Mistake under the Indian Contract Act, 1872 written by Mohammad Shuja Uzair student of NMIMS Kirit P. Mehta School of Law, Mumbai
Contract law was the first Business law to emerge as trade and commerce developed. Refining the contract law of Britain, British India got its Indian Contract Act, 1872. With this as a foundation, specialized laws have developed over time in India. The process of contract involves offer, acceptance, consideration but more importantly with the meeting of minds. Both the parties to a contract need to be on the same page for it to be legitimate. If no, the parties have been mistaken about the aspect of the contract. There are various reasons and scenarios where such a “mistake” would arise. Here cases of mistake would be based on law, facts, etc. There are similar provisions of this mistaken part of the Indian Contract Act, 1872 in the Indian Penal Code, 1860. In the penal code mistake is criminal defense. The act proves efficient if one wants to seek remedy for an unjust contract.
With the development of trade and commerce, Contract law was the first Business law to emerge. British India, in order to facilitate the same, borrowed the contract law of Britain and improved upon it. Refining it, British India got its Indian Contract Act, 1872. As a common law system, the principles were laid down by the British Courts. With Contract law as general law and foundation, specialized laws have developed over time in India.
The process of contract involves offer, acceptance, consideration but more importantly with the meeting of minds. Both the parties to a contract need to be on the same page for it to be legitimate. If no, the parties have been mistaken about the aspect of the contract. There are various reasons and scenarios where such “mistake” would arise.’
The concept of mistake is mentioned in Chapter II of the Indian Contract Act, which deals with voidable contracts and voidable agreements. Consent is defined in the Act as where two people agree upon the same thing. Whereas “free consent’’ would be where the said consent is not influenced by any factor or caused by coercion, undue influence, fraud, misrepresentation, a mistake. So, a mistake would generally be an exception to free consent in a contract. It is further explicitly mentioned in Sections 20, 21, and 22.
Agreement void where both parties are under mistake as to the 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.”
“As to matter of fact” here would signify that the parties to the case have consent but a subject matter/ fact has misled them or they weren’t aware of it.
For example, A agrees to buy a Persian kitten from B. It later turns out that the kitten was dead at the time of the agreement talks and neither of the party was aware of the fact.
Therefore, the agreement is void.
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.
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.
Here, it is emphasized that — mistake as to the law, pertaining to India or outside India does not make it voidable. Mistake as to fact would be considered, not mistake that regards to the law.
Contract caused by the mistake of one party as to the 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.
This section deals with a scenario where only one party is mistaken. The contract does not become voidable if only one party is at a misapprehension of the facts of the contract.
There are similar provisions of this mistaken part of the Indian Contract Act, 1872 in the Indian Penal Code, 1860. Here mistake is criminal defense. In certain instances, a criminal gets a defense that he/she had no intention of the crime and the act had happened was due to mistake of facts around the crime or there was a mistake at point of law. Sections 76 and 79 of Chapter-IV of the Indian Penal Code, 1860 has general defenses when a crime is committed and in sections 76 and 79 there’s a description of the provisions related to “Mistake of Fact” & “Mistake of Law”. “Mistake of Fact” as in when the defendant misinterpreted some essential facts, that defeats the whole commission of the crime. “Mistake of Law” where the defendant was not aware of the law or misunderstood it. However, the second case is very limited, only to certain rare instances.
After looking into the provisions provided for in cases of mistake in the Indian Contract Act, it is clear that it arises in two situations. First being consent and second, being the purpose of the contract. While looking at the facts that need to be furnished, it is also necessary to consider only the essential ones, that would be with regards to the very nature of the contract, identity of the parties, and the nature of the subject matter.
Further categorizing the types of mistakes that could occur during a contract with the existing act, would be Identity
There would be a mistake to identify when one of the parties presents to be some other person, then who that person actually is. An example of such a case would be where the person assumes a false name, by business takeovers, different identities by fraud, etc. The significance
of identity to the offeror will change according to the nature of promise in different cases.
It is essential to have a valid subject- matter. Further looking into the categories of the subject-matter, it could be its existence. It would become void if the subject matter doesn’t exist whilst the contract being made. Other instances would be where one of the parties could be at error as to the title and ownership of the subject matter, or the parties have different subject-matter in their minds, even the substance of it, being nature, quality, or quantity.
Mistake on part of the law
As Section 21 of the Act clearly states that a mistake on part of the law would not make it voidable, this would not be a valid limitation to the contract.
Mistake on the premise of facts
Section 20 of the Act mentions if essential facts of the contract were interpreted as an error, then it becomes voidable. This could further be considered unilateral and bilateral, i.e., one of the parties and both the parties. But section 22 mentions it is not voidable in case of one party was at the mistake of the fact of the contract. In the case of mutual mistake, with regards to facts, it becomes voidable.
These concepts and essentials can be best understood with cases that have in fact had these mistaken points of contracts as issues in them.
Gallaway vs. Gallaway
This was a case of both the parties were under the mistake that they were married. The two of them agreed to separate and thus made an agreement. Then it was found out that the man’s first wife was still alive which was actually unknown to both of them. The court held that the separation deed was void. It was on the grounds that the agreement had been done on the belief that they were married to each other, but turned out otherwise with the first wife being alive.’
Phillips vs. Brooks
A person named North purchased some items- pearls, and rings from Philip, who owned a jewelers shop. He claimed to be Sir George Bullough. He paid by cheque and signed it saying “You see who | am, I am Sir George Bullough”. He told that it was his wife’s birthday the next day and convinced the jewelers so that he can take them immediately. He gave Sir George’s address which the jewelers also verified with a directory. He then pledged the ring for money at Brooks limited, a pawnbroker company. He had pawned the ring in the name of Mr. Firth. He then disappeared without a trace. The plaintiff brought a claim based on a mistake as to identity- unilaterally.
It was held that the contract was not void for mistake as the law assumes there is an intention to deal with the person in front of them where there is a face to face transaction. The jewelers were not able to prove that they would only exceptionally have sold the ring to one Sir George Bullogh.
Ayekpam Angahl Singh and Another vs. Union Of India and Ors.
The plaintiff, in this case, was the highest bidder in a fishery auction. The rent was 40,000 per year and the said rights were auctioned for three years. The plaintiff sought that he assumed the rent amount to be for all the three years together. Thus, he claimed that he was under the same mistake. Since the mistake, in this case, wad unilateral, the contract couldn’t be avoided.”
After looking at the provisions of the Indian Contract Act, 1872, a comparative analysis with another country would throw more light. New Zealand, with regards to a mistake in contract, has a stand-alone act for itself. The statute is called the Contractual Mistakes Act, 1977.
It has various sections with regard to the matter of facts and matter of law. Codification of Contract law has both its advantages and disadvantages. Codification would mean that the various provisions with instances to various types of contracts would be explicitly mentioned. But on the other side, codification has been limited to three sections. It not necessary as such for a mistake in contracts to have an act on its own, but non-conventional instances should be included over time. It is still efficient as it provides remedies if one feels that their contract was carried un-justly.