Final answer:
When both parties to a contract have a mutual misunderstanding about a key fact, the contract can be rescinded or made voidable by the impacted party. Contracts become complicated in situations of imperfect or asymmetric information, which often require legal solutions to address misunderstandings and information gaps.
Step-by-step explanation:
When both parties involved in a contract are mistaken about the same material fact, the contract can be rescinded by either party. This type of situation is referred to as a mutual misunderstanding concerning a basic assumption on which the contract was made. If the misunderstanding affects the performance of the contract, such as an inability to deliver possession of a residence due to its loss or destruction, or failure of prior residents to vacate, the parties may have the option to cancel the agreement. In the case of imperfect information, where uncertainties about products or properties exist, contracts become especially complex, and the affected party may choose to make the contract voidable.
In economic transactions characterized by asymmetric information, where one party is less informed than the other, various mechanisms may be created to allow for mutually beneficial transactions despite the lack of perfect information. In the event of a contract based on a mutual misunderstanding, and where neither party has an unfair information advantage, legal avenues are available to either rectify or dissolve the agreement.