Section 20 of the Indian Contract Act, 1872

Section 20 of the Indian Contract Act states that “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.”

In other words, “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.”

What is Mistake?

A mistake is defined as an innocent belief that results in misunderstanding between two parties. When the parties' understanding of the agreement's terms and circumstances is unclear, a mistake occurs. When one uttered anything and the others thoughts were clouded. Both sides comprehend the repercussions on separate terms, but there was no consensus-ad-idem, i.e., meeting of minds, and therefore they did not grasp the same thing in the same way.

Category of Mistake

Under the Indian Contract Act of 1872, mistake is further divided into two situations.

• Mistake of Law

• Mistake of Fact

Mistake of Law

This mistake might be related to a mistake in Indian law or a mistake in foreign law. If the mistake involves Indian laws, the rule is that ignorance of the law is not an acceptable excuse. This implies that neither party can simply claim ignorance of the law.

The Contract Act states that no party may seek remedy based on a lack of knowledge of Indian law. This includes a misunderstanding of any legal provisions.

However, ignorance of a foreign law is not treated similarly. Ignorance of foreign law is tolerated; the parties are not required to understand foreign legal requirements and their significance.

Mistake of Fact

A mistake of fact arises when one or both parties believe they comprehend the contract's facts, yet at least one party is acting on erroneous information. These mistakes of fact might be bilateral or unilateral.

Bilateral Mistake of Fact: When both parties are ignorant about the contract's particular provisions. This is sometimes referred to as a "mutual" or "common" mistake. Because both sides are acting on erroneous information, a bilateral mistake can normally be cancelled by both parties to the contract.

To use this, the following needs must be fulfilled: (Section 20)

• The mistake must be mutual and committed by both parties.

• It should be related to a certain fact.

• Facts should be necessary in order to enter into a contract.

Because there is no consensus ad idem, the contract is null and void.

Unilateral Mistake of Fact: When just one party is mistaken about the contract's provisions. A unilateral mistake of fact is rarely enough to invalidate a contract, although it might result in a voidable contract.

Types of Bilateral Mistakes

• Mistake as to Subject Matter

• Mistakes as to possibility of Performance

Bilateral Mistake of Facts as to Subject Matter

In such mistakes, both parties to a contract are mistaken about the subject matter of the contract, and the agreement is null and void. A mistake can manifest itself in a variety of ways. This might refer to the subject matter's existence, identity, title, amount, quality, or price.

• Regarding Subject Matter: Many times, the topic on which the contract is based ceases to exist, and the contracting parties are unaware of this fact. If the subject matter of the contract ceases to exist, the contract has expired and is deemed void.

  In the case of Galloway vs. Galloway, the couple demanded separation after marriage, but the court ruled that the separation agreement was void since it was based solely on the assumption that they were married to each other.

• Regarding Subject Matter’s Quality: If the misconception is not about the subject matter but about its quality, the contract is considered valid.

  In the case of Smith vs. Hughes, one person entered into a contract to buy oats, thinking it was old when it was new; therefore, the contract cannot be considered void on the basis of quality alone.

• Regarding the Quality of Subject Matter: If both parties make a mutual mistake about the quantity of the subject, the contract is considered void.

• Regarding the Title of the Subject Matter: If one person wants to buy something that he already has, but both parties are mistaken about the facts, In this case, the seller has no right to sell, and the contract is null and void.

  Example: Cooper v. Phibbs case.

Bilateral Mistake as to the Possibility of Performance

When the parties to a contract believe that it is capable of performance although it is not, there is a mistake of fact regarding the potential for performance. And the contract is null and void on this ground, i.e., impossibility. The inability to perform may be due to physical or legal grounds.

For example, D signed a contract with R to perform at a performance hosted by the latter on a specific day. However, D was unable to participate in the programme owing to sickness on that particular day. The court of law ruled that the contract became void due to the inability to comply.

Conclusion

The legality of an agreement is jeopardized when acquiescence is enhanced due to a misunderstanding between the groupings. As previously discussed, an error can be of two types: a mistake of fact or a mistake of law. When an agreement is increased because of a two-sided misstep of reality, the agreement is said to be void; however, when the slip-up happens because of a one-sided mix-up of certainty, the understanding is legitimate, except when the mix-up is about the idea of the agreement or the character of the parties to the agreement. Similarly, when an agreement is expanded due to an error in Indian law, it is a significant agreement; yet, if both parties assume an outside law, the agreement is considered to be void.

FAQs

Q1. What is a Common mistake in contract law?

Ans. When both contractual parties have an incorrect understanding of the same state of events, this is a common mistake in contract law. This situation might be caused by a misunderstanding of the topic's content or the title.

Q2. What is a "bilateral mistake" in a contract?

Ans. A bilateral mistake occurs when both parties to a contract make a factual error that is critical to the agreement. In this case, neither party has consented to the same thing in the same sense, which is the definition of consent.

Q3. What is the basic problem with a bilateral contract?

Ans. The bilateral contract will be violated if either the seller or the customer fails to deliver the items or fails to pay for them. This is because, under a bilateral contract, both parties are legally required to fulfil their obligations to one another.

Q4. What is a mutual mistake in law?

Ans. In law, a mutual mistake occurs when both parties to a contract are incorrect about the same material truth in their contract. If the parties labor in opposite directions and reach an agreement, but both parties are incorrect, the contract is null and void.