Mistake in Consent

Article submitted by Apurwa, Banaras Hindu University

Mistake is called by Sir John Salmond as, ‘Error in Consensus’ or ‘It is an erroneous belief concerning something’. If an agreement is caused by a mistake, the agreement is void. The mistake becomes bilateral when both parties to a contract are under mistake of fact essential to the agreement. The explanation states that an agreement cannot be considered as a mistake as to a matter of fact if the value of the subject matter is based on an erroneous opinion. Special reference may be given to Section 14 of the Indian Contract act, 1872[1] (Hereinafter ICA) which defines free consent while using the term in negation. In this article author will discuss the various dimension or aspect of Mistake in ICA.

1. Principles involve in Mistake

2. Types Of Mistake

a. Unilateral Mistake

b. Bilateral Mistake

c. Mutual Mistake

d. Common Mistake

3. Mistake As To Law And As To Fact: S. 20 & S. 21

4. Mistake And S. 20

5. Mistake And S. 56

6. Effect of Mistake

7. Conclusion

Principles Involve In Mistake

A mistake operates to invalidate a contract, because the true intention of the parties exists on an erroneous belief of some facts which is the only misapprehension and turns out not to have existed on the date of the agreement.

Where the subject matter of the contract ceases to exist or does not exist according to the description by which it was contracted for, the contract becomes void. The agreement is void if the mistake is basic or at the risk of one or more parties. The risk that the facts may turn out differently, may-be allocated by express or implied terms of contract, or by other clear rules of contract law; and once it has been decided that certain risks lie on a party, one cannot rescind the contract for mistake.

In Bell v Lever Bros Ltd[2] , having held that the contract was not vitiated by mistake, Lord Atkin observed:

“The result is that in the present case servants unfaithful in some of their work retain large compensation which some will think they do not deserve. Nevertheless, it is of greater importance that well-established principles of contract should be maintained than that particular hardship should be redressed; and I see no way of giving relief to the plaintiffs in the present circumstances except by confiding to the courts loose powers of introducing into contracts terms which would serve only to introduce doubt and confusion where certainty is essential.”

The rule of mistake, as invalidating a contract, is therefore confined within very narrow limits, where the extreme injustice of holding one party to the contract, outweighs the general principle that apparent contracts should be enforced.

Types Of Mistake

Mistake is an incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. There are 4 different types of Mistake identified in the Contract Law: Unilateral Mistake, Bilateral Mistake, Mutual Mistake and Common Mistake.

a. Unilateral Mistake

When one party to a contract is mistaken, and the other party is aware of the first party’s mistake, then these types of contracts are void.

b. Bilateral Mistake

In bilateral mistake, both the parties have not consented to the same things in the same sense. This implies both the parties are under a mistake of fact essential to the agreement. These mistakes are also void as there is an absence of consent altogether.

c. Mutual Mistake

Mutual Mistakes are those mistakes where both parties misunderstand each other and are at cross-purposes with each other, i.e., where one party offers one thing whereas the other party accepts something else. Therefore, in these types of mistakes, there is no consensus ad idem and so these contracts are also void.

d. Common Mistake

Common mistake arises where both the parties are under the same misapprehension and thereby mistaken regarding a fundamental matter of fact. These types of contracts are also void. In the case of Bell v Lever Brother Ltd,[3] honorable House of Lords of England has held until the mistake or common mistake is related to the fundamental to contract it can’t be held void.

Mistake As To Law And As To Fact: S. 20 & S. 21

For a mistake as to fact and not one of law, the mutual mistake would be operative in invalidating consent to a contract. To have a contract rescinded by a party, a mistake should not be a mistake of general law. A contract is not void under s. 21 of ICA[4], if the mistake is of a law and where neither party is in error regarding the essential facts of which the contract is made and the mistake was about the effect of registration on the deed of assignment. A mistaken view as to the extent of party’s rights or of the title of a contracting party or mistake arising upon the construction and meaning of a contract, is a mistake of law and not of facts.

“Ignorantia Juris non excusat” or “Ignorance of the law is not excused”. If a person takes part in a contract without knowing any specific provisions of Indian Law (which is essential for that contract), then Contract is not voidable because everyone is supposed to know the law of his country. In the famous case of Grant v. Brog[5] a person is living or staying in a country beyond certain stipulated time being unaware of the expiration of allowed time under immigration act,1971,Courts find that mistake of law is no defence.

Mistake can be of facts also now it may be unilateral bilateral and common mistake depending upon the circumstances of the case but this mistake can be framed as defence and may vitiate the contractual obligations in cases of bilateral error of facts.

Mistake And S. 20

Mutual Mistake or mistake cannot be invoked by a party where it has means of knowledge to know or has a duty to know or has a reasonable ground for his belief about the essentials of a fact to the agreement. An agreement in which both the parties are under a mistake as to a matter of fact is a contract under section 20[6], and is considered void. In Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd [7] on the date of contract of sale of a building for development, both parties believed that the building was not listed under planning legislation as being of special architectural interest, although, it was in the provisional list. But the list was given legal effect soon after the contract, and the purchaser claimed rescission of contract. There the court held that mistake must be of existing fact and not of future or assumption.

Mistake And S. 56

Section 56 was applicable only where an agreement otherwise valid and enforceable, was rendered void by impossibility of performance. It is applicable to enforceable agreements apart from any question of performance. It had no application to agreements which by reason of a mutual mistake as to an essential fact are void under section 20 of ICA.[8] Also, the words in section 56, ‘or with diligence might have known’ is in the view that s. 56 imply a set of circumstances in which the promisor is in different position from that of the promise.[9]

Effects Of Mistake

An agreement vitiated by mutual mistake of fact essential to the agreement is void. Void contracts have no legal effect. The agreement is a contract and becomes binding on the parties, where mistake is not mutual, or not of fact, or is not essential to the agreement. When mistake vitiates the agreement, the obligation of Restitution arises under s. 65 of ICA.[10] The contract becomes voidable where the obligations may arise under it despite the mistake. In voidable contracts the party is entitled to rescind or has the right to set aside by the court. Also, other equitable remedies are available as a form of defense to a suit or specific performance, and rectification, when there is a mistake as to some terms and the entire contract is not vitiated, or where the intention of the parties to a contract is not genuinely reflected.

Fictionally there may be the case where both the parties have agreed upon the common thing and there is meeting of mind in terms of contractual obligation but the same is wrongly written down in terms of contract court will usually restraint itself in calling for mistake as the same can be rectified under section 26 of Special Relief Act, 1963.[11]

Conclusion

Mistake being one of the facets of free consent has its distinct position in law of contracts as contract is nothing but a meeting of mind. Mistake directly hit to this conceptual understanding of contract where parties are not meeting their mind at the same thing. Since it’s not that every mistake vitiate the contract therefore there is very narrow scope for these legal provision for being applied in courts.

[1] Indian Contract Act, 1872, No.9, Acts of Parliament, 1872 § 14 (India). [2] 2 UKHL [1931]. [3] Ibid. [4] Indian Contract Act, 1872, No.9, Acts of Parliament, 1872 § 21 (India). [5] 2 All ER 257[1982], 1 WLR 638 [1982]. [6] Indian Contract Act, 1872, No.9, Acts of Parliament, 1872 § 20 (India). [7] 1 WLR 164 [1977]. [8] Supra Note 6. [9] Indian Contract Act, 1872, No.9, Acts of Parliament, 1872 § 56 (India). [10] Indian Contract Act, 1872, No.9, Acts of Parliament, 1872 § 65 (India). [11] Special Relief Act, 1963, No. 47, Acts of Parliament, 1963 § 26 (India).