A Study Of Mistakes In Contract Law
'Mistake' is not defined in the Indian Contract Act. Section 20, 21 and 22 deal
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. This article throws light upon what constitutes a
mistake as per the Contract Law. This article also covers the type of mistakes
in the scope of contract law, and brings about the effects these mistakes have
on the validity of the contract. Further, we will also see the exceptions to
mistakes where such exceptions do not alter the validity of the contract.
Introduction
Mistake means wrong belief which is innocent, and leads one party to rise misunderstanding against other. Mistake happened when the terms and conditions of the agreement is not clear between the parties. When one said something and white was not clear in the mind of other. The both parties understand consequences on the different terms and there was no consensus-ad-idem i.e. meeting of mind, and thus not understanding same thing in same sense. A mistake may operate upon a contract in two ways. It may, firstly, defeat the consent altogether that the parties are supposed to have given, that is to say, the consent is unreal. Secondly, the mistake may mislead the parties as to the purpose which they contemplated. The cases in which the consent is defeated or is rendered unreal fall under Section 13[1] which defines 'consent'. This section defines "consent" as follows:
"Two or more persons are said to consent when they agree upon the same thing in the same sense."
An agreement upon the same thing in the same sense is known as true consent or consensus ad idem, and is at the root of every contract. This seems to have been picked up from a passage in the judgment of Lord Hannen in Smith v Hughes.[2] "It is essential to the creation of a contract that both parties should agree to the same thing in the same sense. Thus, if two persons enter into an apparent contract concerning a particular person or ship, and it turns out that each of them, misled by a similarity of name, had a different person or ship in mind, no contract would exist between them: Raffles v Wichelhaus". [3]
Where the mistake does not defeat consent, but only misleads the parties, Section 20[4] shall apply.
Classification of Mistakes
Broadly speaking, mistake can be classified in two ways:
Mistake of Law means any contract which is performed by parties without knowing the law (or by ignoring the law), which is essential for that contract. It was held in Grant v. Borg[5] the person was not knowing the clauses of the Immigration Act 1971, for staying beyond the time limit by the leave. Here, he cannot apply for defence under the mistake of law.
Mistake of Law can be of two types:
If the mistake applies to Indian laws, the principle is that the ignorance of law is not a sufficiently good excuse. This means that either party cannot claim that they are not aware of the law. "Ignorantia Juris non excusat" is a Latin maxim which means "Ignorance of the law is not excused". The Indian 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. Eg: A murdered B. Here A cannot apply for the defence of mistake of law that is; he was not aware of law related to the murder.
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 cannot be expected to know the law of other foreign countries.
Section 21[6] of the Indian Contract Act deals with 'effect of mistake as to law'. Section 21 emphasises that mistake should be of fact and not of law.
S. 21. Effect of mistakes as to 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 a law not in force in India has the same effect as a mistake of fact.
Mistake of Fact
Mistake of fact means any contract which is performed by parties without knowing any material fact (or ignoring the fact), which is essential for that contract. Section 20 and 22[7] of the Indian Contract Act deals with 'Mistake of Fact'. Ignorantia Facit Excusat that implies ignorance of Fact is excused.
Mistake of Fact is of three types: Bilateral mistake, Unilateral mistake and Common mistake.
In the case of The State of Maharashtra vs Mayer Hans George[8], 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 bona fide intention as a defence in the mistake of fact.
Bilateral Mistake:
Under Section 20 of Indian contract, a contract is said to be void if both the parties are under mistake of Fact.
This section provides:
S. 20. Agreement void where both parties are under mistake as to matter of fact.— 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. Explanation: An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement, is not to be deemed a mistake as to a matter of fact.
Eg.1: A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.
Eg.2: A agrees to sell to B any goods supposed to be on its way from America to Bombay. It is found that before the day of the bargain, the ship containing goods had been cast away and the goods were lost. But, neither party was aware of these facts. The agreement is void.
Essentials elements of Bilateral mistakes are:
Now, It is very important to know what are the essential facts which make an agreement void. An agreement is a void where there is a bilateral mistake as to the subject matter. A bilateral mistake as to the subject matter includes the following:
Unilateral Mistake
According to Section 22, a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. Section 22 deals with a situation where only one party is mistaken:
S. 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 a matter of fact.
However a unilateral mistake does not affect the validity of the contract and is not mere ground to set contract aside. In the case of Tapeline Vs. Jainee, the buyer wanted to buy a land and was well versed with its measurement, he was also provided with the plan to study it further, but he declined and when he purchase a land he saw that garden area which he thought to be included in the plan was not there and hence court held that contract can't be revoked as it was Clearly mentioned in the plan provided. And it was mere mistake of one party. Hence the contract is valid.
Cases in which Unilateral Mistake makes a contract void and voidable
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-
Usually, the identity of the parties is not relevant to contract but in certain cases where one party hides his real identity and shows to be someone else by misrepresentation or fraud, who he actually is not. Then such contracts are void.
