Mistake in Contract Law: An Introduction
Mistake of fact and mistake of law is provided under the Contract Act. A mistake in contract law, literally means, a mistake is a belief that is not correct that leads to one party misunderstanding the other party. In this article, we will cover, what is a mistake in contract law? And what are the mistake of fact and mistake of law in contract?
In a mistake, the contracting parties are not completely aware of the terms and conditions of the agreement and understand the terms and conditions in a different sense.
Nowhere the definition of mistake in contract law has been provided but the general meaning of mistake is any act or omission or decision which produces unwanted and unintentional results.
In the chapter on Free Consent, we learned one Latin maxim that is consensus ad idem which means the parties to the contract must agree upon the same thing in the same sense.
And, this consensus ad idem is absent in the mistake, therefore there is no meeting of minds between the contracting parties and thus they do not understand the terms and conditions of the agreement in the same sense.
Types of Mistake in Contract Law
The mistake is nowhere provided in the Indian Contract Act, but sections 20, 21, and 22 provide provisions relating to the mistake. There are two types of mistakes provided under the Indian Contract Act, 1872, These are;
- Mistake of Law (Sec. 21)
- Mistake of Fact (Sec. 20 & 22)
Mistake of Law
As we discussed, the meaning of mistake. Now, you may ask what is the meaning of mistake of law in contract law? So, if any party does not follow the provisions of law by mistake and enters into a contract. Such contracts are void. What is mistake in business law? the mistake in contract law and business law is one and the same.
There is a Latin maxim ignorantia juris non-excusat, which means ignorance of the law is not excusable.
There are two types of mistake of law can be derived under section 21 of the Indian Contract Act, 1872. These are;
- Mistake concerning Indian law
- Mistake concerning Foreign law
Mistake as to Indian Law
The mistake of law has been provided under section 21 of the Indian Contract Act, 1872. It states a contract is not voidable because it was caused by a mistake as to any law in force in India. But, a mistake of law that is not in force in India has the same effect as a mistake of fact.
Here, Section 21 states that a contract cannot be voidable due to the mistake of the contracting parties in understanding any laws or enactments which are enforced in India.
The parties to the contract cannot claim relief because they were not aware of the Indian Law or not understood the provisions of any legal provision provided under laws enforced in India.
Therefore, if there is a mistake of Indian law by both the contracting parties then the contract is not voidable i.e. bilateral mistake of Indian law is void. And, If there is a mistake of Indian law by one contracting party then the contract is not voidable i.e. unilateral mistake of Indian law is valid.
Example: A woman was travelling on the train without a ticket. And she was caught by a ticket checker (TC). As we all know, travelling on the train without a ticket is an offence. Therefore, she cannot claim that she does not know the law that travelling on the train without a ticket is an offence. This is the mistake of law examples.
Mistake as to a Foreign Law
The mistake of foreign law has been provided under section 21 and specifies that the mistake regarding foreign law shall be treated as a mistake of fact. In India, it is expected that the parties to the contract are not always aware of the legal provision of the foreign laws.
Therefore, if any person enters into a contract with a foreign country without getting knowledge of specific provisions of law that are mandatory for the performance of the contract then this mistake of foreign law is treated as a mistake of fact.
Hence, if there is a mistake of the foreign law by both the contracting parties then the contract is considered as void i.e. bilateral mistake of foreign law and if there is a mistake of foreign law by one party then the contract is considered as valid i.e. unilateral mistake of foreign law.
Example: Consider, A is an Indian company and B is American, A agreed to sell a chemical which contains 50% sulphuric acid. But, the American Government-issued ordinances that ban the chemical acid containing 25% of sulphuric acid. Hence, this is considered a mistake of foreign law, and the contract is said to be void.
Case Law: Cooper vs Phibbs 1867
In this case, the plaintiff has taken a lease of fishery right from the defendant and he was unaware of the fact he already had a life interest in the fishery right. And, the plaintiff filed a suit for cancellation of the lease. But the court held that there was a mistake of law on the side of the plaintiff, therefore the court dismissed the suit.
Mistake of Fact
The mistake of fact meaning has been provided under sections 20 and 22 of the Indian Contract Act, 1872. The agreement is said to be void where both the parties to an agreement are under a mistake as to a matter of fact that is essential to the agreement.
There is a Latin maxim, ignorantia facti excusat, which means the ignorance of fact is excusable.
The two types of mistake of fact have been provided under sections 20 and 22 of the Indian Contract Act, 1872. Let's discuss them;
- Bilateral Mistake
- Unilateral Mistake
Mistake of fact example: If A enters into a contract with B to buy B's car but at the performance of contract B's brother steals the car and both A and B are unaware of the fact. Therefore, both the parties to the contract are under mistake as to the matter of fact and hence, the contract is void.
