FREE CONSENT - MISTAKE

 Mistake is defined by the Black’s Law Dictionary as “Some unintentional act, omission, or error arising from ignorance, surprise, imposition, or misplaced confidence”.

Section 20 –

“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.”

For an agreement to be void, the essentials of a mistake as defined under section 20 are:

1.     The mistake should be bilateral-

A bilateral mistake is defined by the Black’s Law Dictionary as “When two parties to a contract are both mistaken as to an essential term of the contract, e. g. both parties assume property that has been destroyed still exists.”

Unilateral mistake is defined by the Black’s Law Dictionary as “A mistake made by one party to an agreement, such as where one party misunderstood a term to an agreement where the other party did understand such term.”

The first essential of a mistake under section 20 is that it should be bilateral i. e. both the parties should be mistaken about the said fact. A unilateral mistake does not render an agreement void as provided by section 22.

For example, a man makes a bid of Rs. 40,000 in an auction for the sale of fishery rights for three years wherein the amount bid was to be paid every year i.e. Rs. 40,000/year. He tried to avoid the agreement on the ground that he believed the bidding amount was the rent for all three years and thus was mistaken about a material fact of the agreement. The court held that since the mistake was unilateral it did not affect the contract and it was valid. (A.A. Singh v. Union of India, AIR 1970 Mani 16)

Bilateral mistakes are of two types-; mutual mistake and common mistake.

1. Mutual mistake is where there is no actual consent i.e. there is no consensus ad idem that means there is no meeting of minds. In such situations, there is a misunderstanding between the parties and they are at cross purposes. Therefore, there is no actual agreement. Rachel and Phoebe enter into a contract for the sale of Casio. Rachel believes the Casio to be her instrument. However, Phoebe misunderstands that Rachel wants to buy her guitar which is named Casio. This is an example of a mutual mistake. The case of Raffles v. Wichelhaus, [1864] EWHC Exch J19, discussed in one of the previous articles is an illustration of this kind of mistake.

2. Common mistake is the kind of mistake defined under section 20 of the Indian Contract Act, 1872. There is a consensus between the parties as they have the same intention but both of them are mistaken about a material fact of the agreement. For example, A and B enter into an agreement for the sale of a horse however, both of them are unaware of the fact that the horse is dead at the time of the agreement.

Agreements with unilateral mistakes can be avoided in any one of the two following cases---

i.                When Mistake is made about the nature of the agreement-

Agreements where a unilateral mistake is made by one party in understanding the nature of the agreement can be avoided by that party. Such misunderstandings are usually a result of fraud, misrepresentation, old age or illness. An illustration of this exception is the case of Dularia Devi v. Janardan Singh, 1990 AIR 1173. In this case, an illiterate woman put her thumb impression on two documents thinking that both of them were intended to gift her daughter. It was later found that one of the documents was intended to fraud her out of her entire property. Even when this was a unilateral mistake on part of the woman the agreement was held void by the court as her consent was gained through fraud.

ii.              When Mistake is made regarding the identities of the parties of the agreement-

This exception can be illustrated with the help of a case, James Cundy v. Thomas Lindsay, (1878) LR 3 AC 459. In this case, the respondent company received orders from a man Blenkarn of 250 dozen handkerchiefs. Blenkarn imitated the signature of a reputed firm ‘Blenkiron & Co.’ Both of them were located on the same street which led the defendants to believe that the order was placed by the reputed firm. They accepted the order and delivered it to Blenkarn who further sold the handkerchiefs to the appellants. Blenkarn failed to pay for the order, consequently, the respondents sued the appellants for recovering their goods. The respondents claimed that since they were not aware of the real identity of the buyer, there was no consent and therefore no contract. The court allowed the respondent’s (original plaintiff) claim and held that no contract existed between the respondent company and Blenkarn. The ownership of the handkerchiefs was not transferred to him and therefore, the appellants and thus they were held liable to return the goods. 

“Of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never for an instant of time rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever. As between him and them there was merely one side to a contract, whereas, in order to produce a contract, two sides would be required.”

2.     The mistake should be regarding a fact(Section 21)-

The second essential ingredient to constitute a mistake requires that the mistake made by the parties should be a mistake of fact and not a mistake of law. A mistake of law as defined by Black’s Law Dictionary is “An understanding of the facts may exist but there is an error or ignorance in understanding how the law is to be applied to the facts.” A mistake of fact as defined by Black’s Law Dictionary is “An error as to the understanding of the facts.” This essential can be described with the help of a Latin maxim ignorantia fact excusat, ignorantia juris non excusat which translates to ignorance of fact can be excused but ignorance of the law cannot be excused. A man cannot be not aware of the laws of his own country. Everyone is supposed to be aware of the law of the land. However, not knowing about the law of a foreign country can be excused.

