Despite our best intentions and diligent efforts, mistakes happen. From time to time, after the parties have executed a contract and commenced performance of their obligations, someone will identify an inadvertent error in the document that is inconsistent with the parties’ agreement. Most parties are understanding when these circumstances arise, electing to forgo the opportunity to take advantage of an honest mistake and instead work to remedy the document.
The question that inevitably comes up is: how do we fix it? In the pre-electronic age, the solution was simple. Tear up the contract, fix the error, and re-sign the document. Now, though, where an executed contract almost always becomes an electronic file, the parties may need greater assurance that the re-signed document can be relied on going forward, including in the event of future dispute. In other words, how will the parties know which signed version is the “correct” version and ensure that there isn’t confusion from later parties who were not involved in the execution of the document?
Unfortunately, there is no perfect answer. If the parties re-sign and recirculate the document, there could be uncertainty regarding the effective date of the contract (assuming the contract becomes enforceable when signed). A subsequent amendment is perhaps most reliable, but will require time, expense, and delay to finalize the amendment. Handwritten changes to the document, even if initialed, undermine the credibility of the document and increase the chance of later disagreement if the handwriting is not entirely legible.
In these circumstances, my preferred solution is the use of a “slip page.” In this approach, the error is corrected and the page of the document with the correction is inserted into the contract to replace the mistake. The new version of the previously signed agreement is then circulated among the parties for electronic confirmation that the new version is correct. To improve this effort, the prior version can be marked “VOID.” This solution is quick, cost-effective, and generally reliable for the parties.
It is important to note that this solution is not perfect. Contracts will generally provide that a contract can only be modified by a written document signed by the parties. However, California courts will enforce an electronic confirmation where parties have manifested an intent to assent to the terms of a new agreement over email and the new document is attached.1 Essentially, this creates a presumption that the new agreement is binding, one that can be unwound but will be difficult for the parties to later challenge. In most circumstances, this should be enough assurance for the parties that the new document is binding and enforceable.
When mistakes happen, it’s best to tackle the remedy quickly to avoid the chance that a party changes its mind or tries to stand on the erroneous document. Any solution should be addressed promptly, and with as much clarity and openness as possible. Emails and other communications confirming the parties’ intent will supplement the resolution and help minimize future dispute. At the end of the day, though, these mistakes can typically be resolved without much expense or interruption, allowing the parties to focus on the transaction at hand.