Mistake of Fact and Mistake of Law under Contract Act, 1872

A mistake or misinterpretation affecting a deal's terms is referred to as a "mistake" in the context of contracts. Accidents can occur unintentionally and result from a variety of factors, including misconstrued information, oversights, etc. If certain requirements are met, mistakes are permissible grounds for disputing the validity of a contract under the Indian Contract Act. When persons intending to do one thing accidentally wind up doing something another, it is said that a mistake has occurred.

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This Story also Contains

1. What is a Mistake?
2. Mistake of Law
3. Mistake of Fact
4. Case Laws on Mistakes in Contract Law
5. Conclusion

What is a Mistake?

Generally, a mistake is anything for which there is no workable answer. The terms "mistake" and "error" are interchangeable. If there is a misapprehension or incorrect belief about a material fact, a legal contract cannot be created. The term "mistake" is not defined under the Indian Contract Act. Error is discussed in Sections 20, 21, and 22. A mistake can be defined as any action, decision, or assessment that had an unanticipated and unpleasant consequence. When persons intending to do one thing accidentally wind up doing something another, it is said that a mistake has occurred. An English case involving a misunderstanding in contract law is Phillips v. Brooks Ltd. In this instance, the ruling was that absent compelling evidence to the contrary, a party is presumed to have entered into a contract with the individual before them.

Mistake of Law

Unlike many other legal systems, the Indian Contract Act does not generally recognize a misunderstanding of law as a good reason to avoid a contract. Legal professionals do not view ignorance of the law as a legitimate excuse. However, the ability of the contract to become legally binding may be impacted if a factual error is combined with a legal error.: In the case of Grant v. Borg In this instance, the individual was ignorant of the Immigration Act of 1971's provisions on lingering past the leave's expiration date. He is not permitted to request a defence in this case due to a legal error. There are two categories of mistakes of law-

Mistake of Indian Law

Contrary to errors of fact, mistakes of law typically do not offer a strong foundation for the cancellation of a contract. Section 21 of the act reflects this approach by stating that a contract is not voidable simply because one of the parties was uninformed about the country's laws. The principle is especially pertinent to this clause. As a result, it is expected of the parties that they are aware of the legal ramifications of their agreements, and it is frequently not accepted that ignorance of the law provides a sufficient defence for requesting release from the obligations imposed by the contract.

Mistake of Foreign Law

If someone signs a contract without realizing that specific elements of foreign law are essential to the transaction, that mistake is considered a factual error. In short, it says that if any party is deceived about foreign law, the contract is void and unenforceable because it is unrealistic to expect someone to be informed of international law.

Mistake of Fact

A mistake of fact occurs when one or both parties to a contract are misinformed about a crucial aspect of the agreement. This misapprehension and an important fact that is essential to the contract must be related in some way. "A contract is null and unenforceable if both parties are under the impression that they own a mistake of fact," according to Section 20 of the Indian Contract Act. There's a chance the contract is void. In the case of, The State of Maharashtra v. Mayer Hans George A, a court officer, has been given the order to place Y under arrest. A mistakenly arrests Z because he thinks Z is Y. In this case, A may use the foundation of sincere intention as a defence for the factual error.

Bilateral Mistake

Section 20 states that an agreement is null and void "where both the parties are under a mistake as to a matter of fact essential to the agreement." Put simply, a bilateral mistake occurs when parties agree without fully understanding all relevant facts, in which case the agreement is null and void.

For example, suppose that A and B decide to trade any goods that are travelling from America to Bombay with one another. It turns out that the ship that was carrying the artefacts was thrown away before the agreement's day, and the items were lost. None of the participants were aware of these specifics, though. The agreement is void and unenforceable.

Below are the essential elements of Bilateral Mistakes-

• There must be an error on both sides.

• The error needs to be factual rather than legal.

• The mistake must be related to some important fact.