3.     The mistaken fact should be material/fundamental/essential to the agreement-

A contract can be held void on the basis of a mistake only if the mistake made is regarding a fact material or essential to the agreement. A mistake regarding a fact not essential to the contract will not render it void. For example,

i.                 Related to the subject matter-

a.     Existence

If the subject matter of the agreement ceases to exist, then the contract will be void. For example, in the case of Gustavus Couturier v. Robert Hastie ((1856) 5 HL Cas 673), a man sold a cargo of goods which was on a voyage. The goods were disposed by the master of the ship by reason of being damaged by bad weather. The seller was sued by the buyer for the price. It was held by the court that since a mistake was made regarding the existence of the subject matter of the agreement it was void.

b.     Quality

A bilateral mistake regarding the quality of the subject-matter of the agreement will not render the agreement void. This principle can be illustrated with the help of the case of Smith v. Hughes (1871 LR 6 QB 597, 606). In this case, H intended to buy old oats for his horses. He bought oats from S thinking that they were old after a sample was given to him. He refused to accept the oats when he came to know that the oats were in fact new. The court held the contract to be valid saying that there is no ground to reject the agreement. H cannot avoid the agreement just on the basis of the age of the goods.

c.      Quantity

A bilateral mistake regarding the quantity of the subject matter of the agreement is the basis for it being held void. For example, a person while putting in an order for 10 dresses mistakenly puts 100 dresses for the order. The contract of sale will be void as there is a mistake regarding the quantity of subject matter.

d.     Price

A mistake regarding the price of the subject matter will make the agreement voidable (Kaur v. Chief Constable, Hampshire, (1981) 1 WLR 578). For example, in the sale of a car, a person misses a zero and quotes the price of his car as 1,00,000 instead of 10,00,000. The agreement for sale is void due to that mistake.

 

ii.               As to title

This type of mistake refers to cases wherein the parties are unaware of who has the title of the goods sold. For example, C told his nephew A that he(C) was entitled to a fishery. SO after his death A rents the fishery from B(C's daughter). It was later known that C (and then subsequently B) had no title of the fishery and it actually belonged to A. The agreement will be held void on the ground that both the parties were mistaken about the title of the fishery. (Cooper v. Phibbs, (1867) LR 2 HL 149)

 

iii.             As to the intention of parties

An agreement is void if it does not reflect the real intention of the parties due to the bilateral mistake of the parties. For example, the case of Hartog v. Colin and Sheilds ((1939) 3 Ail ER 566), the plaintiffs and defendants were entering into a contract of sale for 30,000 Argentine hare skins. The price negotiated was 10d/ per skin. But due to a mistake on part of the seller i.e. the defendant, the price written in the written offer was 10d/ per pound. The price negotiated upon i.e. the price of per skin was 1/3^rd of the price mentioned in the written offer i.e. the price per pound. The buyers sued the sellers for non-delivery of goods. It was held by the court that the contract did not exist in the first place as the real intention of the sellers was not expressed in the contract.

iv.              Possibility of performance of the contract

If there is a mistake regarding the possibility of performance of the agreement, then it is void. The impossibility can be physical or legal. Physical impossibility can be if the subject matter of the agreement ceases to exist. For example, A sells a flat in Dwarka Apollo society to B not knowing that the whole building got burnt down a few hours ago. Since the subject matter has ceased to exist it is physically impossible to honour the agreement and hence it is void. For legal impossibility,  the facts of the case Cooper v. Phibbs should be considered [(1867) LR 2 HL 149] B does not have a title and therefore cannot possibly transfer it to A. 

 

v.                About the identities of parties

The case of Cundy v Lindsay, LR 3 App Cas 459, discussed above is an example of this type of mistake. Consider another example, A regularly deals with B whose business is now taken over by C. A not knowing about the change gives an order to C for certain goods. A refuses to honour the contract on the ground that he never intended to enter into an agreement with C. A will not be held liable. (Boulton v. Jones, (1857) 27 LJ Ex 117)

However, all the above kinds of mistakes are regarding existing facts and thus the contract entered into by the parties is non-existent. However, if the mistake is regarding to a future occurrence, a binding contract is entered into between the parties. The contract may be avoided or rescinded depending on the facts and circumstances of such future mistake. 

BY

LAWVASTUTAH

REFERENCES

1. Indian Contract Act, 1872
2. Pollock & Mulla, The Indian Contract and Specific Relief Acts, 16th edition.
3. Avtar Singh, Contract and Specific Relief, 12th edition.