In contract law, a factual misunderstanding that may lead to a failure of a meeting of the minds. mistake of fact. Improper understanding of a fact that is material to a contract. mistake of law. Improper understanding of the law as applied to facts as to which a party has a correct and full understanding. mutual mistake. A mistake in which each party has an incorrect understanding of the other's position, or in which both parties share the same mistaken belief, generally a basis for cancelin...