What is the difference between an unilateral mistake and a mutual mistake? Under what circumstances will a court refuse to rescind a contract based on the defense of a "mistake"?
A unilateral mistake occurs when only one party enters a contract under a mistaken assumption; a mutual mistake, on the other hand, occurs when both parties contract based on the same factual error. However, the defense of mistake is not a cure-all for all bad deals. Courts will not rescind contracts based on the following:
• A prediction error: a contract based on a prediction that proved wrong, cannot be rescinded.
• A mistaken value: not knowing the value of an item is not enough to take back a deal.
• Conscious uncertainty: no rescission is permitted where one of the parties knows he is taking on a risk; that is, he realizes there is uncertainty about the quality of the thing being exchanged.
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