A Unilateral Mistake Will Make an Agreement Defective When
January 17, 2022 | Katy Yanossy
If the non-erroneous party does not know or should not have known about the error, most jurisdictions believe that a contract is concluded on the basis of the conditions set by the third party. See The Arc Oil Mill v. Western Union Telegraph Co., 132 Ark. 335 (1918). (3) The error must have a material impact on the agreed exchange; and unilateral error: An error made only by one of the parties to a contract. A mutual error is a false assumption that both parties make regarding the terms of the contract. This means that if the parties enter into a contract and both parties have the same false assumption about a fact relating to the contract, the contract is voidable by the party aggrieved by the error (as long as that party has not borne the risk that the assumption was false). For example: The most important idea about unilateral mistakes is that only one party is wrong, while the other is not. Thus, since only one party has a misconception, this could give the other party an unfair advantage with respect to the bargaining power it holds during the contract closing phase. If the company that received the bids had reason to believe that the bid was abnormally low because all other bids cost $50,000 more than the contractor`s bid, that would strongly argue in favour of finding a unilateral error. In such a case, even a small error would likely render the contract unenforceable. Remember that if the other party was aware of the mistake, lack of scruples or extreme injustice in the terms is not necessary.  If the party who did not make a mistake was unaware of the other party`s error or had no reason to know about it, there is a binding contract.
In this case, if the defective party discovers the error and refuses to execute it, the non-erroneous party is entitled to compensation. In this case, the party concerned may have the contract reformed. In other words, the aggrieved party can have the contract amended by the court so that it accurately reflects the oral agreement. See Goode v. Riley, 28 N.E. 228 (Mass. 1891). Mistakes can be mutual, meaning that both parties shared the same erroneous assumption, or they can be one-sided, meaning that only one party was under a false impression. A caveat to this rule is that the aggrieved party can only cancel the contract if he has not taken the risk of committing the error.
Conversely, the occurrence of the expected risk, if it follows from the nature of the agreement that a party assumes a risk, does not constitute an “error” and does not allow the contract to be circumvented. For example, if a buyer of property knows that the title insurance company is not issuing title insurance because it suspects a defect in ownership, the subsequent discovery of a defect does not constitute a plea for error. The buyer was aware of the risk and took it. In addition, if the parties knowingly enter into an agreement without all the relevant information, they cannot cancel the contract simply because the relevant information constitutes the prejudice of one of the parties. For example, if a seller who has not mined his land agrees to sell it and later discovers the presence of precious minerals under the land, there will be no reason for the agreement to be cancelled. The seller knew or should have known his ignorance, and his contractual agreement to sell the property runs the risk of selling something more valuable than what you saw at first glance. . Error of fact: If both parties entering into an agreement have an error in relation to a fact essential to the agreement, the agreement is voidable. Specifically, a “unilateral error” is a misconception held only by one party and not shared by the other party. In other words, a unilateral error exists when only one of the parties misinterprets the purpose or meaning of the terms contained in the contractual agreement. In order to avoid unilateral errors in a contract, it is essential that the contract is formulated as clearly as possible. During contract negotiations, the parties should carefully review the contract and consider the mutual interpretation of each clause in the contract.
Illustration: Lady found a stone and sold it as topaz for $1 ($25 today). It was an uncut rough diamond worth $700 ($17,000 today). The contract is not questionable. There was no mistake because none of the parties knew what the stone was.  Error of law: If a party enters into a contract without knowing the law of the land, the contract is affected by such errors but void. The reason is that ignorance of the law is not an excuse. However, if a party is induced by an error of law to enter into a contract, such a contract is not valid.  However, several modern cases have shown that if the defective party informs the other party of the error before the non-defective party invokes the error, the defective party may terminate the contract. Working with a lawyer during the closing phase of the contract can help the parties avoid mistakes. A lawyer can also help a party draft and revise their contract for problematic terms. Early hiring a lawyer for advice can be beneficial to the parties` contracting process, as a breach of contract in the future can be costly for both parties.
(3) The wrong party`s mistake was the fault of the other party.  Thus, if a contract was concluded on the basis of a unilateral error, this could lead to a legal dispute that offers the erroneous party various options to remedy the contract, such as terminating the contract or reforming the contract. In some cases, errors in a contractual clause cause the parties to be unsure of their respective obligations under a contract. If this misunderstanding is serious enough that it cannot reasonably be said that the parties had a “meeting of minds”, the contract is unenforceable.  Later in Solle v. Butcher, Lord Denning added requirements for a common error in justice, which relaxed the requirements for proof of common errors. Since then, however, the case has been heavily criticized in cases such as Great Peace Shipping Ltd v. Tsavliris Salvage (International) Ltd. For the Australian great peace shipping app (except in Queensland), see Svanosio v McNamara.  For Queensland, see Australian Estates v Cairns City Council.
 Notable unilateral error: A unilateral error in which the non-erroneous party knew or should have known of the other party`s error. On the other hand, if both parties believed that the word “screw” actually means “nails,” then this would be an example of mutual error. “Error” can be a defence to the performance of a contract if at least one party had a “belief that is not consistent with the facts” about important contractual terms.  Errors refer to misconceptions about the parties that led them to enter into agreements, not to errors relevant to the actual process of executing the agreement. For example, this defence is not relevant to the scenario in which a party signs an agreement because they think they are signing a credit card receipt; however, such an agreement could also be unenforceable in the absence of valid consent. A common mistake is when both parties have the same misconception about the facts. The mere fact that a party is deceived does not inherently invalidate the contract because of a misrepresentation. In Phelps v. McQuade, for example, the court ruled that overvaluing its assets to obtain a financing contract for the purchase of jewelry did not render the contract unenforceable. The buyer`s asset status was not considered an integral part of the agreement and, therefore, lying about it was not a material misrepresentation.
 On the other hand, if a seller sells cubic zirconium but depicts it as a diamond, there is no doubt that this would be considered a material misrepresentation, as this falsehood is directly due to the type of item sold. False statements can also be innocent. That is, the party making the wrong assumption may not know that the assumption is wrong. Therefore, the contract is unenforceable if the misrepresentation results in a significant discrepancy between reality and what the other party believed. For example, if, during a real estate transaction negotiation, a party mistakenly represents the square footage of the property of a small amount, this is not necessarily a reason to avoid the contract. .