Mistake must be a “vital operative mistake “ i.e. it must be a mistake of fact which is fundamental to contract. To be operative so as to render the contract void, the mistake must be:

(a) of fact, and not of law or opinion;

(b) the fact must be essential to agreement, i.e., so fundamental as to negative the agreement; and

(c) must be on the part of both the parties.

Thus, where both the parties to an agreement are under a mistake as to a matter of fact

‘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. 

Case Law– Phillips V/S Brooks Ltd.- In this case it was held 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.

Illustration– A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away, and the goods lost. Neither party was aware of these facts. The agreement is void.

Mistakes are of two kinds:

(i) mistake of law, and

(ii) mistake of fact.

Mistake of Fact

A mistake of fact arises when one or both of the contracting parties have misunderstood a term that is essential to the meaning of the contract; Such a mistake may be done due to confusion, negligence or omission, etc A mistake is never intentional, it is an innocent overlooking. Such mistakes can be either unilateral or bilateral

Bilateral Mistake (Section 21)

When both the parties to a contract are under a mistake of fact, essential to the agreement, such a mistake is known as a bilateral mistake. Bilateral mistakes are also sometimes referred to as mutual or common mistakes. All the parties do not agree to the same thing and in the same way, which is the concept of consent. Since there is no consent, the contract is null and void.

Example

‘A’, agrees to buy a cow from ‘B’, but it turns out that the cow was dead at the time of the deal, although the fact was not known to any party. The arrangement is considered invalid.

Unilateral Mistake (Section 22)

A unilateral mistake occurs when only one party to the contract makes a mistake. The contract will not be void in such a case. It is specified in Section 22 of the Act that the contract will not be void just because one party made the mistake. So if only one party has made a mistake the contract remains a valid contract.

Example

‘A’ enters into an agreement with ‘B’ for the purchase of a horse which he assumes to be a racing horse. ‘A’ is not confirmed from ‘B’. In actuality a horse is not a racing horse. ‘A’ cannot rescind the contract.

(a)Mistake as to existence of the subject matter: Where both parties believe the subject matter of the contract to be in existence but in fact, it is not in existence at the time of making the contract, there is mistake and the contract is void.

Example

‘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.

(b)Mistake as to identity of the subject matter: Where the parties are not in agreement to the identity of the subject matter, i.e., one means one thing and the other means another thing, the contract is void; there is no consensus ad idem.

Example

‘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.

(c)Mistake as to quantity of the subject matter: There may be a mistake as to quantity or extent of the subject matter which will render the contract void even if the mistake was caused by the negligence of a third-party.

Example

‘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.

(d)Mistake as to quality of the subject-matter or promise: Mistake as to quality raises difficult questions. If the mistake is on the part of both the parties the contract is void. But if the mistake is only on the part of one party difficulty arises.

Example

‘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.

(e)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.

(f)Matter as to the performance of subject matter

Sometimes, a contract is made but during the performance of the same, we come to know that it is impossible to fulfill 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 as to Nature of the Contract

The general rule is that a person who signs an instrument is bound by its terms even if he has not read it. But a person who signs a document under a fundamental mistake as to its nature (not merely as to its contents) may have it avoided provided the mistake was due to either-

(a) the blindness, illiteracy, or senility of the person signing, or

(b) a trick or fraudulent misrepresentation as to the nature of the document.

Mistake of law

The mistake may be related to the mistake of Indian laws, or it may be a mistake of foreign laws. If the mistake applies to Indian laws, the principle is that the  law’s ignorance is not a sufficiently good excuse. This means that either party cannot claim that it is not aware of the law.

The Contract Act states that, on the grounds of ignorance of Indian law, no party can claim any relief. This will also include an incorrect interpretation of any legal provisions.

However, similar treatment is not given to ignorance of foreign law. Ignorance of foreign law provides some leeway, the parties are not expected to know foreign law and its meaning. Therefore, under the Indian Contract  Act, an error of foreign law is actually treated as a mistake of fact.

Mistake of Law can be of two types:

1. 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. 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.

2. 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.

SEC 21 Effect of mistake of law-

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 law not in force in India has the same effect as a mistake of fact. Grant v. Borg– In this case, the person was not knowing the clauses of the Immigration Act 1971, for staying beyond the time by the leave. Here, he cannot apply for defense under the mistake of law.

SEC 22-

Contract caused by mistake of one party as to matter of fact- A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact. The State of Maharashtra v. Mayer Hans George– In this case, 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 bonafide intention as a defense in the mistake.

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.

Conclusion

All agreements are contracts if they are made with the free consent of parties who are legally able to enter into contracts, for a legitimate consideration, and with a lawful intent, according to Section 10 of the Indian Contract Act, 1872. The Indian Contract Act’s Section 14 states that, “Subject to the provisions of Sections 20, 21, and 22, consent is deemed to be free where it is not the result of error.” There are two different kinds of errors: legal errors and factual errors. Mistakes in fact are acceptable justifications for failing to fulfill contractual obligations, while mistakes in law are not acceptable justifications.