What characterizes a mutual mistake?

A mutual mistake occurs when both parties involved in a contract are mistaken about a fundamental element of the agreement. This means that both parties share the same incorrect understanding or belief regarding a key aspect of the contract, which can significantly affect the intentions and obligations of the parties.

In this context, the option stating that both parties are mistaken about a term accurately reflects the essence of a mutual mistake. For example, if two parties enter into a contract believing they are dealing with a specific piece of property, but both are unaware that this property has already been sold to someone else, they share a fundamental mistake regarding the subject matter. This lack of alignment can lead to issues of enforceability or even the potential for rescission of the contract, as the agreement may no longer reflect the intentions of the parties.

In contrast, the other choices describe different situations. If only one party is mistaken, it does not constitute a mutual mistake, and the party that is aware of the correct information may have certain advantages. When both parties agree on a term, it indicates there is no mistake at all, but rather an agreement on the understanding. Lastly, if one party knowingly misleads the other, this represents fraud or misrepresentation, rather than a mutual mistake, as there