Which term describes a perception by both parties to a contract that does not agree with the facts?

• A. Bilateral Mistake
• B. Unilateral Mistake
• C. Mistake
• D. Misunderstanding

Answer: (A)

A bilateral (mutual) mistake happens when both parties to a contract share the same incorrect belief about a fact that is fundamental to the agreement. Because both sides are mistaken, there isn’t true assent to the contract as formed, so the contract may be voidable or rescissible rather than enforceable as written. This term precisely matches a perception by both parties that does not align with reality.

A unilateral mistake, by contrast, involves only one party being mistaken. A generic “mistake” is too broad, and “misunderstanding” is not the formal legal term for a mistaken belief about facts in contract law. In practice, for a bilateral mistake to affect enforceability, the mistaken fact must be material to the contract and the mistaken belief must concern a basic assumption on which the contract was made, with neither party bearing the risk of the mistake.