What is the difference between a mutual mistake and a unilateral mistake?
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.
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.
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.
Preventing Unilateral Mistakes
To prevent unilateral mistakes in a contract, contracting parties should do the following:
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What is an unilateral mistake?
Unilateral mistake (where one party is mistaken and the other knows or ought to have known of the mistake). If the mistake relates to the fundamental nature of the offer the contract can be voided.
What is an example of a unilateral mistake?
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.
What is a mutual mistake?
A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact within their contract. They are at cross-purposes. There is a meeting of the minds, but the parties are mistaken.
What are the three types of mistake?
Common law has identified three different types of mistake in contract: the 'unilateral mistake', the 'mutual mistake', and the 'common mistake'. The distinction between the 'common mistake' and the 'mutual mistake' is important.