Mistake under Indian Contract Act, 1872

By Disha Bhardwaj 20 Minutes Read

Section 10 of the Indian Contract act 1872 lays down that 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, and are not expressly declared to be void.

Here in the definition of contract, the factor of free consent is what covers the concept of mistake, which is provided in chapter II, section 14 (5) of the act. Although the term mistake is not exclusively defined in the act anywhere, it is understood as an element of misbelief or an erroneous belief. If a contract is executed under the presence of a mistake on part of either or both parties, it affects the validity of such a contract.

Furthermore, mistake is divided into two broad categories:

1. Mistake of law
2. Mistake of fact

Mistake of law

Section 21 of the Indian Contract Act, 1872 provides that 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.

It essentially means that when a party enters a contract based on misunderstanding or ignorance of the law that prevails in India such an act of mistake would not amount to be an excuse that would affect the validity of the contract and it would assume existence as is. It is based on the Latin maxim “ignorantia juris non excusat” which means that ignorance of law is no excuse, as every individual is deemed to know the law as a basic tendency.

The above explanation can be put into practice through the following illustration, if an individual ignores the speed limits that are projected through boards on the roadside and continues to drive past that limit, he will be punishable under section 183 of the motor vehicles act and cannot upon the imposition of such liability claim that he was unaware of such restrictions.

Second component in section 21 provides an exception to the above principle and lays down that unlike under the case of mistake of Indian law where the contract is not voidable, if an individual enters into a contract under the impact of mistake of a foreign law such an act can be treated as an excuse as laws differ considerably from place to place, country to country and an individual cannot be expected to be well versed with the laws prevailing miles away in a foreign land.

For instance, an Indian company signed a contract to export a certain drug to Canada, the drug contained 40% of acid concentration but the law of Canada permits usage of drugs only with 33% of acid concentration. The Indian company can be granted an excuse in such a case as what may be permitted in one land may be prohibited in other land out of the knowledge of the doer.

Mistake of fact

Mistake of fact occurs when the parties to contract have an incorrect belief regarding the subject matter that forms the fundamental of the contract. Mistake of fact can render a contract void or voidable depending on the conditions. Section 20 and 22 of Indian Contract Act, 1872 deal with bilateral mistake and unilateral mistake respectively.

Bilateral mistake

Section 20 provides that the agreement is void if both parties are under mistake as to the matter of fact essential to the agreement. It is based on the maxim “ignorantia facti excusat” which translates to ignorance of a fact is an excuse which means that if both the parties believe something to be true but it does not actually translate to reality then, the parties may be excused in such a case. This is based on the principle that since there was a lack of consensus ad idem which means meeting of the mind or the existence of differentiation among the parties, there is no contract to begin with. Illustration – There are two individuals A and B, A has two cars one is a sedan the other is a SUV, A and B make an agreement that A will sell off his car to B. In similar context, A believed to be selling his sedan while B believed to buy his SUV. Since the situation reflects a clear differentiation among the thoughts of the two, both are at fault, so the agreement stands void.

Essentials:

1. Mutual mistake: As the term, bilateral itself suggests the involvement of two parties, it is a crucial feature that both the parties are at fault simultaneously that is a mutual misconception must be there, if only one of the parties to contract is at fault due to mistake it will be considered as a unilateral mistake which does not fall under this provision.

2. Mistake of fact: There should be essentially a mistake of fact that is related to the subject matter of the contract, a mere assertion of opinion cannot be pursued as a fact as opinion is produced by employing the faculties of one’s own brain and its understanding whereas a fact exists in comparatively concrete form.

In the case of Bisset v. Wilkinson[1], there was a contract between two individuals regarding the sale of a land, at the time of making the sale the seller asserted that the capacity of the land was to accommodate 2,000 sheep but when later the buyer occupied the space, he found out that the land was not actually capable of carrying those many cattle and he sought the contract to be revoked. But the court held that since it was merely an expression of honest opinion of the seller, no mistake of fact was involved and the contract assumes force.

3. The fact must be essential: The fact that has been mistaken shall be essential in nature so much that the contract without it cannot be executed, if it is minute and can be accommodated or compromised with it would by no means affect the contract. As in the previous illustration A wanted to sell his sedan while B was eyeing the SUV, the entire structure of the vehicles differs and hence the fact is crucial to the execution of the contract. However, had A owned two of the same vehicles with the difference that one has a music system and the other does not, in that case if they mistakenly assumed the execution of the contract in different contexts, the fact is rather not considerably crucial in nature.

Application

1. Nonexistence of matter: If at the time of entering into a contract the subject matter is present but before its execution it ceases to exist, the contract perishes and becomes void. In the case of Galloway v. Galloway[2], where a couple believed they were married and made a separation agreement, but it was later discovered that the man had another wife alive. The separation agreement was also considered void because it was based on the assumption that the parties were married.

2. Lack of consensus: It is important to establish consensus ad idem among the parties to pursue the contract in similar view for it to be executed. If a contract lacks the meeting of minds of the parties it becomes void since it would be difficult to translate the contract into reality.  

3. Difference in quality of the matter: If there is a difference in the attributes of the subject matter such as quality the contract cannot be voided upon such discovery. In the case of Leaf v. International Galleries[3], Mr. Leaf purchased a painting from a gallery which represented it to be the creation of a famous artist; however, years later he discovered it was not a genuine piece and sought to rescind the contract to get his money back. The court however decided in favour of the gallery and determined the case based on two principles, first lapse of time and second that the nature of mistake was not weighed enough to be able to hold the contract void.