In the case of Cundy V Lindsay.Lindsay[10] and Co. Was a reputed company selling handkerchief in the market. One person named Blenkarn misrepresented and signed on the name of very famous company named "Blenkiron & Co." ordered 123 pieces of handkerchief. Linday assuming it to be same delivered it to Blenkarn, who further sold it to innocent Cundy. On not getting a payment by "Blenkiron & Co." Lindon sued him. And it was held by the court that there was mistaken assumption, hence no real consent to the contract of sale.
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.
Bell vs. Lever Brothers Ltd[11] is an English contract law case decided by the House of Lords. Within the field of mistake in English law, it holds that common mistake does not lead to a void contract unless the mistake is fundamental to the identity of the contract.
Conclusion
The legitimacy of an agreement is obstructed when assent is increased because of a mix-up by the gatherings. As examined, an error can be of two kinds, Mistake of certainty and Mistake of law. At the point when agree to an agreement is increased because of a two-sided misstep of actuality, the agreement is said to be void yet when the slip-up happens because of a one-sided mix-up of certainty, the understanding is legitimate with the exception of in the instances of mix-up in regards to the idea of the agreement or character of the gatherings to the agreement. Correspondingly, when agree to an agreement is increased because of a slip-up of the Indian law it is a substantial agreement yet in the event that it is expected an outside law by both the gatherings, the agreement is said to be void.
References:
Introduction
Mistake means wrong belief which is innocent, and leads one party to rise misunderstanding against other. Mistake happened when the terms and conditions of the agreement is not clear between the parties. When one said something and white was not clear in the mind of other. The both parties understand consequences on the different terms and there was no consensus-ad-idem i.e. meeting of mind, and thus not understanding same thing in same sense. A mistake may operate upon a contract in two ways. It may, firstly, defeat the consent altogether that the parties are supposed to have given, that is to say, the consent is unreal. Secondly, the mistake may mislead the parties as to the purpose which they contemplated. The cases in which the consent is defeated or is rendered unreal fall under Section 13[1] which defines 'consent'. This section defines "consent" as follows:
"Two or more persons are said to consent when they agree upon the same thing in the same sense."
An agreement upon the same thing in the same sense is known as true consent or consensus ad idem, and is at the root of every contract. This seems to have been picked up from a passage in the judgment of Lord Hannen in Smith v Hughes.[2] "It is essential to the creation of a contract that both parties should agree to the same thing in the same sense. Thus, if two persons enter into an apparent contract concerning a particular person or ship, and it turns out that each of them, misled by a similarity of name, had a different person or ship in mind, no contract would exist between them: Raffles v Wichelhaus". [3]
Where the mistake does not defeat consent, but only misleads the parties, Section 20[4] shall apply.
Classification of Mistakes
Broadly speaking, mistake can be classified in two ways:
- Mistake of Law
- Mistake of Fact
Mistake of Law means any contract which is performed by parties without knowing the law (or by ignoring the law), which is essential for that contract. It was held in Grant v. Borg[5] the person was not knowing the clauses of the Immigration Act 1971, for staying beyond the time limit by the leave. Here, he cannot apply for defence under the mistake of law.
Mistake of Law can be of two types:
- Mistake of Indian Law
- Mistake of Foreign Law
If the mistake applies to Indian laws, the principle is that the ignorance of law is not a sufficiently good excuse. This means that either party cannot claim that they are not aware of the law. "Ignorantia Juris non excusat" is a Latin maxim which means "Ignorance of the law is not excused". The Indian 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. Eg: A murdered B. Here A cannot apply for the defence of mistake of law that is; he was not aware of law related to the murder.
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 cannot be expected to know the law of other foreign countries.
Section 21[6] of the Indian Contract Act deals with 'effect of mistake as to law'. Section 21 emphasises that mistake should be of fact and not of law.
S. 21. Effect of mistakes as to 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 a law not in force in India has the same effect as a mistake of fact.
Mistake of Fact
Mistake of fact means any contract which is performed by parties without knowing any material fact (or ignoring the fact), which is essential for that contract. Section 20 and 22[7] of the Indian Contract Act deals with 'Mistake of Fact'. Ignorantia Facit Excusat that implies ignorance of Fact is excused.
Mistake of Fact is of three types: Bilateral mistake, Unilateral mistake and Common mistake.
In the case of The State of Maharashtra vs Mayer Hans George[8], 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 bona fide intention as a defence in the mistake of fact.
Bilateral Mistake:
Under Section 20 of Indian contract, a contract is said to be void if both the parties are under mistake of Fact.
This section provides:
S. 20. Agreement void where both parties are under mistake as to matter of fact.— 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. Explanation: An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement, is not to be deemed a mistake as to a matter of fact.
Eg.1: A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.
Eg.2: A agrees to sell to B any goods supposed to be on its way from America to Bombay. It is found that before the day of the bargain, the ship containing goods had been cast away and the goods were lost. But, neither party was aware of these facts. The agreement is void.
Essentials elements of Bilateral mistakes are:
- Both parties must be under a mistake.
