SUBJECT: LAW OF CONTRACT-I

TOPIC: MISTAKE OF LAW & FACT

A mistake is an erroneous belief that is innocent in nature. It leads to a misunderstanding between the two
parties. Now when talking about a mistake, the law identifies two types of mistakes, namely

i. A Mistake of Law
ii. A Mistake of Fact
 (Source: Slideshare)

Mistake of Law

This mistake may relate to the mistake of the Indian laws, or it can be a mistake of foreign laws. If the
mistake is regarding Indian laws, the rule is that the ignorance of the law is not a good enough excuse. This
means either party cannot simply claim it was unaware of the law.

The Contract Act says that no party shall be allowed to claim any relief on the grounds of ignorance of
Indian law. This will also include a wrong interpretation of any legal provisions.
However, ignorance of a foreign law is not given a similar treatment. Ignorance of the foreign law is given
some leeway, the parties are not expected to know foreign legal provisions and their meaning. So a mistake
of foreign law is in fact treated as a mistake of fact under the Indian Contract Act.

Mistake of Fact

Then there is the other type of mistake, a mistake of fact. This is when both the parties misunderstand each
other leaving them at a crossroads. Such a mistake can be because of an error in understanding, or
ignorance or omission etc. But a mistake is never intentional, it is an innocent overlooking. These mistakes
can either be unilateral or bilateral.

Bilateral Mistake

When both parties of a contract are under a mistake of fact essential to the agreement, such a mistake is
what we call a bilateral mistake. Here both the parties have not consented to the same thing in the same
sense, which is the definition of consent. Since there is an absence of consent altogether the agreement is
void.

However, to render an agreement void the mistake of fact should be about some essential fact that is of
importance in a contract. So if the mistake is about the existence of the subject matter or its title,
quality, quantity price etc then it would be a void contract. But if the mistake is of something
inconsequential, then the agreement is not void and the contract will remain in place.
For example, A agrees to sell to B his buffalo. But at the time of the agreement, the buffalo had already
died. Neither A nor B was aware of this. And so there is no contract at all, i.e. the contract is void due to a
mistake of fact.

Unilateral Mistake

A unilateral mistake is when only one party to the contract is under a mistake. In such a case the contract
will not be void. So the Section 22 of the Act states that just because one party was under a mistake of fact
the contract will not be void or voidable. So if only one party has made a mistake of fact the contract
remains a valid contract.

However, there are some exceptions to this. In certain conditions, even a unilateral mistake of fact can lead
to a void or voidable agreement. Let’s see a few of these exceptions via some examples and case studies.

1. When Unilateral Mistake is as to the Nature of the Contract: In such a case the contract can be held as
void. Let us see the example of Dularia Devi v. Janardan Singh. Here an illiterate woman put her thumb
impression on two documents thinking they were the same. She thought the document was to gift some
property to her daughters. But the other document was a Sale deed to defraud the women out of more of
her property. This contract was held void by the courts
2. When the Mistake is regarding the Quality of the Promise: There was an auction being held by A to
sell hemp and tow. B thinking the auction was only for hemp, mistakenly bid for a tow. The amount bid
was on par for hemp but very high for a tow. Hence the contract was held as voidable.
3. Mistake of the Identity of the Person contracted with: For example, when A wants to enter into a
contract with B but mistakenly enters into a contract with C believing him to be B.
…………………………………………………………………………..

The Indian Contract Act,1872 states two kinds of mistakes

1) Mistake of Law(Section 21)

2) Mistake of Fact(Section 20 &22)

Mistake of Law
The Latin maxim ignorantia juris non excusat means that ignorance of the law is no excuse. Therefore under section
21 of the Indian Contract Act, 1872, a contract cannot be said to be voidable due to the mistake of the parties in
understanding any laws that are in force in India. Hence the parties to the contract cannot claim relief on the grounds
that they were unaware of the Indian law.
For Example, A man was caught by a ticket conductor for traveling on a train without a ticket. The man cannot claim
that he was not aware that a ticket is required while traveling and shall be punished under Section 138 of The Indian
Railways Act, 1989.

Exceptions

1) Mistake with regard to a Foreign Law

Section 21 also specifies that a mistake regarding a foreign law shall be treated as a mistake of fact. This is because
the parties to the contract are not expected to know all the provisions of the foreign law and their meaning. Therefore
in case of a mistake of the foreign law by both the parties, the contract will be considered void.

For Example, An Indian Company agrees to sell an American Company 200 cans of a certain mixture containing 45%
Sulphuric acid. The law of the country had banned the purchase and sale of mixtures containing more than 30%
Sulphuric acid. This is considered to be a mistake of foreign law and therefore the contract is said to void.

