In mutual mistake defense, which statement is NOT required?

• A. Both parties are mistaken about a fact at the time the deal is made.
• B. The mistake relates to a basic assumption of the contract.
• C. The party who is not seeking to assert the defense assumed the risk of mistake.
• D. The mistake has a material impact on the contract.

Answer: (C)

Mutual mistake defense rests on four core ideas: both parties are mistaken about a fact at contract formation; the mistake relates to a basic assumption on which the contract is based; the mistake has a material effect on the exchange; and the party seeking to avoid the contract did not bear the risk of the mistake. The reason the statement about the non-mistaken party having assumed the risk is not required is that risk allocation is not a necessary condition for the defense to succeed. The adverse party must not have borne the risk, but that can be true whether or not the other party explicitly assumed the risk, or even if no risk was allocated at all. In short, the defense can apply as long as the mistaken party did not bear the risk, regardless of whether the other party did.