A unilateral mistake in business contracts occurs when a contract leaves room for multiple interpretations of the contract’s terms and one of the contractual parties mistakes terms contained within the contract. The following review will underline the intricacies that come up with these mistakes as well as how best to avoid ending up in this situation.
Unilateral Mistakes in a Business Contract
There are many examples of a unilateral mistake in a business contract. Note that mistakes by a single party may begin within the overall scope of terms outlined in a contract. If the scope of the contract is ambiguous or lacks articulated details of obligations and responsibilities by both parties, it leaves open the possibility for a unilateral mistake that can be quite costly to all parties involved in a contract.
Identify All Contractual Parties before Stating Terms
The initial parties involved in a contractual agreement should be specifically identified, such as, “Party “A,” in the contract refers to John Doe of John Doe, Inc. Party “B” refers to Joe Smith of Joe Smith, Inc.” If applicable, the addresses of their businesses may also be included in the identification of the parties in the contract. This depends on the degree of legality required.
With specific identification of parties involved in a contract, unilateral mistakes can be avoided. Also, specific identification of all parties involved results in an articulate contract without ambiguity. Identifying contractual parties should be stated as part of the contract scope before terms are outlined. Parties should be identified in priority order or according to the first party to take active responsibility for initiating a contract.
Outlining Contract Terms
The most important aspect to remember about any contract is that it is a committed agreement between one or more parties to engage in some form of action mutually researched, developed and agreed upon by all. As such, contract terms are generally written to ensure there is reliable documentation that substantiates each party’s role in the contract to avoid unilateral mistakes. When both parties share the mistake, this is referred to as a “mutual” mistake.
In an effort to create an error-free contract, parties should agree to meet to discuss the terms of the contract before documentation takes place. This allows for inquiries into contract terminology that may appear ambiguous. Avoid creating contracts that leave room for mistakes in the responsibility of contracting parties and also in the use of ambiguous terminology. These issues are easily resolved before a formal contract is completed.
For example, in an engineering contract where installation of equipment is part of the contract terms, the word “equipment” must be clearly defined. Otherwise, a unilateral mistake can occur in the understanding of the type of equipment the parties must provide.
In government contracts, the government specifically defines the work contractors will be providing in bid contract format. This is due to the fact that government contractors are usually those the government has previously granted contractual work to and are listed as government vendors.
Occasionally, a government contract for work may be extended to new vendors. These vendors are responsible to provide their work contract in government format prior to being considered. Government contracts are provided on forms that are completed by each vendor seeking a formal government contract for work. Using government forms means less chance of a unilateral mistake in a business-to-government contract.
Understanding the Impact of a Unilateral Mistake
Very often, unilateral mistakes in business occur through unintended circumstances. Sometimes, they’re referred to as “force majeure” or unforeseeable circumstances that prevent one of the parties from fulfilling contract obligations. This may be related to project work stoppage or to extreme weather circumstances.
Within these unintended circumstances, contracted parties may mistake contract terms to interpret as simply “delay of work” or “contract continuance” unless terms explicitly address all potential cancellations, delays, or unintended circumstances.
The Baseball Card Case – A Costly Unilateral Mistake
In 1968, 12-year-old Bryan Wrzesinski, a baseball card collector, owned about 40,000 baseball cards. He saw a 1968 Nolan Ryan/Jerry Koosman rookie card at Ball Mart, an Itasca, Illinois, baseball card store. This particular baseball card was marked “1200”.
A newly hired sales clerk thought that meant $12.00. Bryan paid the clerk for the baseball card which the clerk accepted payment for. However, the Ball Mart store manager, Joe Irmen, claimed the actual price of the card was $1,200, not $12.00.
When the young boy refused to return the card, a legal case began. Shortly before the judge was about to render her decision, both parties decided upon a settlement: sell the baseball card at an auction and donate the proceeds of the sale of the card to charity.
How to Avoid a Unilateral Mistake in a Business Contract
The basic guidelines to avoid a unilateral mistake in a business contract include:
- Ensure the scope of a contract identifies all parties;
- Articulate terms of the contract so each party understands their obligations, commitment and responsibilities;
- Allow a discussion of terms prior to documentation to ensure parties understand all terminology within the contract;
- Avoid ambiguity in contract terms and terminology;
- Allow all parties to review the contract before it is mutually approved.
Signed, Sealed and Delivered without a Unilateral Mistake
To avoid a unilateral mistake in a business contract, allow three or more independent parties to proofread and edit, if applicable, all of the contract terms. Be certain all specific contract facts have been verified and validated.
A unilateral mistake can occur if one of the parties of the contract finds an error in verification or validation. If necessary, allow sufficient time for both parties to review and evaluate their contract obligations before they implement the contract.
Be certain all dates and times outlined within the contract can be substantiated. Take the time to ensure that signers of the contract have certifiable authority. This is another unilateral mistake that can occur as a result of assumptions of authority to approve contracts. In corporate contracts, make certain experts named within the terms are also certified. When all of these factors have been thoroughly checked, it is easier to avoid a unilateral mistake in business.