2) Mistake with regard to a Private Right

The existence of any private right is a matter of fact although depending on the rules of law because it is not possible
for a party to fully know the private rights of another party.
In the case of Cooper v Phibbs(1867), The plaintiff took a lease of fishery right from the defendant unaware of the fact
that he already had a life interest in the fishery right. The plaintiff, therefore, brought a suit for the cancellation of the
lease and the defendant argued that this was a mistake of law. It was held that a mistake as to the general
ownership or right stands on the same footing as a mistake of law and therefore was declared void.

Mistake of Fact
The maxim Ignorantia Facti Excusat which means that the Ignorance of fact excuses. Therefore under Section 20  of
the Indian Contract Act, 1872, a contract is said to be void when both the parties to the agreement are under a mistake
as to a matter of fact.

A mistake of Fact can be of 2 kinds-

1) Bilateral Mistake – Section 20

1)The mistake must be committed by both the parties i.e must be mutual
2)The mistake must be regarding some fact.
3)It must relate to a fact which is essential to the contract.
Therefore if the mistake is made regarding the existence of the subject matter or a fact essential to the contract, it
would be a void contract since there is no consensus ad idem.

But an incorrect opinion regarding the value of the thing which forms the subject matter of the agreement is not said to
be a mistake of fact and is considered inconsequential to the agreement.

Types of Bilateral Mistakes

1) Mistake regarding the existence of the subject matter

Sometimes the existence of the subject matter of the contract ceases to exist before the agreement was made and the
parties to the contract may not be aware of this fact. If the subject matter on which the contract exists is not present,
it is considered that the contract has perished and hence the agreement would be considered void.

In the case of Galloway vs. Galloway(1914), A man and woman believed that they were married and therefore made a
separation agreement but it was later discovered that the man’s first wife was alive. It was held that the separation
agreement was void as it had been entered into on the basis of the common assumption that the parties
were married to each other.

2) Mistake regarding the quality of the subject matter

If the parties to the contract are not mistaken regarding the subject matter of the contract but regarding its quality, the
contract would be said to be valid.
In the case of Smith vs Hughes(1870), The plaintiff agreed to buy certain Oats from the defendant believing that they
were old when in reality they were new. It was held that the defendant cannot avoid the contract on the
ground that he was mistaken as to the oldness of the oats.

3) Mistake regarding the quantity of the subject matter

If both the parties to the contract are under a mistake as to the quantity of the subject matter, the agreement is said
to be void.

For Example, Ankita agreed to buy a car from Prankur based on his letter in which the price mentioned was 50000
instead of 5 lakhs due to a typing error. The said agreement is considered void due to a mistake as to the quantity of
the subject matter.

4) Mistake regarding the title of the subject matter

Sometimes the buyer of said property or good may already be the owner of what the seller wishes to sell. 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(1867).

2) Unilateral Mistake -section 21

In the case of Tapline Vs Jainee(1880), The buyer at an auction brought a property described with reference to a plan.
The buyer was under the assumption that he was well versed with the property and therefore did not refer to the plan.
Later he discovered that a garden plot which he thought was a part of the property was not in fact included in the plan.
It was held that the buyer cannot revoke the contract on the grounds of the unilateral mistake made by him and was
bound by the contract.

Exceptions to a Unilateral Mistake

In case of a unilateral mistake, the contract can only be avoided if it is proved that the contract was caused due to
fraud or misrepresentation on the part of one of the parties to the contract.

1) Mistake by one party as to the nature of the contract

When a mistake is made by one of the parties regarding the very 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.

This may happen because while executing a contract, a party may not understand the nature of the contract he is
entering into either due to fraud or misrepresentation by the other party or due to the old age or ill health of the person
consenting to such a contract.
In the case of Dularia Devi v. Janardan Singh(1990), 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 yet 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 by one party regarding the identity of the parties to the agreement

Generally, the identity of the parties entering into an agreement is not essential to a contract. But in certain cases,
when a unilateral 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 (1878), Lindsay & Co were manufacturers of linen handkerchiefs amongst other things
who received an order of 250 Dozen handkerchiefs from a man named Blenkarn, who imitated the signatures of
“Blenkiron & Co.” a reputed firm located at “123, Wood Street”.The man further mentioned his address to be at 37,
Wood Street, Cheapside. Lindsay and Co assumed that the order was from the reputed firm located at Wood-street 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
The validity of a contract is hindered when consent is gained due to a mistake by the parties. As discussed, a mistake
can be of two types, Mistake of fact and Mistake of law. When consent to a contract is gained due to a bilateral mistake
of fact, the contract is said to be void but when the mistake occurs due to a unilateral mistake of fact, the agreement is
valid except in the cases of mistake regarding the nature of the contract or identity of the parties to the contract.
Similarly, when consent to a contract is gained due to a mistake of the Indian law it is a valid contract but if it is due a
foreign law by both the parties, the contract is said to be void.