What constitutes a unilateral mistake in a contract?

A unilateral mistake in a contract occurs when only one party is mistaken about a material fact essential to the agreement. Understanding this concept is crucial, as the circumstances surrounding a unilateral mistake can affect the validity and enforceability of the contract.

In the correct choice, it is stated that only one party is mistaken and cannot rescind the contract unless the other party knew of the mistake. This highlights a fundamental principle in contract law: a party seeking to rescind a contract due to a unilateral mistake generally has a higher burden if the other party was unaware of the mistake. The mistaken party must typically demonstrate that the non-mistaken party had knowledge of the mistake or that enforcing the contract would result in an unfair advantage.

In contrast, a situation where both parties are unaware of the terms does not constitute a unilateral mistake, as both are operating under a misunderstanding; what is pertinent in this context is that there is a single party in error. Similarly, if both parties agree to change the terms, that indicates mutual assent and negotiation rather than a mistake by one party. Additionally, communicating a mistake to the other party does not fit the definition of a unilateral mistake unless it affects their knowledge of the error that the mistaken party is relying on to rescind the contract