Contracts are the lifeblood behind a wide variety of major decisions, from business mergers and commercial agreements to personal mortgages and employment agreements. Making a mistake in a contract can be costly; whether the parties simply did not understand the true meaning of the contract they were signing, or they did not notice a mistake within the agreement, the enforcement of a contract may come with some unexpected surprises for those who did not fully understand the document. Mistakes are more likely to occur when the contracting parties are anxious to get the contract signed and fail to have their document reviewed by an experienced contracts attorney. Some of the most common mistakes, described below, can be avoided by working alongside an experienced legal professional before you sign a contract.
How A Mistake Can Affect the Enforceability Of A Contract
When individuals imagine the possible consequences of a mistake in a contract situation, they most commonly envision that one party did not read the entire contents and agreed to a situation that was unfavorable. However, in contract law, a “mistake” is an error or misunderstanding on the part of one or both parties about the terms or conditions of the contract. It can be a mistake in the meaning of the contract language, applicable laws, parties’ responsibilities, expected results or attendant facts of the contract. This expands the concept of a mistake to encompass many potential scenarios across one or more of the contract’s parties.
Depending on the nature of a mistake, the resulting consequences can affect the contract in several different ways. In terms of the wording and the contents of the contract itself, absent any involved parties’ agreement, certain mistakes may make the contract void and unenforceable as a matter of law. Similarly, the contract may be valid unless one party wants to invalidate it.
Situations in which a mistake occurs within a contract do not necessarily mean that the contract is invalid; instead, if all parties to the contract would like to proceed with a transaction, they can do so by remedying the mistake or renegotiating a new contract that corrects the mistake.
There are a variety of mistakes which are particularly common in contract law. These include:
Mistake #1: Unilateral Mistake
A “unilateral mistake” is a mistaken belief held by only one of the contracting parties. It typically occurs when one of the parties misinterprets the subject matter or meaning of the terms of the contract. This could result from unclear or incorrect language within the contract itself, as well as a contracting party’s own assumptions about the meanings of text that are not clarified.
Unilateral mistakes are some of the most common in contract law. An example of a unilateral mistake would be a contract for the sale of 12 dozen cartons of chicken eggs to a grocery store. The grocery store may think that the contract’s use of the word “egg” means that they will receive extra-large chicken eggs, the most common type, though in fact the term “egg” means any size of egg. If the grocery store is the only party that holds this mistaken belief and the supplier is clear concerning the contract’s meaning of “egg,” it could result in a unilateral mistake dispute.
Unilateral mistakes are not limited solely to the acquisition of products; they can also involve prices, quantities, dates and errors pertaining to the description of goods or services included in the contract.
Typically, a dispute arises when one party to the contract brings a complaint against the other party, alleging that the situation that occurred does not align with the contract agreement. The remedies available will depend on whether the non-mistaken party knew that the other party did not understand a term in their contract. In the above example, if the supplier knew the grocery store entered into the contract on the basis of a unilateral mistake regarding the meaning of “egg” or, in other words, if the supplier knew that the store expected extra-large chicken eggs but did not correct their understanding of the word “egg” in the contract, then the supplier had an unfair bargaining position. The mistaken party may be able to rescind, or cancel, the contract based upon the supplier’s knowledge and failure to clarify the information prior to contract signing. If the supplier was not aware of the mistake, the contract may be revised. However, in general, if someone makes a unilateral mistake, they will not get relief from a court because the mistake was a misunderstanding on their part.
Mistake #2: Mutual Mistake
Mistakes relating to a contract do not always primarily affect only one party. When both parties to a contract are mistaken about a material fact, a “mutual mistake” occurs. A material fact is a piece of information that is considered to be a vital detail; if this fact were removed, the context and understanding of the discussion would change. When both parties are mistaken about the other party’s meanings of material contract terms, there is a failure of mutual assent. Without mutual assent, no contract has been created. The contract can therefore be voided, even if both parties would still like to proceed in their relationship with each other. A new, revised contract that addresses the mistaken issue will be created.
