Final answer:
A unilateral mistake in contract law allows the mistaken party to void a contract if the other party was aware of the mistake. It applies when one party has an incorrect understanding of a material fact, while the other party knows or should know of the error.
Step-by-step explanation:
The party making the mistake can avoid the contract if the other contracting party knew or should have known of the mistake in a unilateral mistake. In contract law, a unilateral mistake occurs when one party is mistaken about a basic assumption on which the contract is made whereas the other party is or should be aware of the mistake. Typically, the mistaken party can seek to avoid the contract only upon proving that the mistake would make the contract unconscionable or that the other party had reason to know of the mistake or caused it. For example, if party A sells a car to party B believing the car is a common model worth $5,000 when in fact it is a rare model worth $50,000, and party B knew of the car's true value, party A may be able to avoid the contract due to unilateral mistake.