
Quoting
Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565 (2005)
In Donovan, our high court explained that California does not follow the “traditional rule” recited in the first Restatement of Contracts, section 503, to the effect that “unilateral mistake did not render a contract voidable unless the other party knew of or caused the mistake.” (Donovan, supra, 26 Cal.4th at p. 280.) Instead, the Donovan court applied the more expansive rule of Section 153 of the Restatement Second of Contracts [26] allowing rescission due to unilateral mistake where enforcement of the contract would be unconscionable. (Donovan, supra, at p. 281.) In instances in which the other party was unaware of and did not cause the mistake, the party claiming unilateral mistake must show that “(1) the … mistake [was one] regarding a basic assumption upon which the [party claiming mistake] made the contract; (2) the mistake has a material effect upon the agreed exchange of performances that is adverse to the [party claiming mistake]; (3) the [party claiming mistake] does not bear the risk of the mistake; and (4) the effect of the mistake is such that enforcement of the contract would be unconscionable.” (Donovan, supra, at p. 282.) As to the third factor, both the Restatement Second of Contracts [27] and Civil Code section 1577 [28] note that the mistaken party's “neglect of legal duty” will bar relief; however, ordinary negligence does not constitute such “neglect of legal duty” that will preclude rescission. (Donovan, supra, at p. 283; see also M. F. Kemper Const. Co. v. City of L. A. (1951) 37 Cal.2d 696, 702 [235 P.2d 7].)
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26. “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 [section] 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.” (Rest.2d Contracts, § 153.)
27. “A mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation … , unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.” (Rest.2d Contracts, § 157.)
28. “Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in: [¶] 1. An unconscious ignorance or forgetfulness of a fact past or present, material to the contract; or, [¶] 2. Belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed.” (Civ. Code, § 1577.)