This article has been written by Diva Rai, a student of Symbiosis Law School, Noida. In this article she discusses Section 21 of the Indian Contract Act.

Introduction

There may be two kinds of mistake- mistake of law, and mistake of fact. The exact demarcation between law error and factual error is often blurred and hard to determine. For example, the position is even less clear where the parties have to act on the interpretation of private written document rather than an enactment or statutory regulation. Illustration- building a written contract is considered a matter of law, the erroneous construction of a will has also been treated as a matter of law. A mistake of law may be of ordinary law, foreign law or of private rights.

A contract is not voidable because it was caused by a mistake as to any law in force in India, but a mistake as to a law not in force in India has the same effect as a mistake of fact. Section 21 provides that a mistake of law in force in India does not make a contract voidable, but a mistake of foreign law is to be treated as a mistake of fact. Illustration– A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation, then the contract will not be voidable.

Principle

The general language of this Section represents the current doctrine at the time when the contract Act was made, namely, that relief is not given against the mistake of law. A person cannot go back upon what he has deliberately done or excuse himself from liability of wrongful act or offense, merely because he alleges that he acted under a misrepresentation of law. It is his business to know, by taking professional advice or otherwise, so much law as concerns him for the matter he is transacting. No other general rule is possible, without offering enormous temptations to fraud. But this doctrine in question is not without rather large qualifications. A mistake of law does not universally or generally invalidate transactions in which it occurs.

On the other hand, the UNIDROIT Principles equate a mistake of fact with that of law. This is justified on the ground of the increasing complexity of modern legal systems, especially when in cross-border trade, a number of legal systems may be involved. Under the Principle, mistake is an erroneous assumption relating to facts or to law existing when the contract was concluded.

Mistake as to Law

In AM Appavoo Chettiar v SI Rly Co [1], while mistake was as to the general law is no law for relief, it was stated, “ if the mistake of law is such a kins that it is mixed up with certain facts relating to a particular individual…that…a combined effect of a party’s view of the law and facts, he made a mistake at the time of entering the transaction as to the nature of his pre-existing private right, it may be said that such a mistake is not a pure mistake of law”.

The existence of particular private rights is a matter of fact, though depending on rules of law, and for most civil purposes, ignorance of civil rights- a man’s ignorance that he is heir to such and such property, for instance, is ignorance of fact. In Cooper v Phibbs [2], it was seen that a man’s promise to buy that which, unknown to him, already belongs to him is not be made binding by calling his error as to the ownership a mistake of law.

Applying the principle of this Section, where a mortgage bond provided that if the mortgagor failed to redeem the mortgaged property within eight years, the mortgagee should be the owner of the property, and the mortgagor is unable to redeem, executed an absolute transfer of the property to the mortgagor of the equity of redemption subsequent to the date of the transfer was not entitled to redeem. Even though the mortgagor might have been ignorant of his right to redeem the mortgage, notwithstanding the clause in the mortgage precluding him from doing so. This was held in Vishnu Sakharam Phatak v Kashinath Bapu Shankar [3].

An erroneous belief that the widow forfeits upon remarriage the rights of an occupancy tenant under the NWP Tenancy Act, to which she has succeeded on the death of her first husband as his heir, is a mistake of law. This was held in Sabihan Bibi v Madho Lal [4], and a contract grounded on such belief was held not voidable, though the mistake may be common to both parties. In Ghanshyam Bholaram Tamoli v Girija Shankar [5], the erroneous belief that the tribunal under a Debt Conciliation Act had jurisdiction over a non-agriculturist was held to be a mistake of law.

The Privy Council held in Seth Gokul Das Gopal Das v Murli and Zalim [6], that an erroneous belief that a judgment-debtor was bound by law to pay interest on the decretal amount, though no interest has been awarded by the decree, was a mistake of law; it was not a belief as to a matter of fact essential  to the agreement within the meaning of s 20. That such a mistake is not a mistake of fact, but one of law is abundantly clear from this case. The Lordship stated, “There was, no doubt, a mistake of law on the part of the defendants is supposing that execution could be issued for interest upon the amount decreed from the date of decree to the date of realization, no such interest having been common not only to the plaintiff and the defendant but also to the Court which made the order of attachment”.

In Ram Patti Devi v Board of Revenue [7], it was stated that if the law does not permit the alienation of sirdari interest, the same cannot be permitted merely because the alienation was under a mistake of law and the purchaser had paid full value for such interest under that mistake. Misrepresentation, especially willful misrepresentation, of a matter of law, may be ground for avoiding a contract under subsection 17 or 18.

Mistake of Fact

Failure to do so is a ground for avoidance in contract law. However, it should be added that the court has never clearly defined the distinction between factual errors and law errors. Illustration- A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.

