This article is written by Srishti Chawla, a 5th-year student at Amity Law School, Noida.
A mistake refers to an incorrect belief that is innocent in nature which leads one party to misunderstand the other. It usually takes place when the parties to the contract are not completely aware of the terms of the agreement and understands the terms in a different sense. Therefore there is no consensus ad–idem i.e meeting of minds between the parties and thus do not understand the same thing in the same sense.
The Indian Contract Act,1872 states two kinds of mistakes
1) Mistake of Law(Section 21)
2) Mistake of Fact(Section 20 &22)
Mistake of Law
The Latin maxim ignorantia juris non excusat means that ignorance of the law is no excuse. Therefore under section 21 of the Indian Contract Act, 1872, a contract cannot be said to be voidable due to the mistake of the parties in understanding any laws that are in force in India. Hence the parties to the contract cannot claim relief on the grounds that they were unaware of the Indian law.
For Example, A man was caught by a ticket conductor for traveling on a train without a ticket. The man cannot claim that he was not aware that a ticket is required while traveling and shall be punished under Section 138 of The Indian Railways Act, 1989.
1) Mistake with regard to a Foreign Law
Section 21 also specifies that a mistake regarding a foreign law shall be treated as a mistake of fact. This is because the parties to the contract are not expected to know all the provisions of the foreign law and their meaning. Therefore in case of a mistake of the foreign law by both the parties, the contract will be considered void.
For Example, An Indian Company agrees to sell an American Company 200 cans of a certain mixture containing 45% Sulphuric acid. The law of the country had banned the purchase and sale of mixtures containing more than 30% Sulphuric acid. This is considered to be a mistake of foreign law and therefore the contract is said to void.
2) Mistake with regard to a Private Right
The existence of any private right is a matter of fact although depending on the rules of law because it is not possible for a party to fully know the private rights of another party.
In the case of Cooper v Phibbs(1867), The plaintiff took a lease of fishery right from the defendant unaware of the fact that he already had a life interest in the fishery right. The plaintiff, therefore, brought a suit for the cancellation of the lease and the defendant argued that this was a mistake of law. It was held that a mistake as to the general ownership or right stands on the same footing as a mistake of law and therefore was declared void.
Mistake of Fact
The maxim Ignorantia Facti Excusat which means that the Ignorance of fact excuses. Therefore under Section 20 of the Indian Contract Act, 1872, a contract is said to be void when both the parties to the agreement are under a mistake as to a matter of fact.
A mistake of Fact can be of 2 kinds-
1) Bilateral Mistake – Section 20
Section 20 will only apply when the following three conditions are fulfilled:
1)The mistake must be committed by both the parties i.e must be mutual
2)The mistake must be regarding some fact.
3)It must relate to a fact which is essential to the contract.
Therefore if the mistake is made regarding the existence of the subject matter or a fact essential to the contract, it would be a void contract since there is no consensus ad idem.
But an incorrect opinion regarding the value of the thing which forms the subject matter of the agreement is not said to be a mistake of fact and is considered inconsequential to the agreement.
Types of Bilateral Mistakes
1) Mistake regarding the existence of the subject matter
Sometimes the existence of the subject matter of the contract ceases to exist before the agreement was made and the parties to the contract may not be aware of this fact. If the subject matter on which the contract exists is not present, it is considered that the contract has perished and hence the agreement would be considered void.
In the case of Galloway vs. Galloway(1914), A man and woman believed that they were married and therefore made a separation agreement but it was later discovered that the man’s first wife was alive. It was held that the separation agreement was void as it had been entered into on the basis of the common assumption that the parties were married to each other.
2) Mistake regarding the quality of the subject matter
If the parties to the contract are not mistaken regarding the subject matter of the contract but regarding its quality, the contract would be said to be valid.
In the case of Smith vs Hughes(1870), The plaintiff agreed to buy certain Oats from the defendant believing that they were old when in reality they were new. It was held that the defendant cannot avoid the contract on the ground that he was mistaken as to the oldness of the oats.
3) Mistake regarding the quantity of the subject matter
If both the parties to the contract are under a mistake as to the quantity of the subject matter, the agreement is said to be void.