Bilateral Mistake
The bilateral mistake meaning has been provided under section 20 of the Indian Contract Act, 1872. 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.
Section 20 states that the bilateral mistake of fact is applied when the following conditions are fulfilled;
- The mistake of fact must be committed by both the parties to an agreement,
- The mistake as a matter of fact and not mistake of law
- The mistake of fact must be in relation with the essential to an agreement.
Types of Bilateral Mistake
Types of bilateral mistake have been given under as;
1. Mistake as to the existence of the subject matter
When the subject matter of an agreement is essential in a contract and if the subject matter of the contract is not in existence before the agreement was made by the parties may not be aware of the non-existence of the subject matter then it is considered as the contract has been perished and hence the agreement would be void.
Example: A man marries a woman and later some time they are willing to separate from each other and fill a suit for divorce but during the proceeding, it was discovered that the man's first wife was alive. It was held that the divorce petition was void because the man was already married and the second marriage was null and void. This is a bilateral mistake example.
2. Mistake as to the quality or quantity of the subject matter
If the contracting parties are not mistaken regarding the existence of the subject matter but with regarding the quality or quantity of the subject matter then the said contract is said to be void.
Example: A want to buy 10 iPhones and made a contract with B to purchase 10 iPhones, but B's brother X sold 2 iPhones and they only remain 8 iPhones. Both parties A and B are not aware of the fact that only 8 iPhones do exist. So, in this case, the contract is void.
3. Mistake as to the title of the subject matter
Sometimes, the buyer wants to purchase the goods or property from the seller but he may be already the owner of that property or goods and he does not aware of the fact. Here, both the parties are under a mistake about ownership of the said goods or property. Since the seller is not the owner of that said property so he cannot sell or transfer the said property and the contract becomes void.
4. Mistake as to the price of the subject matter
In some contracts, the parties are not aware of the actual price of the subject matter. And, the parties are making a contract with an invalid amount of the subject matter then the contract is considered void.
Example: A made a contract with B to purchase his bike for some money which is not a valid amount of that bike and both parties are unaware of the actual market price of that bike. In this case, the contract is void.
5. Mistake as to the identity of the subject matter
The identity of the subject matter must be clear to the contracting parties. If the identity of the subject matter is not clear then the contract is considered void.
Example: A wants to buy a car from B for a certain price. B agrees on the same. But, B has 3 cars and they have not decided which car A wants to buy. So, here the subject is unclear and the contract is considered void.
6. Mistake as to the possibility of the subject matter
If the parties to the contract enter into a valid contract but at the performance of the contract they come to know that the performance of the contract is not possible. Hence, the contract is said to be void as both the parties are under mistake as to the possibility of performance of the contract.
Impossibility of performance can be of two types;
a) Physical Impossibility - When any performance of a contract when physically impossible to perform then there is no valid contract.
b) Legal Impossibility - When any performance of a contract when legally impossible to perform then there is no valid contract.
Unilateral Mistake
What is a unilateral mistake in contract law? so the meaning of unilateral mistake has been provided under section 22 of the Indian Contract Act, 1872. It means a contract is not said to be voidable merely because it was caused by one of the parties to contract to it being under a mistake as to a matter of fact.
In the unilateral mistake of fact, one of the parties is under a mistake as to the matter of fact. And, the unilateral mistake does not affect the validity of the contract. This is the unilateral mistake example.
A unilateral mistake of fact makes a contract voidable under the following exceptions;
Exceptions to the Unilateral Mistake
1. Mistake by one party as to nature of the contract
When a mistake of fact is made by one contracting party regarding the nature of the contract being entered into and such a mistake is known to the other party, such a contract is said to be void.
Example: If an illiterate person gives a thumbprint on a blank white paper by mistake and if in this situation the contract formed with an illiterate person, then the contract is said to be void.
2. Mistake by one party regarding the identity of the parties to the contract
In the formation of a valid contract, the identity of the parties is not required. But in a certain case like a unilateral mistake of fact, if a party makes a unilateral mistake as to the matter of fact regarding the identity of the other party then the contract is said to be void.
Example: A wants to enter into a contract with B but by mistake A made a contract with X, then the contract is void.
Conclusion
Mistake of fact and mistake of law are two types of mistake. As per section 10 of the Indian Contract Act, a contract is valid when the contract is made by the free consent of the competent parties with lawful consideration and a lawful object. And, as per section 14, free consent is said to be free when it is not caused by mistake. The mistake has two types, one is a mistake of fact and another one is a mistake of law. And the provisions relating to the mistake has been provided under section 20, 21 and 22 of the Indian Contract Act, 1872.
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