In which situation does a unilateral mistake occur?

A unilateral mistake occurs when one party to a contract is mistaken about a basic assumption on which the contract is based, and the other party is aware of that mistake or is not affected by it. In this scenario, one party makes an error that the other does not recognize, which captures the essence of a unilateral mistake. The mistaken party holds a belief that is not aligned with the facts, but the other party has no similar misunderstanding or awareness of the mistake.

This situation can have significant implications in contract law, as it can affect the enforceability of the contract. If the mistaken party can prove that the error substantially affects the agreement, it may be grounds for rescission or reformation of the contract, depending on the jurisdiction and specific circumstances involved. Understanding this concept is crucial in assessing contractual obligations and the impact of misunderstandings in commercial transactions.