Question

• Determine under what circumstances a contract should be allowed to be rescinded because of a unilateral mistake. Provide one example of a situation in which this could be acceptable.
• Consider how guaranty contracts are used in business and propose two situations in which a guaranty would be required.

Answer 1

Hey there !!

As per the Contract laws, there are two types of mistakes :

1. Unilateral : This happens when only one party to the contract is mistaken about terms of Contract.

2. Bilateral: Here, both parties are mutually mistaken...however this happens rare.

A contract should be allowed to be rescinded under unilateral mistake bcause here only one party is mistaken, there is a danger that the non-mistaken party might take advantage of the other party’s mistake.

Circumstances involving Recission of Contract :

Genrally, legal intervention is required to solve the dispute.In most cases, courts prescribe the remedy of the cases depending on the nature of mstake, nature of case and other factors.

In the case of recission, parties are restored back to their status quo ie. Original position. However, this is only allowed when non mistaken party knows about the mistake.

Guarantee Contracts :

A guaraantee contract is an enforceable contract between the party which gives gurantee ie Gurantor and the other party that takes loan.

By giving the guarantee, the guarantor promises to carry out the obligations of the third party if the borrower himself fails to do so.

Situtations in which guarantee is required in business :

1) Let's take an example of a bank guarantee. If an entity needs a loan from any fiinancial institution, it needs to obtain a bank guarantee. It is a promise from a bank or other lending institution that if a particular borrower defaults on a loan, the bank will cover the loss.

2) When a person buy's a particular appliance, that appliance comes with a guarantee that, what will happen should the buyer not be satisfied with his purchase. He guarantees a replacement if the product breaks down or lets say is defected (as per the terms of contract). This type of gurantee is essentially needed in the business so as to boost the sales.

I hope the above concept is now clear to you...do let me know if you have further queries :)

All the best :)