The term “mistake” is used in contract law to describe the situation in which one or both of the parties to an agreement acted under an untrue belief about the existence or non-existence of a material fact. As a comparison, in mistake cases unlike fraud and misrepresentation cases in which the victim is also acting under a mistaken belief about the facts, the mistaken belief about the facts is not the product of a misstatement by the other party. Mistake in this sense does not include errors of judgment, ignorance or a party’s mistaken belief that he or she will be able to fulfill certain obligations under a contract.
The reason behind the idea of mistake is that mistake may prevent the “meeting of the minds” required by contract law. In deciding mistake cases, Courts often seem to be trying more obviously to “do justice” than in other kind of cases.
Mistake cases are classed as mutual or unilateral, depending on whether both or only one of the parties was acting under a mistaken belief about a material fact. Mutual mistake is always a basis for granting rescission of the contract at the request of either party. Clearly no meeting of minds took place and therefore no true agreement was even formed. Mutual mistake can arise in many ways. The parties may unintentionally use a term in their agreement that is “ambiguous” and therefore is honestly capable to be understood in two different ways. The test of determining the existence of a mutual mistake is, however, an objective one. This means that objective factors may remove what first looks like ambiguity. Also, the parties may be mistaken about the subject-matter of their agreement, when each party is having a different subject in his mind. Obviously, here there is no “meeting of the minds”.