To establish the defense of mutual mistake, which of the following 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 rests on a few key points: both parties are mistaken about a fact at the time of contracting; the mistaken fact relates to a basic assumption on which the contract was formed; 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 last requirement matters: if the party who wants to avoid the contract has assumed the risk of that mistake, the mutual mistake defense cannot be used.

The statement about the other party assuming the risk is not a required element. What matters is whether the party seeking to rescind did not bear the risk. It’s perfectly possible for the other party to have assumed the risk (or for no one to have allocated the risk) and for mutual mistake to apply, provided the seeking party did not bear the risk.