mistake under Contract Act
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This article is written by Gauraw Kumar, a 2nd-year student of BVP-New Law College, Pune. In this article, he covers concepts of “Mistake” and its essential in the Indian Contract Act, 1872.

Introduction

‘Mistake’ in general meaning is something that does not work out in search of a solution. Word ‘Mistake’ is used interchangeably with ‘error’. In law, misunderstanding or erroneous belief about a material fact may prevent the formation of a valid contract. According to Section 10 of the Indian Contract Act 1872, Free consent of parties is an essential element of any contract. Section 14 of the Indian Contract Act states that ‘Free consent means consent not caused by coercion, undue influence, fraud, misrepresentation and mistake’.

A mistake means ‘believe in those things which do not exist in reality’. Thus, the mistake is an erroneous belief. 

Definition of Mistake

‘Mistake’ is not defined in the Indian Contract Act. Section 20, 21 and 22 deals with the concept related to mistake. ‘Mistake’ can be defined as any action, decision or judgement that produced an unwanted and unintentional result. A Mistake is said to have occurred where parties intending to do one thing by error do something else. Phillips v. Brooks Ltd is an English contract law case concerning mistake. It was held in this case that a person is deemed to contract with the person in front of them unless they can substantially prove that they instead of them intended to deal with another person.

Types of Mistake

A mistake is of two types:

  • Mistake of Law,
  • Mistake of Fact.

Mistake of Law

Mistake of Law means any contract which is performed by parties without knowing the law (or by ignoring the law), which is essential for that contract. Section 21 of the Indian Contract Act deals with ‘effect of mistake as to law’.

Grant v. Borg

In this case, the person was not knowing the clauses of the Immigration Act 1971, for staying beyond the time limit by the leave. Here, he cannot apply for defence under the mistake of law.

Mistake of Law can be of two types:

  • Mistake of Indian Law: “Ignorantia Juris non excusat” is a Latin maxim which means “Ignorance of the law is not excused”. If a person takes part in a contract without knowing any specific provisions of Indian Law (which is essential for that contract), then Contract is not voidable because everyone is supposed to know the law of his country. For example: According to the provisions of Indian law, we have to recover the amount of loan within 3 months from the due date, after that time-barred debt is imposed. Now if we do not show any interest in the recovery of loan amount during these 3 months because of not knowing the law (mistake of law), then we can not take it up as an excuse or defence.

A and B make a contract grounded on the erroneous belief that a specific debt is barred by the Indian Law of Limitation, then the contract is not voidable.

A murdered B, A cannot apply for the defence of mistake of law that is; he was not aware of law related to the murder.

  • Mistake of Foreign Law:- If a person takes part in a Contract without knowing any specific provisions of Foreign Law (which is essential for that contract), then that mistake is treated as a mistake of fact i.e, the contract is void if both the parties under a mistake as to a foreign law because one can not be expected to know the law of other foreign countries.
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Mistake of Fact

Mistake of fact means any contract which is performed by parties without knowing any material fact (or ignoring the fact), which is essential for that contract. Section 20 and 22 of the Indian Contract Act deals with ‘Mistake of Fact’. Mistake of Fact is of three types: Bilateral mistake, Unilateral mistake and Common mistake.

In the case of  The State of Maharashtra vs Mayer Hans George, A is an officer of the court and he is ordered to arrest Y. A arrests Z by mistake, as he believes Z is Y. Here, A can take the base of bona fide intention as a defence in the mistake of fact.

Bilateral Mistake

According to Section 20, “Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void”. In simple words, if parties are involved in an agreement without knowing any essential facts related to the agreement, then it is considered as a Bilateral Mistake and that agreement will be void. For example- A agrees to sell to B any goods supposed to be on its way from America to Bombay. It is found that before the day of the bargain, the ship containing goods had been cast away and the goods were lost. But, neither party was aware of these facts. The agreement is void.

A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.

Essentials elements of Bilateral mistakes are:

(i) Both parties must be under a mistake.

(ii) The mistake must be of fact, not of law.

(iii) The mistake must be related to an essential fact.

What facts are essential in Bilateral Mistake?

Now, It is very important to know what are the essential facts which make an agreement void. An agreement is a void where there is a bilateral mistake as to the subject matter. A bilateral mistake as to the subject matter includes the following:

  1. Mistake as to the existence of subject matter.
  2. Mistake as to the identity of subject matter.
  3. Mistake as to the quantity of subject matter.
  4. Mistake as to the quality of subject matter.
  5. Mistake as to the price of subject matter.
  6. Mistake as to the performance of subject matter.
Mistake as to the existence of subject matter

‘A’ and ‘B’ are involved in a contract to sell a horse in a specific amount. But, horse dies before the contract is performed and both the parties (A and B) are unaware of this fact that the horse does not exist. In this case, the Contract is void.