For Example, Ankita agreed to buy a car from Prankur based on his letter in which the price mentioned was 50000 instead of 5 lakhs due to a typing error. The said agreement is considered void due to a mistake as to the quantity of the subject matter.
4) Mistake regarding the title of the subject matter
Sometimes the buyer of said property or good may already be the owner of what the seller wishes to sell. Both the parties here might be under a mutual mistake as to the title of the said good or property. Since in such a case there is nothing that the seller can transfer, there is no contract which subsequently becomes void. This can be explained in the case of Cooper v Phibbs(1867).
2) Unilateral Mistake -section 21
Section 21 of the act says that a contract cannot be said to be voidable just because one of the parties to the contract was under a mistake as to a matter of fact concerned to the contract. Therefore a unilateral mistake does not affect the validity of the contract and cannot be a ground for setting aside the contract in the court of law.
In the case of Tapline Vs Jainee(1880), The buyer at an auction brought a property described with reference to a plan. The buyer was under the assumption that he was well versed with the property and therefore did not refer to the plan. Later he discovered that a garden plot which he thought was a part of the property was not in fact included in the plan. It was held that the buyer cannot revoke the contract on the grounds of the unilateral mistake made by him and was bound by the contract.
Exceptions to a Unilateral Mistake
In case of a unilateral mistake, the contract can only be avoided if it is proved that the contract was caused due to fraud or misrepresentation on the part of one of the parties to the contract.
1) Mistake by one party as to the nature of the contract
When a mistake is made by one of the parties regarding the very nature of the contract being entered into and such a mistake is known to the other party, such a contract is said to be void.
This may happen because while executing a contract, a party may not understand the nature of the contract he is entering into either due to fraud or misrepresentation by the other party or due to the old age or ill health of the person consenting to such a contract.
In the case of Dularia Devi v. Janardan Singh(1990), An illiterate woman put her thumb impression on two documents thinking that both of them were to gift some property to her daughters. Later she discovered that the second document was to defraud her out of more of her property. Although this was a unilateral mistake on the part of the illiterate woman yet since the consent for the said agreement was gained by fraud and the woman was not aware of the nature of the transaction, the contract was held void by the courts.
2) Mistake by one party regarding the identity of the parties to the agreement
Generally, the identity of the parties entering into an agreement is not essential to a contract. But in certain cases, when a unilateral mistake is made regarding the identity of the parties to the agreement due to misrepresentation by one party who claims himself to be someone who he really is not, In such cases the agreement is said to be void
In the case of Cundy v Lindsay (1878), Lindsay & Co were manufacturers of linen handkerchiefs amongst other things who received an order of 250 Dozen handkerchiefs from a man named Blenkarn, who imitated the signatures of “Blenkiron & Co.” a reputed firm located at “123, Wood Street”.The man further mentioned his address to be at 37, Wood Street, Cheapside. Lindsay and Co assumed that the order was from the reputed firm located at Wood-street and thus delivered the order. Later the man sold the goods to an innocent party, Cundy. When Blenkarn failed to pay for the said order Lindsay & Co sued Cundy for the goods. Lindsay and Co claimed that since they sold the goods to Blenkarn under the mistaken assumption that they were selling it to Blenkiron & Co, there was no real consent to the contract of sale.
It was held that there was a unilateral mistake by the claimants regarding the identity of the other party making the contract void and hence the title of the goods did not pass to Blenkarn, and therefore could not have passed to Cundy who was liable to return the goods back to Lindsay and Co.
The validity of a contract is hindered when consent is gained due to a mistake by the parties. As discussed, a mistake can be of two types, Mistake of fact and Mistake of law. When consent to a contract is gained due to a bilateral mistake of fact, the contract is said to be void but when the mistake occurs due to a unilateral mistake of fact, the agreement is valid except in the cases of mistake regarding the nature of the contract or identity of the parties to the contract. Similarly, when consent to a contract is gained due to a mistake of the Indian law it is a valid contract but if it is due a foreign law by both the parties, the contract is said to be void.