- The mistake must be of fact, not of law.
- The mistake must be related to an essential fact.
Now, It is very important to know what are the essential facts which make an agreement void. An agreement is a void where there is a bilateral mistake as to the subject matter. A bilateral mistake as to the subject matter includes the following:
- Mistake as to the existence of subject matter:
'A' and 'B' are involved in a contract to sell a horse in a specific amount. But, the horse dies before the contract is performed, and both parties (A and B) are unaware of this fact that the horse does not exist. In this case, the Contract is void.
- Mistake as to the identity of subject matter:
'A' and 'B' made a contract in which 'A' promises to sell his car to 'B'. 'A' has two different types of cars (one for racing and the other for tourism purposes). Here, the real identity of the car is not clear, and both parties are thinking about different types of cars. In this case, the Contract is void.
In the case of Cundy v Lindsay[9], it is held that a contract as a mistake as a matter of identity will be automatically void.
- Mistake as to the quantity of subject matter:
'A' and 'B' made a contract in which a transaction of 200 pens in return for some amount is involved. But 100 pens are sold early by the brother of 'A' before the contract could be performed, and both parties (A and B) were unaware of this fact that only 100 articles do exist. In this case, the contract is void.
- Mistake as to the quality of subject matter:
'A' and 'B' made a contract together in which 'A' sold his car in return for some amount to 'B'. They believed that the car is for racing purposes but the car was for tourism purposes. In this case, the Contract is void.
- 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 parties (A and B) are unaware of this fact. In this case, the Contract is void.
- Mistake 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.
- 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.
Unilateral Mistake
According to Section 22, a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. Section 22 deals with a situation where only one party is mistaken:
S. 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 a matter of fact.
However a unilateral mistake does not affect the validity of the contract and is not mere ground to set contract aside. In the case of Tapeline Vs. Jainee, the buyer wanted to buy a land and was well versed with its measurement, he was also provided with the plan to study it further, but he declined and when he purchase a land he saw that garden area which he thought to be included in the plan was not there and hence court held that contract can't be revoked as it was Clearly mentioned in the plan provided. And it was mere mistake of one party. Hence the contract is valid.
Cases in which Unilateral Mistake makes a contract void and voidable
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-
- the blindness, illiteracy, or senility of the person signing, or
- a trick or fraudulent misrepresentation as to the nature of the document.
Usually, the identity of the parties is not relevant to contract but in certain cases where one party hides his real identity and shows to be someone else by misrepresentation or fraud, who he actually is not. Then such contracts are void.
In the case of Cundy V Lindsay.Lindsay[10] and Co. Was a reputed company selling handkerchief in the market. One person named Blenkarn misrepresented and signed on the name of very famous company named "Blenkiron & Co." ordered 123 pieces of handkerchief. Linday assuming it to be same delivered it to Blenkarn, who further sold it to innocent Cundy. On not getting a payment by "Blenkiron & Co." Lindon sued him. And it was held by the court that there was mistaken assumption, hence no real consent to the contract of sale.
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.
Bell vs. Lever Brothers Ltd[11] is an English contract law case decided by the House of Lords. Within the field of mistake in English law, it holds that common mistake does not lead to a void contract unless the mistake is fundamental to the identity of the contract.
Conclusion
The legitimacy of an agreement is obstructed when assent is increased because of a mix-up by the gatherings. As examined, an error can be of two kinds, Mistake of certainty and Mistake of law. At the point when agree to an agreement is increased because of a two-sided misstep of actuality, the agreement is said to be void yet when the slip-up happens because of a one-sided mix-up of certainty, the understanding is legitimate with the exception of in the instances of mix-up in regards to the idea of the agreement or character of the gatherings to the agreement. Correspondingly, when agree to an agreement is increased because of a slip-up of the Indian law it is a substantial agreement yet in the event that it is expected an outside law by both the gatherings, the agreement is said to be void.
References:
- https://indiankanoon.org/doc/1463968/ Last accessed on 25.04.2024
- [2] (1871) LR 6 QB 597 (DC).
- [3] (1864) 2 H&C 906: 159 ER 375. If a thing is not understood by the parties in the same sense, the agreement would be invalidated at the inception stage itself even if the communication gap is discovered at a later stage, Tarsem Singh v Sukhminder Singh, (1998) 3 SCC 471: AIR 1998 SC 1400.
- https://indiankanoon.org/doc/483593/ Last accessed on 25.04.2024
- https://swarb.co.uk/grant-v-borg-hl-1982/ Last accessed on 25.04.2024
- https://indiankanoon.org/doc/626336/ Last accessed on 25.04.2024
- https://indiankanoon.org/doc/949460/ Last accessed on 25.04.2024
- https://indiankanoon.org/doc/1564263/ Last accessed on 25.04.2024
- https://www.lawteacher.net/cases/cundy-v-lindsay.php Last accessed on 25.04.2024
- Ibid.
- https://www.lawteacher.net/cases/bell-v-lever-bros.php Last accessed on 25.04.2024
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