4. Title of matter: Sometimes, the buyer of said property or goods may already be the owner of what the seller wishes to sell. This type of mistake is known as “res sua,” where a person attempts to deal with property they already own.

Both the parties here might be under a mutual mistake as to the title of the said good or property. Since in such a case there is nothing that the seller can transfer, there is no contract which subsequently becomes void. This can be explained in the case of Cooper v Phibbs[4], Mr Cooper had leased a fishery from his uncle, upon his death cooper assumed the ownership transferred from his uncle to his cousin and renewed the lease by discussion with the latter. However, it later emerged that the ownership got disposed of by Cooper himself. In this case the court held that the contract was voidable, not void, due to a mutual mistake regarding the title of the property. Both parties believed the cousins owned the fishery, while in reality, Cooper had a beneficial interest.

Unilateral mistake

Section 22 of Indian Contract Act, 1872 elaborates unilateral mistake, when a contract is caused by the mistake of one party as to the matter of fact and the other assumes conduct and fulfills the terms as required the contract is not voidable at the option of the former. The contract remains to be perfectly valid and the party at mistake of the fact cannot demand an excuse by taking benefit of their own wrong.

In the case of Ayekpam Angahal Singh v. Union of India[5] an auction was held for the sale of fishery rights; the plaintiff made the highest bid of 40,000 and won the ownership on the strike of the hammer. But the rent was originally meant to be paid annually for the period of three years but the bidder mistook the amount of the bid to be the entire payment for the total period. It was held that since the mistake was unilateral, the contract was not affected and thereby could not be avoided.

In the case of Tamplin v James[6], the defendant decided to purchase an inn and its associated buildings, he mistook an adjacent garden to be the part of the property which he later learned did not form the part of its extent and raised the matter against the seller for misrepresentation. The court decided that there was no misrepresentation carried out by the seller and it was a mistake on the buyer’s part as he failed to examine the boundaries of the property as reflected in the plans carefully, it was observed that a party to a contract cannot… escape specific performance by simply swearing that he did not understand it.

Application

When put into practice there are certain instances where by the means of a party acting under the mistake of fact the contract does not retain validity as in standard cases, the exceptions are

1. Mistake regarding nature of the contract: This excuse is granted on the basis of the maxim non est factum which is a defence in contract law that allows a signing party to escape performance of an agreement which is different from what he or she intended to execute or become a signatory to , this may happen when the party may not understand the nature of the contract due to misrepresentation , fraud induced by the other party or due to factors such as old age , ill health , illiteracy of the consenting party and renders the contract void .

In the case of Dularia Devi v. Janardan Singh[7], an illiterate woman put her thumb impression on two documents thinking that both of them were to gift some property to her daughters. Later she discovered that the second document was to defraud her out of more of her property. Although this was a unilateral mistake on the part of the illiterate woman, since the consent for the said agreement was gained by fraud and the woman was not aware of the nature of the transaction, the contract was held void by the courts.

2. Mistake regarding the identity of another party: When a mistake is made regarding the identity of the parties to the agreement due to misrepresentation by one party who claims himself to be someone who he really is not, in such cases the agreement is said to be void.

In the case of Cundy v Lindsay[8], Lindsay & Co were manufacturers of linen handkerchiefs who received an order of 250 dozen handkerchiefs from a man named Blenkarn, who imitated the signatures of “Blenkiron & Co.” a reputed firm The man further mentioned his address to be similar to that of the misrepresented firm. Lindsay and Co assumed that the order was from the reputed firm and thus delivered the order. Later the man sold the goods to an innocent party, Cundy. When Blenkarn failed to pay for the said order Lindsay & Co sued Cundy for the goods. Lindsay and Co claimed that since they sold the goods to Blenkarn under the mistaken assumption that they were selling it to Blenkiron & Co, there was no real consent to the contract of sale. It was held that there was a unilateral mistake by the claimants regarding the identity of the other party making the contract void and hence the title of the goods did not pass to Blenkarn, and therefore could not have passed to Cundy who was liable to return the goods back to Lindsay and Co.

Conclusion

In summary, while both mistakes of law and mistakes of fact can impact the validity and enforceability of contracts, they are treated differently under contract law, with mistakes of fact more readily providing grounds for voiding or adjusting a contract. Courts balance the need for fairness with the principle that parties are responsible for understanding the terms and legal implications of their agreements. Whereas it is comparatively different in the case of a mistake of law where the excuse is not granted except for foreign law. Mistake of fact occurs when an individual misunderstands or misperceives a situation, leading to actions that would be lawful if the facts were as perceived. In contrast, a mistake of law involves ignorance or misunderstanding of the law itself, which generally does not excuse criminal behavior or negate legal obligations. While both types of mistakes can affect legal outcomes, courts often apply different standards and considerations when evaluating their impact on a case. Understanding these differences is essential for ensuring fair and just legal proceedings.

[1] [1926] AC 177.

[2] (1914) 30 TLR 531.

[3] [1950] 2 KB 86.

[4] (1867) LR 2 HL 149.

[5] AIR 1970 Manipur 16.

[6] (1880) 15 Ch D 215 (CA).

[7] 1990 AIR 1173, 1990 SCR (1) 799, and 1990 SCC Supl. 216.

[8] (1878) 3 App Cas 459.

Disha Bhardwaj