What happens to a contract when there is a mutual mistake regarding its subject matter?

When there is a mutual mistake regarding the subject matter of a contract, the contract becomes void. A mutual mistake occurs when both parties to the contract share an incorrect belief about a fundamental fact that is essential to the agreement. This fundamental misunderstanding can affect the very essence of what was being contracted for, rendering it impossible to perform as intended.

In contractual relationships, the enforceability relies on the agreement being based on the true and intended subject matter. If the subject matter is misunderstood by both parties, neither can be held to the terms of the contract as it does not reflect the reality of the situation. Therefore, the contract is treated as if it never existed. This legal principle is rooted in contract law to protect parties from agreements made under significant misunderstandings. Hence, a mutual mistake about the subject matter results in the contract being declared void.