What is a unilateral mistake in a contract?

A unilateral mistake is a mistake held by one party to a contract, and not shared by the other party. 

Among all types of mistakes in a contract — common, mutual, and bilateral — a unilateral mistake is the most frequent one.

If you are looking for ways to avoid making a unilateral mistake in a contract, this article is for you.

What exactly is a unilateral mistake?

If one party misinterprets a definition, term, word, quantity, or the subject matter in a contract, it becomes a unilateral mistake.

For example, if Party A has a mistaken belief they will receive a shipment of fresh and edible apples but Party B intends to send plastic and decorative ones, it constitutes a unilateral mistake.

In this case, one party misunderstood the conditions of a contract — and the other party was not aware of it.

A unilateral mistake can be “palpable” or “impalpable” — two terms which we will define next with respect to their legal context — and this distinction dictates the type of remedy applied to a contract.

When does a unilateral mistake become palpable or impalpable?

A mistake is palpable when it is obvious and refers to factual aspects of a contract, such as errors in numbers, incorrect measurements, or misunderstandings of terms of the contract. 

Since these contract mistakes are easy to detect, the non-mistaken party is usually aware of them and could take unfair advantage of the contract terms. As a result, a contract becomes voidable.

A mistake is impalpable when it is based on a subjective opinion regarding the quality or value of an item. 

For example, if someone buys a painting and mistakenly believes it’s an original piece without prior discussions, it is considered as an impalpable mistake.

What are mutual and common mistakes?

Unlike a unilateral mistake, mutual and common mistakes affect both contracting parties.

A mutual mistake occurs when both parties have a mistaken belief about different things in a contract. It is a common thing when a contract is too vague and uncertain.

In some cases, courts may treat a mutual mistake as if both parties made unilateral mistakes about a factual aspect of a contract. It then results in contract cancellation.

When both parties have a different understanding of the same thing, it is considered a common mistake. In this case, a shared mistake should relate to a factual condition of a contract, rather than a subjective opinion.

What should be done when a unilateral mistake is found?

When a contract is signed and a unilateral mistake is found, the mistaken party may seek remedies in court.

To do so, that party needs to demonstrate the following:

• They mistakenly believed in a term, definition, word, or provision that a contract did not contain

• The other party was aware of the mistake, but took no action to bring it to the attention of the mistaken party

• The other party was not drawing attention to the mistake by taking advantage of it

What are the consequences of a unilateral mistake?

There are two remedies available to a mistaken party in contract law: rescission and contract reformation.

Contract rescission occurs when the non-mistaken party is aware of the mistake made by the other party. The contract is completely canceled, and the parties are returned to their pre-contract positions.

They have two options: either to terminate the contract or to redraft it together.

A court chooses contract reformation when a non-mistaken party is unaware of the mistake made by another party. Reformation is applied to correct a contract, typically by adding or changing language to align the contract with the intentions of both parties.

Does a unilateral mistake void a contract?

A unilateral mistake can void a contract when it is a fundamental or material mistake that goes to the core essence of an agreement.

Another reason to void a contract is to demonstrate that the other party was aware of the mistake at the time of assembling the contract and that they used it to their advantage. 

How to prevent unilateral mistakes in a contract

Use plain and simple language

Avoid using jargon, abbreviations, and technical terms if they are not defined in key elements.

Write short sentences that are easy to understand for you and the other party. You can upload lengthy sentences into Panda AI, and it will rephrase them in a clear and concise manner.

Double-check the content for errors

Spelling mistakes, grammatical errors, and formatting issues create confusion between both parties.

Always proofread and edit the content before signing or sending it.

Use contract templates

Contract management systems have contract templates so you can skip the step of drafting them from scratch.

You can negotiate with a party online when drafting a contract, track what changes have been made to the content, and eSign contracts within the software.

Provide specific product identification numbers

If your contract refers to products, eliminate any product descriptions in favor of stock-keeping unit (SKU) numbers.

Review the contract together with the other party

Discuss key elements, such as terms, conditions, and obligations. If both parties have a similar interpretation and definition, you can proceed to sign it.

Contract creation and management is made easy when you use a platform designed for speed, efficiency and legal compliance.

Start your 14-day trial today and check out PandaDoc’s contract management system for yourself!