Key Takeaways

  • A unilateral mistake occurs when only one party is mistaken about a key term or assumption in a contract.
  • These mistakes often involve price, quantity, quality, or the meaning of terms.
  • Not all unilateral mistakes are grounds to void a contract—remedies depend on whether the mistake is material and whether the other party knew or should have known about it.
  • Common legal remedies include reformation or rescission of the contract.
  • Courts are less sympathetic to parties who make avoidable mistakes due to negligence or failure to read the contract.
  • Preventative steps include clear contract drafting, legal review, and mutual verification of terms.

A unilateral mistake example could include when one party misunderstands what the terms of a contract are and because of that, leads to a breach of contract. This is in comparison to a bilateral mistake which occurs when both parties are mistaken about components of the contract.

Unilateral Mistakes

The mistaken error can include different aspects of the contract including specific laws, facts, or term definitions. Entering into a valid contract requires that both parties fully understand the terms and responsibilities of the contract. An example of a unilateral mistake occurs when one of the parties is not in full understanding. Unilateral mistakes tend to be more common than bilateral mistakes when dealing with contracts.

The problem with unilateral mistakes is that they lead to an imbalance of contract power. A contract should be beneficial to both parties in order for it to be valid. When one party does not understand the terms or conditions stated in the contract, they are at a disadvantage. For this reason, a unilateral mistake example could lead to the contract being rescinded or redrafted.

When Is a Unilateral Mistake Legally Actionable?

Not all unilateral mistakes will invalidate a contract. Courts typically require that the mistake involve a material fact—one that significantly affects the agreement. A unilateral mistake may render a contract voidable if:

  • The mistake is so significant that enforcing the contract would be unconscionable.
  • The mistake concerns a basic assumption on which the contract is based.
  • The party not making the mistake knew or had reason to know about the mistake.
  • The mistake occurred despite reasonable care being taken by the mistaken party.

If none of these conditions are met, the contract is usually still enforceable—even if one party misunderstood a term.

Types of Unilateral Mistakes

There are three types of unilateral mistakes that can occur:

  • Mistake of price: One of the most common unilateral mistake examples occurs when one party is not on the same page as the other regarding the price of a specific product or service. This is especially common in international contracts where currency conversions can complicate the process.
  • Mistake of fact: This occurs when one party is mistaken as to the specific facts set forth in the contract. A bilateral mistake, also referred to as a mutual or common mistake, occurs when both parties are misinformed about the facts. A mistake of fact can lead to a requirement of a voided contract.
  • Mistakes of value: This is often confused with the mistake of facts but is actually very different. This occurs when mistakes are based on the estimation of something or someone's value. The value of a product or service is not fixed and often continually changes.

Examples of Unilateral Mistakes

Unilateral mistakes can arise from any part of the contract. These are some of the most common unilateral mistake examples. 

  • The definition of a word or phrase: One party mistakenly believes the definition of a word or phrase to be something different than what it actually is.
  • The quantity of a product: A mistake as to the specific quantity of a product to be delivered or served.
  • The definition of terms or technical phrases: This involves a mistake as to the actual meaning of a specific legal term or technical phrase.
  • Words with multiple pronunciations or spellings: This includes words that are pronounced similar or spellings that could easily be mistaken.
  • The quality of a product: A mistaken understanding as to the description or quality of the product or service.

Real-World Cases Involving Unilateral Mistakes

To better understand how the law treats unilateral mistakes, consider these examples:

  • Typographical Error in Bids: In Elgin Builders, Inc. v. Russell, a contractor’s clerical mistake led to an incorrect bid submission. The court allowed contract rescission due to the obvious nature of the error.
  • Misunderstood Term Usage: If a party interprets "net 30" to mean payment in 30 days from invoice instead of delivery, a dispute may arise. Courts would consider whether the term was ambiguous and if clarification was sought.
  • Mistaken Identity: If a party enters into a contract believing they are dealing with a reputable vendor but instead contract with an imposter, courts may void the agreement under fraud or mistake principles.

Each case depends on context, especially whether the mistaken party acted reasonably and the other party was aware of the confusion.

Effects of Unilateral Mistakes

Even a single unilateral mistake during the contract drafting process can affect the entire contract. A unilateral mistake is corrected by either editing the specific part of the contract or by voiding the entire contract.

  • Reformation of the contract: This is also known as editing the contract, and it is the most common solution to a unilateral mistake example. The contract is edited to reflect the understanding of both parties. Reforming a contract is used when both parties were unaware of the unilateral mistake.
  • Rescission of the contract: Sometimes voiding the original contract is necessary. A voided or canceled contract prevents an uneven balance of contract power and from one party taking advantage of the other. Voiding a contract only occurs if the knowledgeable party was aware that the other party was mistaken.

Legal Tests and Court Considerations

Courts use several factors to assess whether to enforce a contract affected by a unilateral mistake:

  • Was the mistake fundamental? Courts look at whether the mistake changes the essence of the deal.
  • Was the risk of the mistake allocated? If a contract assigns risk to one party, courts are less likely to grant relief.
  • Was the mistake due to negligence? A party who failed to read the contract or acted carelessly is less likely to succeed.
  • Did the other party exploit the mistake? If yes, courts may see this as bad faith and favor the mistaken party.

This analysis is context-specific and balances fairness with the principle of contractual certainty.

Avoiding Unilateral Mistakes

It is best to avoid unilateral mistakes rather than edit or void them after the fact. Unilateral mistakes can be avoided with the following tips:

  • The contract should be written as clearly as possible.
  • Both parties should review the contract in full.
  • Both parties should check the other party's interpretation.
  • The contract should avoid vague and unclear words and phrases.
  • When possible, the contract should use ID numbers rather than general descriptions.
  • The contract should only be signed after a clear understanding is established.
  • Work with a lawyer on drafting and reviewing the contract to clear up any misunderstandings.

Following these steps during the contract creation process can prevent unilateral mistake examples and can save both parties a significant amount of time and financial resources.

Role of Good Faith and Fair Dealing

In contract law, both parties are expected to act in good faith. If one party is aware of the other's mistake and remains silent, courts may view that as a breach of the duty of good faith. While the law generally does not require a party to correct every mistake, active concealment or exploitation of known errors can lead to rescission or damages.

This underscores the importance of transparency in negotiations. Disputes often arise not just from the mistake itself but from how the other party reacts to it.

Frequently Asked Questions

  1. What is a unilateral mistake in contract law?
    A unilateral mistake is when only one party is mistaken about a material fact in a contract, such as price, quantity, or meaning of a term.
  2. Can a unilateral mistake make a contract void?
    Yes, but only in specific cases—usually when the other party knew of the mistake or enforcement would be unfair.
  3. How does a unilateral mistake differ from a mutual mistake?
    A unilateral mistake involves one party’s error, while a mutual (bilateral) mistake involves both parties being wrong about a fundamental fact.
  4. What are the remedies for a unilateral mistake?
    Courts may reform (revise) or rescind (cancel) the contract if fairness and legal standards warrant it.
  5. How can parties avoid unilateral mistakes?
    Use precise language, verify terms with the other party, consult legal counsel, and avoid ambiguous phrases or assumptions.

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