R2d § 153
When Mistake of One Party Makes a Contract Voidable
Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake.
Professor's notes
Elements: where a mistake of one party at the time of contracting was as to a basic assumption AND has a material effect on the agreed exchange adverse to him, the contract is voidable by him if he does not bear the risk under § 154 AND either (a) the effect of the mistake is such that enforcement would be unconscionable, OR (b) the other party had reason to know of the mistake or his fault caused the mistake.
DePrince v. Starboard Cruise operationalizes: buyer's mistake about diamond price ($235K vs. $20M); seller arguably had reason to know.
Common misunderstanding: students think unilateral mistake never grants rescission. It does, under (a) unconscionability or (b) knowledge/snap-up. The snap-up rule (153(b)): where the non-mistaken party knew or should have known: is the workhorse modern doctrine, especially for clerical errors in bids.
Cases that operationalize this rule
Text
R2d § 153. When Mistake of One Party Makes a Contract Voidable.
Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and
(a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the mistake.