A contract is a binding legal agreement — that’s why it’s so important to read over every document before you sign. However, because businesses tend to process so many contracts, and because there are so many variations of contracts important for business function, it isn’t uncommon for a business to notice mistakes in their documents after the agreements are signed.
Within contract law, a mistake is defined as an “erroneous meaning of words or facts.” There are dozens of ways businesses can mishandle contracts, from lacking any sort of contract lifecycle management to neglecting to utilize contracts whatsoever. However, when it comes to the technical type of “mistake,” here are the three most common issues you need to watch out for:
Unilateral Mistakes
Unilateral mistakes are far and away the most common contract mistakes, and they can be serious. They occur when one party is misguided as to the terms of the agreement. Of course, this misguiding might be malicious or the result of gross negligence — but more often it is simple and fixable.
Unilateral mistakes can make an agreement rescindable, but only under certain conditions. On one hand, it is possible to take back an agreement with a mistake that stems from a clerical fault deemed not due to gross negligence. On the other hand, agreements that are so serious that they are outrageous — as well as agreements where one party intentionally misguided the other or else allowed the other to continue with false information — are also rescindable. Contracts entered into on these bases can be remedied through contract reformation and contract revocation.
It’s important to note that in unilateral mistakes, only one party is misguided. This bias gives the other side an advantage during the negotiation and bargaining phase. To prevent this, you should always work with an attorney when drafting a contract, so you have an ally to help you draft and review the agreement. If you or your attorney discovers a unilateral mistake, you should contact the other party and obtain proper relief.
Mutual Mistakes
Meanwhile, mutual mistakes are those that occur when both parties are misguided about the same facts within the terms of their agreement. As opposed to the unilateral mistake, which gives one party more power, the mutual mistake sees both parties at cross-purposes.
Typically, when a mutual mistake is discovered, it is in both parties’ best interest to void the contract and create a new agreement that is more specific about the material facts and avoids making the same mistake. It is possible to void a contract with a mutual mistake because both parties meant something different within the same information of the contract, so there was no agreement to begin with. Here’s an example:
Two companies agree to ship merchandise using a vessel named “Peerless.” Unfortunately, each party had a different vessel of that name in mind. Thus, their agreement to use this vessel never occurred due to the mutual mistake. The contract was invalid because agreement was not initially reached.
As with unilateral mistakes, having an experienced contract attorney on hand can prevent the development of mutual mistakes.
Common Mistakes
Finally, a common mistake in contract law is one in which both parties hold a similar misguided belief of fact. This is different from a mutual mistake in the time of misguided belief: For a mutual mistake to occur, there must be an error in the material facts of the contract, but for a common mistake to occur, both parties must be confused with a fundamental assumption about the subject matter.
In a mutual mistake, there is no genuine agreement, but in a common mistake, agreement can occur — it is simply that both parties are incorrect in their beliefs. Take this case as an example:
Two parties agree to the transaction of a painting, which is believed to be a famous and valuable work of art. When the buyer tries to resell the painting, that party finds that it is not a famous and valuable work, at all. The initial seller also was misled regarding the painting’s legitimacy, so a common error occurred.
In this case, there is no breach of contract or “operative mistake,” but due to the misrepresentation, it is possible to rescind the agreement in the appropriate time frame. To do this — or better yet, to avoid common mistakes altogether — you should have a contract lawyer in your corner to review all agreements you make.
Contract mistakes are something you should be trying your hardest to avoid. While small businesses will eventually make some mistakes in their legal agreements, the fewer there are, the better off you’ll be.