Mistake as to the quantity of subject matter

‘A’ and ‘B’ made a contract in which a transaction of 200 pens in return of some amount involves. But 100 pens are sold early by the brother of ‘A’ before the contract could be performed and both the parties (A and B) were unaware of this fact that only 100 articles do exist. In this case, the contract is void.

Mistake as to the quality of subject matter

‘A’ and ‘B’ made a contract together in which ‘A’ sold his car in return of some amount to ‘B’. They believed that the car is for racing purpose but the car was for tourism purpose. In this case, the Contract is void.

Mistake as to the price of subject matter

‘A’ and ‘B’ made a contract to sell things in consideration for some money which was not a valid amount and both the parties (A and B) are unaware of this fact. In this case, the Contract is void.

Matter as to the identity of subject matter

‘A’ and ‘B’ made a contract in which ‘A’ promise to sell his car to ‘B’. ‘A’ has two different types of car (one for racing and other for tourism purpose). Here, the real identity of the car is not clear and both the parties are thinking about different types of car. In this case, the Contract is void.

In the case of Cundy v Lindsay, it is held that contract as a mistake as a matter of identity will be automatically void. 

Matter as to the possibility of subject matter

Sometimes, a contract is made but during the performance of the same, we come to know that it is impossible to fulfil the performance of the contract. The agreement is void where there is a mistake as to the possibility of performance. Impossibility is an excuse for non-performance of a contract. Impossibility can be of two types:

  • Physical impossibility: Any performance of the contract when physically impossible, can be taken up as an excuse for non-performance of duties under a contract and contract will be void. For example- a painter made a contract with a person to paint a house but before the performance of duties, the house burns. Now, it is impossible for the painter to perform his duties under the contract. Thus, it is considered as an excuse for non-performance of duties.
  • Legal impossibility: Any performance of the contract is when legally impossible, can be taken as an excuse for non-performance of duties under a contract and contract will be void. For example- any amendment made by legislation which makes it impossible to fulfil the performance of duties under the contract.

Unilateral Mistake

According to Section 22, a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

Such a mistake does not invalidate the agreement. For example, ‘A’ and ‘B’ made a contract in which only ‘A’ was under a misbelief for any product which is in the transaction. Then, the contract is not voidable for ‘A’ and will be classified as a valid contract.

Cases in which Unilateral Mistake makes a contract void and voidable

There are a few cases which make a contract void and voidable, merely by a mistake of the fact of a one-party.

Unilateral Mistake makes a contract voidable

If any unilateral mistake is induced by fraud or misrepresentation, then the contract is voidable for that party who has done the mistake in the contract. In simple words, if ‘A’ creates such types of situations and do such types of activities in order to deceive ‘B’ and ‘B’ has also done a mistake as a result of A’s action and made a contract with ‘A’. Then, Contract will be voidable at the option of ‘B’.

Unilateral Mistake makes a contract void

Unilateral mistake makes a contract void in two cases:

  1. Unilateral mistake about the nature of Contract: If a person wants to enter a contract but he enters into an altogether different contract by mistake. For example- Suppose, any illiterate person gives thumbprint on any papers by mistake, then that contract formed because of thumbprint will be void.
  2. Unilateral mistake about the identity of the person: If ‘A’ wants to enter into a contract with ‘C’ but enters into a contract with ‘B’ by mistake. Then, the contract will be void. For example- If ‘A’ is a regular customer of ‘C’. He gives order to ‘C’ to deliver the goods. But he was not aware of the fact that ‘B’ is the new owner of the shop and he makes a contract with ‘B’ by mistake. In this case, the contract will be void.

Common Mistake

When both parties are mistaken for the facts related to the subject matter of the agreement. The court can declare the entire agreement as void in such kind of mistake. If the contract contains a small error relating to the subject matter, then there is a very less chance that the court will rule that the contract is void. If any part of the contract that does not contain a mistake is still valid.

Bell v Lever Brothers Ltd is an English contract law case decided by the House of Lords. Within the field of mistake in English law, it holds that common mistake does not lead to a void contract unless the mistake is fundamental to the identity of the contract.

Conclusion

According to Section 10 of the Indian Contract Act, 1872 ‘All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object’. According to Section 14 of the Indian Contract Act, ‘Consent is said to be free when it is not caused by mistake subject to provision of Section 20, 21 and 22. The mistake can be of two types: Mistake of law and mistake of fact. The mistake of fact is an excuse under non-performance of duties under contract but the Mistake of law is not an excuse under non-performance of duties under the contract.  

References


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