There are two types of mistakes in the Indian Contract Law, 1872-
- Mistake of Fact
- Mistake of Law
Both hold different liabilities and are different in their own sense. Mistake comes under free consent which is defined in Section 14 of the Indian Contract Act[1]. Mistake violates free consent although it may not be anyone’s fault as it is a mistake. There is a misunderstanding between the parties who are in a contractual relationship. Moreover, the Latin term consensus ad idem stands for the meeting of the minds which is missing in mistake. Mistake either makes a contract voidable or void.
Table of Contents
Mistake of Fact
Mistake is defined in sections 20-22 in the Indian Contract Act. Mistake of fact can be understood as a misunderstanding between both the parties or simply a misunderstanding on part of one party. On similar lines of thought, there are two types of mistake of facts. These are-
Mutual or Bilateral Mistake
This mistake is caused when both the parties are under the wrong assumption about a fact essential to the contract. It is defined in Section 20 which states-
“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.”[2]
The contract is held to be void when both the parties do not have consensus ad idem. There are some essential which should be kept in mind while looking at Mistake of Fact- Bilateral Mistake:
- The mistake has to be both ways i.e. both the parties must be involved and must have misunderstood the facts.
- The mistake should be related to the facts of the agreement.
- The mistake should be quite relevant or should form the subject matter of the agreement.
The mistake that has occurred on account of both the parties should be of crucial nature to the agreement. If it is irrelevant to the agreement, it would not make much of a difference.
Under Bilateral Mistake there are four sub-classifications as to the mistake of facts pertaining to the subject matter of the contract.
When the Mistake is due to Quantity of the Subject Matter
When the mistake occurs on account of both the parties and is due to the quantity or the number of the subject matter of the agreement, the contract becomes void.
Illustration: A and B enter into a contract where A sells to B 50 bedsheets. But unknown to A and B there are only 25 bedsheets left in A’s warehouse and rest were sold. This agreement will be void.
When the Mistake is due to Quality of the Subject Matter
When the subject matter differs on its quality, it is upon the adjudicator to decide whether the contract shall stand or not.
Illustration: X sells to Y a horse whom X believed was for Y’s leisure purposes but it was in fact for Y’s horse racing. There has been a mistake regarding the quality of the subject matter and hence, the contract is void.
Case: In the case of Smith v. Hughes[3], the plaintiff bought some oats from the defendant on the account that he thought they were old oats but in reality, they were new. The plaintiff filed a suit against the defendant; it was held that the contract cannot be avoided and it is valid.
When the Mistake is regarding the Existence of the Subject Matter
Both the parties may have contracted regarding a subject matter which in question does not even exist and both parties are unaware of the situation.
Illustration: A and B enter into a contract where A sells his house in Mumbai to B and B agrees to pay Rs. 70,000 to A for the same. Unknown to both, A’s house in Mumbai burned down two hours ago. So, the subject matter of the contract does not exist.
When Mistake is due to Performance
This mistake occurs when both the parties do not know the impossibility of performing the said thing in the contract. Performance plays a huge part in the completion of the contract. Thus, the contract is void, if it is impossible.
Illustration: X and Y enter into a contract that X shall paint a portrait of Y. Y dies before X can start the painting. Hence, due to physical impossibility, the contract is void.
https://effectivelaws.com/rbi-act-1934/
When Mistake is due to the Price of the Subject Matter
When the price of the subject matter has been undervalued or there has been a misunderstanding due to the amount of the subject matter.
Illustration: A sells to B a plot of land at Rs. 1200 per sq. feet. But in the market the price is Rs. 1500 per sq. feet. Herein, there has been a mistake due to the price of the subject matter.
Unilateral Mistake
A unilateral mistake is a mistake on the part of only one party in the contract. It is defined in Section 22 of the Indian Contract Act, 1872. It states-
“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.”[4]
The contract is not voidable merely based upon the fact that one party did not understand the facts. There are certain exceptions related to the same.
When Mistake is due to Identity
When there is a mistaken identity of a contracting party then the contract may be held as void.
Illustration: A contracts with B to sell his pen over the telephone. C meets A, whom A thinks to be B, and gives him his pen that A promised to sell to B. Here, the contract would be void as A thought he was contracting with B but in fact it was C.
Case: In the case of Cundy v. Lindsay[5], Lindsay and Co. sold some handkerchiefs to Blenkarn who was mistaken for a company called Blenkiron and Co. as his signature was close to the company’s name. Blenkarn sold those handkerchiefs to Cundy and Blenkarn failed to pay the amount to Lindsay and Co. Lindsay and Co. filed a suit wherein they stated that they never intended to sell the handkerchiefs to Blenkarn and thought he was from the company Blenkiron and Co. This was upheld and the contract was declared as void.
When the Nature of the Contract is not Clear
When one contracting party is not clear as to what the contract is for, the contract can be held void.
Case: In the case of Dularia Devi v. Janardan Singh[6], the plaintiff was illiterate and she was made to put her thumb impression on two documents which she thought were her property papers as a gift to her daughters. However, the second document contained provisions which took more out of her property through fraudulent means. As this was a unilateral mistake, it should not have been voidable but the element of fraud made it possible to declare this contract as void.
Mistake of Law
Ignorantia juris non excusat is a Latin term which translates to ‘the ignorance of law is no excuse’. Section 21 of the Indian Contract Act, 1872 defines mistake of law as-
“A contract is not voidable because it was caused by a mistake as to any law in force in 1 [India]; but a mistake as to a law not in force in [India] has the same effect as a mistake of fact.”[7]
Mistake of law cannot be excused as one cannot plead that they did not know the law about the relevant subject matter. Although there is an exception to the same.
When the Mistake is not regarding a Law in India
When the mistake is regarding a foreign law then the contract can be held as void. As Section 21 states that any mistake of law not in force in India shall be treated as a mistake of fact which makes it void. Therefore, in an instance where both the parties have misunderstood a foreign law, it shall be excusable.
Illustration: A and B enter into a contract where A sells his house to B. A and B both are from different countries. But according to A’s country laws, he cannot sell his house to a person from another country. Thus, the contract is avoided.
Conclusion
Mistake is a misunderstanding between the two contracting parties; it simply means that there is no consensus ad idem or meeting of the minds between the two parties. In such cases, where both the parties are under mistake, the contract is avoided by rendering it void. In cases where only one party was under mistake of fact, the contract is not void. In cases of mistake of law, the contract cannot be avoided based on the fact that there was ignorance of law.
REFERENCES
- The Indian Contract Act, 1870 (Act 9 of 1982).
- The Indian Contract Act, 1870 (Act 9 of 1982), s. 20.
- (1870) LR 6 QB 597.
- The Indian Contract Act, 1870 (Act 9 of 1982), s. 22.
- (1877-78) LR 3 App Cas 459.
- 1990 SCR (1) 799.
- The Indian Contract Act, 1870 (Act 9 of 1982), s. 21.
BY MANASVITA TEJSI | RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PATIALA