Contract Act 1872-Free Consent - Mistake

By Asok Nadhani

5.2 Mistake

i.      Unintentional act : Mistake is some unintentional act, omission or error, arising from ignorance, forgetfulness etc.

ii.    Agree on same sense : In a contract, the parties should agree on a matter in the same sense. Thus, if two persons enter into a contract, each of them thinking about a subject in different manner, no contract shall come into existence. As a result, a mistake may result in a void agreement.

5.2.1 Legal consequences of Mistake

Mistake may arise due to 2 reasons:

  i.    Mistake of Law of land: A Party cannot plead ignorance of any law of the land and so cannot avoid a contract on such ground. So a contract is valid even if any of the party has committed mistake being ignorant of some law of the land.

Ex. X and Y made a contract on erroneous belief that a particular debt is time barred by Indian Law of Indian Contract is valid and not voidable.

ii.    Mistake of Fact: When either or both parties are under a mistake of foreign law or mistake of a fact essential to the agreement:

a.     Bilateral Mistake of fact (sec. 20): Bilateral mistake arise when both parties make mutual mistake to a matter of fact essential to the agreement.

Ex. A sold some land to B. At the time of sale both parties believed in good faith that the area of the land sold was 10 hectares. It. however, turned out that the area was 7 hectares only. It is a case of Bilateral mistake and the agreement is void.

Bilateral Mistakes are of two types:

i.      Bilateral Mistake as to the Subject Matter : Where both the parties to an agreement make mistake relating to the subject matter (e.g., existence, identity, quantity of, quality of, title of, price of subject matter).

ii.    Bilateral Mistake as to the impossibility of performance - If both the parties believe that the contract is capable of being performed but in real condition it is impossible to perform, the contract is void on the ground of impossibility of performance.

The agreement under Bilateral Mistake is void (however, an erroneous opinion as to value of a thing is not considered as mistake of fact).

b.    Unilateral Mistake of fact (sec.22): Unilateral mistake arises when only one party is mistaken. Such contract is neither void nor voidable unless it is brought about by the other party’s fraud or misrepresentation.

Ex. A contracted with B for the erection of several houses. In calculating his price for the houses, A by mistake deducted a particular sum twice over. B signed the contract which correctly represented its intention. The contract is valid. It is unilateral mistake with no intention to fraud or misrepresentation.  

c.     Exceptions in Unilateral Mistake of Fact

Fundamental mistake : Though normally a unilateral mistake cannot be considered as a defense to avoid a contract, if the consent is given under a fundamental mistake going into the root of the agreement, such unilateral mistake makes the contract void, in following cases:

i.      Mistake in the identity of the person contracted with : Mistake in the identity of the person contracted with, if the identity of the party is essential and important to the contract (and not other attribute of the person).

Ex. B places order for various stationery supplies to S, his usual supplier. Unknown to B, S had sold his business to T. T sends the stationery to B, B upon discovering the facts, refuses to accept the stationery. T must take back the stationery as there is no contract between T and B ; B never Intended to enter into a contract with T.  

ii.    Mistake in nature of contract : Mistake in nature of contract, when there is mistake in essence of the contract.

Ex. A, an old man of feeble sight, signed a bill of exchange thinking it was a guarantee. The contract is void because the mistake is of essential fact.

5.2.2 Distinction between Unilateral and Bilateral Mistake

The distinction between unilateral mistake and bilateral mistake is as follows:

Unilateral Mistake	Bilateral Mistake
When only one party to a contract is at mistake.	When both the parties to a contract are at mistake.
The contract is not void or voidable. However, the agreement shall be void if the unilateral mistake relates to the identity of the person contracted with or as to the nature of contract.	In case of a bilateral mistake, the agreement is void.

For more details, refer to Mercantile law, by Asok Nadhani, BPB Publications, www.bpbonline.com, bpbpublications@gmail.com