What constitutes a "mutual mistake" in contract law?

A "mutual mistake" in contract law occurs when both parties to a contract share a misunderstanding about a fundamental fact that is critical to the agreement. This shared misconception must pertain to a basic assumption upon which the contract is based, and it must be significant enough to affect the substance of the contract. When a mutual mistake is present, the affected party may seek remedies such as rescission of the contract, as the misunderstanding undermines the existence of a true meeting of the minds.

In this context, while misinterpretation of contract terms by one party signifies a misunderstanding, it does not reach the level of mutual mistake needed to incapacitate the agreement. Similarly, a misunderstanding that is easily corrected does not typically warrant rescission since it suggests that the parties may resolve the discrepancy without impacting the agreement's validity. Lastly, when both parties agree yet interpret the contract differently, this situation more commonly falls under disputes over contract interpretation rather than a mutual misunderstanding about a factual assumption.