One of the most famous examples of a mutual mistake in contract law comes from a famous case from England in 1864 called Raffles v Wichelhaus (2 Hurl & C 906 Court of Exchequer). In that case, the parties agreed to ship goods on a vessel named Peerless, but each party was referring to a different vessel. Because each party had a different understanding of how and when the goods would be shipped, they never reached a meeting of the minds.
Mistake #3: Common Mistake
A “common mistake” is similar to a mutual mistake in that it arises when both parties hold the same mistaken beliefs. In these cases, the contract is void if there is sufficient evidence to show that the mistake is so fundamental to the contract that it renders it very different from the actual meaning of the contract. This may occur, for example, if the contract is drafted by a party that misunderstands the intentions of both parties, after which both of the affected parties indicate that their intention is different than what is written in the contract.
Similarly, in a more concrete example, one business (A) may agree to resell a certain product from a supplier to another business (B). Both businesses are under the assumption that this product exists and will be conveyed as part of a transaction from the supplier to Business A and then to Business B. If one or both businesses later discover that the supplier no longer manufactures the product that was intended within the contract signed by Business A and Business B, then the contents of the original contract contain a common mistake in which both parties held the mistaken belief that they would do business using this specific product.
In this situation, as in a mutual mistake scenario, the contract can be voided and a new contract can be created to accurately reflect the involved parties’ intentions, the available product and so on.
Bottom Line: Effect Of A Mistake On Contract Is Fact-Driven
Contracts play a vital role in managing the legalities of how entities or individuals work together. This means that their contents are critically important, and mistakes can lead to unintended consequences, from unwanted or unapproved products to delays in parties’ plans as they resolve the issues. If the parties are unable to resolve a mistake in a contract, a dispute can arise that may end up in court. In addition to the time investment, court costs can also make a contract mistake more burdensome.
Courts review contract disputes on a case-by-case basis, considering the facts that are pertinent to the case. The court will try to determine whether the mistake is material or significant and whether the mistake is a result of undue influence over one or more parties. This may take time, which is why it is wise to establish a relationship with a contracts attorney to review the contents of any contract before entering into it. The initial time investment of hiring an attorney can avoid significant delays and future consequences when the unintended results of a mistake in a contract come to light.
It is also important to remember that the process of resolving a contract dispute, or even bringing the matter before a court may also damage the relationship that you have with the other parties involved in the contract. Individuals and businesses should ensure that any contract is correct and enforceable from the start, allowing them to transition into new contractual relationships smoothly.
Consult With The Contract Law Attorneys At KPPB LAW
The best way to avoid mistakes in contracts is to work with experienced contract attorneys. The contract attorneys at KPPB LAW are experts in contract drafting and reviews, and in negotiating out-of-court dispute resolutions, saving you time and money in court costs. They would be happy to discuss the contents of your contract and assist you in reviewing and understanding the meaning of the document. Whether you have already signed a contract and feel that the terms have been violated, or you are drafting a contract that needs to be reviewed to avoid mistakes, contact the attorneys at KPPB LAW. If you are considering litigation related to a contract dispute, consider the value range of your matter with the investment of engaging an attorney to be sure your legal action makes fiscal and business sense.
KPPB LAW advises companies on business disputes and business transactions. The business law firm’s attorneys are located in four offices including Atlanta, Chicago, New York City and Northern Virginia to help resolve local and multinational business challenges. In addition to English, KPPB LAW attorneys speak Gujarati, Hindi, Bengali, Mandarin, Marathi, Punjabi, Spanish and Urdu. Founded in 2003, KPPB LAW is certified as a Minority Business Enterprise by the National Minority Supplier Development Council (NMSDC), AV rated by Martindale Hubbell and a long-time member of the National Association of Minority and Women Owned Law Firms.