In Waugh v Bussell, where a written contract contained a mistake apparent on its facts namely “one pound” for “one hundred pounds” the contract was construed in accordance with the real intention. Such cases are dealt with by courts by rectifying or reforming the contract so as to express the true intention and where this is not possible by directing the cancellation of the contract.

A common error is used to refer to cases where the parties are genuinely agreed but mistaken as to some fundamental facts relating to the agreement, for example where the parties are unaware that there was no subject of their agreement. Traditionally, such errors are referred to as mutual error. That apart from the term common error may refer to the frequent occurrence of the error rather than the fact that it affects both parties to the agreement. In such a case, perhaps the term’ bilateral’ might be more appropriate.

In State Industrial & Investment Corporation of Maharashtra Ltd v Narang Hotels (P) Ltd. [8], the State Industrial and Investment Corporation of Maharashtra entered into a contract with the defendant to grant subsidies for the establishment of a hotel project under the Central Industrial Subsidy Scheme and advanced a sum of Rs. 6,59,700/-. The plaintiff corporation subsequently sought to cover the same with the interest on the ground that the defendant and the plaintiff committed an error of law in interpreting the Central Subsidy Scheme and assumed that the hotel industry was an Industrial Unit. The court held that there could be at least two views on interpretation and roof burden on the complainant to prove they made payments as a result of an error. Since the burden was discharged, the complainant was unable to seek a refund or refuse to pay the balance.

Mistake as to Foreign Law

As regards the second clause of the section, Indian jurisprudence has adopted the rule of the common law that foreign law is a matter of fact, and must be proved or admitted as such, though the strictness of the rule about proof has been somewhat relaxed by the Indian Evidence Act, 1872. Accordingly, the statement of finding of any foreign law on which the court proceeds in a given case is no more binding on the court in any future case, even apart from the possibility of alteration in the law in question, than any other determination or assumption as to matters of fact.

Relationship of Contract

In Pravin s/o Jethalal Kamdar v State of Maharashtra [9], the plaintiff sold the property to the government after permission was denied to him under s 27(1), of the Urban Land (Ceiling and Regulation) Act 1976, to sell the same to a prospective purchaser. The Supreme Court later struck down this section in Bhim Singhji v Union of India [10]. The plaintiff thereafter sought repossession of the said property. The government alleged inter alia that the sale being effected under a mistake of law, was not affected. It was held that s 21 would not apply, because, although the sale was effected, it was done under compulsion, and in pursuance of the pre-emptive right enjoyed by the government under that Act.

Sections 21 and 72

Section 72 enables a refund of monies paid under a mistake, including a mistake of law. But where a contract is the result of mistake of law of both parties, any sum of money paid under the contract falls under s 21 and not s 72. In Dhanya Lakshmi Rice Mills v Commissioner of Civil Supplies [11], the petitioner had paid monies to the government as administrative charges for obtaining permits, of which it claimed a refund under s 72 of the Contract Act, pleading mistake of law. While refusing relief, the Supreme Court stated, “if a party under mistake of law pays to another money which is not due under a contract or otherwise, that is to be paid. When there is a clear and unambiguous rule of law which entitles a party to the relief claimed by him, equitable considerations cannot be imported. A contract entered into under a mistake of law of both parties falls under s 21 and not s 72. If a mistake of law had led to the formation of a contract, s 21 enacts that the contract is not for that reason, voidable. If money is paid under that contract it cannot be said that the money was paid under a mistake of law, it was paid because it was due under a valid contract, and if it not been paid, payment could have been enforced.”

Thus, there is no conflict between s 72 on the one hand and ss 21 and 22 on the other. A contract made under a mistake of law of parties falls under s 21 and not under s 72 of the Contract Act and s 72 deals with cases where money is paid by a mistake or under coercion. A contract giving a person the right to pluck and gather kendu leaves was not void on the ground that there was a mutual mistake as to the law by which the tenants have the right to gather the leaves and sell to whomsoever they pleased, and this law was known to both sides. This governed by s 21 and not by s 72.

Performance of Subject Matter

The performance of the subject matter can be classified as two types. They are:

Physical Impossibility: When the subject matter is destroyed the contract becomes impossible to perform and it amounts to the physical impossibility of performance and the contract is void.

Legal Impossibility: When a war like situation arises between two trading countries then it becomes legally impossible for the countries to perform the contract and it becomes void.

References

1. AIR 1929 Mad 177.
2. [1861-73] All ER Rep 2109.
3. (1887-88) ILR 11-12 Bom. 115.
4. (1907) All WN 197.
5. AIR 1944 Nag 247.
6. (1878) ILR 3 Cal 603
7. AIR 1973 All 288
8. AIR 1995 Bom 275
9. AIR 1996 Bom 280
10. 1985 AIR 1650
11. 1976 AIR 2243