor or incidental issue.
  2. The Mistake Was Not the Result of Negligence: Courts may not provide relief if the error could have been avoided through reasonable diligence.
  3. Enforcement Would Be Unconscionable: If the mistake would result in an outcome that is grossly unfair or unjust to the mistaken party.
  4. The Non-Mistaken Party Knew or Should Have Known: There must be evidence that the other party had reason to know of the mistake.
  5. Prompt Notification: The mistaken party must act quickly to notify the other party and seek correction once the error is discovered.

Each jurisdiction may apply these principles differently, so legal counsel is critical in analyzing contract disputes involving unilateral mistakes.

Unilateral Mistakes That Can't be Voided

Take note, however, that palpable, unilateral mistakes only make a contract voidable when the mistakes are mechanical errors such as mistakes in calculation or understanding. Mistakes arising from personal opinions regarding the quality or value of an item can't make the contract voidable.

For instance, James owns a shop that deals on jewelry. Franklin is going through his rich, late grandpa's discarded stuff when a glint catches his attention. He picks the item up. It's a beautiful, shiny, bright-orange, metal cufflink with a blue stone set in the middle.

Franklin never uses cufflinks and knows little about jewelry. So, he has no clue what it is, but he knows James would buy stuff like it. So, Franklin takes the cufflink to James who offers him $700. Franklin gladly contracts with James and sells the cufflink. A few days later, Charlton, Franklin's younger brother, meets Franklin and shows him a cufflink exactly like the one he sold to James.

He excitedly asks if Franklin had seen the second one of the pair. Franklin admits to having found and sold it for $700 to James. Charlton looks alarmed and says, “Do you realize what this is? This is a blue diamond set on 24 karat gold, and you gave it away for $700? This is worth more than $25,000!” 

Unfortunately, the contract between Franklin and James, the jewelry dealer, is enforceable and can't be voided because Franklin's mistake isn't a palpable, unilateral mistake. It's a mistake based on personal opinion regarding the worth of an item.

Unilateral Mistake of Fact vs. Law

It's important to distinguish between a mistake of fact and a mistake of law when evaluating contract enforceability:

  • Mistake of Fact: Occurs when a party is mistaken about a specific fact relevant to the agreement (e.g., the dimensions of a property or the condition of an item). Courts are more likely to provide relief for factual mistakes.
  • Mistake of Law: Occurs when a party misunderstands or is unaware of the legal implications of a contract term (e.g., not knowing a permit is required). These mistakes rarely invalidate a contract unless coupled with misrepresentation or fraud.

For example, if a buyer purchases land believing zoning permits commercial use, but it’s zoned residential, and the seller knew of the buyer’s intent, this may qualify as a unilateral mistake of fact and potentially justify contract rescission.

Preventing Unilateral Mistakes

To prevent unilateral mistakes in a contract, contracting parties should do the following:

  • When negotiating, parties should go over the terms of the contract thoroughly and double check one another's interpretations of the provisions.
  • Vague expressions should be removed and replaced with unmistakably clear ones.
  • As much as possible, reliable identification systems like barcode readings should be used instead of regular product descriptions.
  • Parties shouldn't sign a contract if either party isn't clear about the terms.
  • Parties should work with knowledgeable experts in various, concerned fields. For instance, a knowledgeable lawyer can help prevent unilateral mistakes when creating a contract.

When a Court Will Uphold a Contract Despite Unilateral Mistake

In many situations, courts will uphold a contract even if a unilateral mistake occurred, especially when:

  • The mistake was due to the mistaken party's failure to read or understand the contract.
  • The mistake involved the value or quality of an item, which is considered a matter of personal judgment.
  • The mistake was not apparent or known to the other party.
  • Rescission would cause significant hardship to the non-mistaken party, creating an imbalance.

Courts aim to maintain contractual integrity and predictability. Therefore, relief is only granted when fairness and public policy justify intervention.

Frequently Asked Questions

  1. What is a unilateral mistake in contract law?
    A unilateral mistake occurs when only one party to a contract is mistaken about a material term or fact within the agreement.
  2. Can a contract be voided due to a unilateral mistake?
    Yes, but only if the mistake involves a material fact, is not due to negligence, and the other party knew or should have known about it.
  3. What is a unilateral mistake example?
    One example is a contractor mistakenly bidding $10,000 instead of $100,000 due to a clerical error, and the client accepts knowing the bid is unusually low.
  4. What’s the difference between a unilateral and mutual mistake?
    A unilateral mistake involves only one party’s misunderstanding, whereas a mutual mistake involves both parties being mistaken about the same fact.
  5. How can I avoid making a unilateral mistake in a contract?
    Thoroughly review all terms, confirm mutual understanding, document all communications, and consult with an attorney before signing.

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