What defines a bilateral mistake in contract law?

A bilateral mistake in contract law occurs when both parties to the contract have a shared misunderstanding regarding the essential facts related to the agreement. This situation can raise issues about the validity and enforceability of the contract because when both parties are mistaken about a fundamental aspect, it undermines the mutual consent that is necessary for a contract to be valid.

For instance, if two parties enter into a contract believing they are dealing with a specific piece of property, but both parties are mistaken about its identity or value, the contract may be voidable. The law recognizes that if both parties are operating under a false assumption, their agreement is not truly based on informed consent.

The other options presented do not accurately capture the essence of a bilateral mistake. Changing the terms unilaterally, benefitting one party, or both parties being aware of discrepancies does not involve a shared misunderstanding and does not constitute the type of mutual misconception that defines a bilateral mistake in contract law.