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Contracts • Defenses to Enforcement and Formation
K#076
Legal Definition
If only one party is mistaken about facts relating to the agreement, then the mistake will not prevent contract formation unless the non-mistaken party knew or had reason to know of the other party's mistake.
Plain English Explanation
Unilateral mistakes happen when only one of the parties is mistaken. They often occur with pricing, where an error in calculation leads to a price being lower than it should have been. Generally speaking, the person who makes the mistake will have to deal with the loss and is still bound by the contract. However, where the non-mistaken party is aware (or should be aware) of the mistake, then the contract is not formed.
Hypothetical
Hypo 1: Sam is remodeling his house. He has asked 3 contractors to submit bids. Bob bids $10,000. Amy bids $12,000. Jill bids $11,500. Sam accepts Bob's bid. Bob realizes he forgot to add in $1,000 worth of cost and his bid should have been $11,000. Result: Bob's unilateral mistake is not Sam's problem. Sam's acceptance of Bob's offer forms a binding contract.
Hypo 2: Sam is remodeling his house. He has asked 3 contractors to submit bids. Bob bids $3,000. Amy bids $12,000. Jill bids $11,500. Sam accepts Bob's bid. Bob realizes his bid should have been $11,000. Result: Though prices can vary between companies and contractors, the drastic difference between Bob's bid of $3,000 and the other two bids is enough to argue that Sam had reason to know there was a mistake in Bob's bid, which means the contract is not formed upon Sam's acceptance.
Hypo 2: Sam is remodeling his house. He has asked 3 contractors to submit bids. Bob bids $3,000. Amy bids $12,000. Jill bids $11,500. Sam accepts Bob's bid. Bob realizes his bid should have been $11,000. Result: Though prices can vary between companies and contractors, the drastic difference between Bob's bid of $3,000 and the other two bids is enough to argue that Sam had reason to know there was a mistake in Bob's bid, which means the contract is not formed upon Sam's acceptance.
Visual Aids
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