The legal principle concerning a contract in which both parties are mistaken about a material fact is mutual mistake.
A mutual mistake occurs when both parties share an erroneous belief about a basic assumption on which their agreement rests. The mistake must generally be material, meaning it substantially affects the agreed exchange, and the party seeking relief must not have assumed the risk of the error. Depending on the circumstances and governing law, the usual consequence is rescission or avoidance rather than an automatic declaration that every such contract is void.
For example, if both parties contract for the sale of a specific painting while believing it exists, but it had already been destroyed without either party knowing, the shared error may undermine the bargain. Courts examine whether the fact was central, whether the risk was allocated, and whether enforcement would unfairly preserve a distorted exchange.
Mutual mistake differs from unilateral mistake, where only one party is mistaken. Duress involves improper pressure, while fraud involves intentional deception; neither term describes a shared factual error.