Matters Related to the Subject Matter of the Contract

Sometimes, after a contract is made, we find out during its execution that it cannot be fulfilled. If the agreement's viability of performance is incorrect, it is void. An explanation of impossibility might be used to avoid fulfilling a contract. Impossibilities come in two varieties:

Physical impossibility

Any attempt to complete a contract when it is physically impracticable may be used as justification for failing to fulfil contractual obligations, in which case the agreement will be nullified. For instance, a painter and a client have a contract for painting a house, but the house burns down before the work is completed. The painter can no longer carry out his obligations under the contract. As a result, it is accepted as a justification for neglecting obligations.

Legal Impossibility

The agreement shall be void if there is any attempt to carry out the contract in a manner that is illegal and used as a reason for not fulfilling contractual duties. As an example, take into account any changes to the law that make it more difficult to fulfil your half of the bargain.

Unilateral Mistake

Unilateral Mistakes occur when there is inaccuracy committed by just one party to the contract. If the other party knows about the error and that it would be unacceptable for them to exploit it, the contract might still be enforceable in these situations. According to Section 22 of the Indian Contract Act, if one party commits a mistake that the other party does not share, the contract is void because the other party is aware of the mistake.

Illustration-

It can be considered a unilateral error on the part of party B if party A makes a mistake and quotes a lower price for a good, and party B knows about this error but proceeds with the contract nevertheless. Nonetheless, the contract would remain enforceable.

Instances When Unilateral mistakes make a contract voidable and void

Under certain circumstances, a party's mistake makes a contract void.

Unilateral Mistakes make a contract Voidable-

If a unilateral inaccuracy in the contract resulted from fraud or dishonesty, the party that made it may terminate it. To put it another way, if "A" sets up these circumstances and engages in these kinds of actions with the intention of misleading "B," then "B" has likewise committed a mistake as a result of A's actions and entered into a contract with "A." The Contract will then be voidable at "B's" discretion.

Unilateral Mistakes Making a Contract Void-

The unilateral mistake makes a contract void in two ways they are-

Unilateral mistake about the nature of the Contract

If someone intends to get into a contract but inadvertently signs a completely other one. For instance, if an illiterate individual inadvertently leaves their thumbprint on any document, any agreement that resulted from that signature will be null and void.

Unilateral Mistake about the identity of the person

If "A" intends to sign a contract with "C," but inadvertently signs one with "B," The agreement will thereafter be null and void. For instance, let's say that 'A' is 'C's' frequent customer. He instructs "C" to deliver the merchandise. However, he made a contract with "B" by mistake and was unaware that "B" was the new shop owner. The contract will be void in this situation.

Common Mistakes

when facts regarding the subject matter of the agreement are misunderstood by the parties. The court may declare the entire agreement to be void in such a situation. If there is a small mistake in the subject matter of a contract, there is very little chance that the court will rule it unenforceable. if any part of the agreement that is free from errors is still in force.

Case Laws on Mistakes in Contract Law

In the case of, Cooper v. Phibbs

In this case, Unaware of the litigant's prior genuine excitement for the fishing right, the injured party seized a direct rent of the fishery from him. As a result, the aggrieved party filed a lawsuit to have the rent dropped, and the response claimed this was a legal mistake. Confusion regarding the general proprietorship or right was declared void since it was determined to have the same balance as a legal error.

In the case of, Dulari Devi v. Janardhan

In this case, Two documents, which involved the transfer of entire property in someone else's name without the woman's agreement, were manufactured to be thumb impressions by an illiterate woman who thought they were gift deeds to her daughter. Even though the error in this case was likewise unilateral, the court ruled that the contract was defective because it contained elements of fraud.

Conclusion

The Indian Contract 1872 deals with all the contracts in India. According to the act, the essentials of a valid contract include the consent of both parties, a valid offer and acceptence, and a valid object, party to the contract shouldn’t be a minor, the party shouldn’t be of unsound mind and both the parties should equally perform their part in the contract. The Indian Contract Act also lays down the essentials of an invalid contract and mistakes are one of such essentials of an invalid contract. Mistakes generally are of two types, firstly mistake of fact and secondly mistake of Law. This element makes a contract invalid.