Mistake - Contract I - KSLU Corner

On this page

1. Kinds of mistake
2. Bilateral mistake of fact: section 20
3. Mistake of law: section 21
4. Unilateral mistake: section 22
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

Void, not voidable. Unlike coercion, fraud or undue influence, a mistake that counts under section 20 makes the agreement void. The reason is that there was never a real meeting of minds on an essential fact. Most mistakes, however, do not count at all: a mistake of Indian law, a mistake about value, and a mistake by one party only all leave the contract standing, subject to a few exceptions.

1. Kinds of mistake

Mistake of fact: bilateral (section 20) or unilateral (section 22).
Mistake of law: of Indian law, or of foreign law (section 21).

2. Bilateral mistake of fact: 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 a mistake as to a matter of fact.

Three conditions: (i) both parties are mistaken, (ii) the mistake is of fact, and (iii) the fact is essential to the agreement. The usual categories:

As to the existence of the subject-matter (res extincta). Illustration (a): A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. Before the day of the bargain the ship carrying it had been cast away and the goods lost. Neither party knew. The agreement is void. Illustration (b): A agrees to buy a horse from B; the horse was dead at the time, though neither knew. Void. Couturier v. Hastie (1856, House of Lords) is the English source: a cargo of corn believed to be in transit had already fermented and been sold off by the master before the contract. The contract was held not binding on the buyer. Section 7 of the Sale of Goods Act, 1930 states the same rule for specific goods that have perished.
As to identity of the subject-matter. Raffles v. Wichelhaus (1864): cotton was sold “to arrive ex Peerless from Bombay”. There were two ships named Peerless, sailing in October and December. The buyer meant one, the seller the other. There was no consensus and no binding contract.
As to title (res sua): a person buys what is already his. Illustration (c) to section 20: A, being entitled to an estate for the life of B, agrees to sell it to C; B was dead at the time. Void.
As to quality: only where the quality makes the thing essentially different from what it was believed to be. Mere quality or value mistakes do not count.

In Tarsem Singh v. Sukhminder Singh, 1998 INSC 51, (1998) 3 SCC 471, the parties agreed on the sale of agricultural land, but one understood the area in kanals and the other in bighas, a matter going to the price and extent of the land. The Supreme Court held this was a mutual mistake as to an essential fact, the agreement was void under section 20, and the earnest money had to be refunded under section 65.

3. Mistake of law: section 21

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. Illustration: 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. The principle is ignorantia juris non excusat. A mistake of foreign law is treated as a mistake of fact, so if both parties are mistaken about an essential point of foreign law, section 20 makes the agreement void.

4. Unilateral mistake: section 22

A contract is not voidable merely because it was caused by one of the parties being under a mistake as to a matter of fact. A party who misjudges his own bargain cannot escape it. But a unilateral mistake can prevent consent from arising at all (section 13), in three recognised situations.

(a) Mistake as to identity of the person

Where the identity of the other party is essential, and one party contracts with someone he mistakenly believes to be another, there is no consensus.

Cundy v. Lindsay (1878, House of Lords). A rogue named Blenkarn wrote from 37 Wood Street, signing so as to look like Blenkiron & Co., a respectable firm at 123 Wood Street, and ordered handkerchiefs from Lindsay & Co. He resold them to Cundy, who bought in good faith. Held: Lindsay intended to deal only with Blenkiron & Co.; there was no contract with Blenkarn at all, so he got no title and Cundy had to return the goods or pay for them. The contract was void.
Phillips v. Brooks (1919). A man calling himself Sir George Bullough came into a jeweller's shop, chose pearls and a ring, and paid by cheque. The jeweller checked a directory, found Sir George's address, and let him take the ring. The cheque bounced; the ring had been pledged to Brooks. Held: in a face-to-face dealing the seller intends to contract with the person in front of him; the mistake was about his creditworthiness, not his identity. The contract was voidable for fraud, not void, and Brooks, who took the ring before it was avoided, got a good title.

The rule from the two cases: in a contract by correspondence, identity is usually essential; in a face-to-face contract, there is a strong presumption that each party intends to deal with the person present. Lewis v. Averay (1972) and Shogun Finance v. Hudson (2003, House of Lords) confirm the distinction. Under section 30 of the Sale of Goods Act, 1930, a buyer in good faith from a person holding goods under a voidable contract gets good title if the contract had not been rescinded when he bought.

(b) Mistake as to the nature of the document: non est factum

A person who signs a document is generally bound by it, whether or not he read it. The plea of non est factum (“it is not my deed”) is an exception: where a person signs a document believing it to be of an entirely different character, and he was not careless, his mind did not go with his signature and the document is void.

Foster v. Mackinnon (1869): an old man of feeble sight was asked to sign a paper which he was told was a guarantee. It was in fact a bill of exchange. He was held not liable to an endorsee for value, because he had not been negligent and had never intended to sign a bill. The plea was later narrowed in Saunders v. Anglia Building Society (1971, House of Lords): the difference must be radical, and a signer who was careless cannot rely on it.

The Indian position follows Ningawwa v. Byrappa, 1968 INSC 10, AIR 1968 SC 956: misrepresentation as to the character of a document makes it void; misrepresentation as to its contents makes it voidable.

(c) Mistake as to the terms, known to the other party

If one party knows that the other is mistaken about the terms of the offer (for example, an obvious pricing error) and snaps it up, he cannot hold the mistaken party to it: Hartog v. Colin & Shields (1939).

Trap. Section 20 makes the agreement void; section 22 says unilateral mistake does not make a contract voidable. Do not write that a mistake makes a contract “voidable”. Either it is void (bilateral essential mistake, or a unilateral mistake that negatives consent, as in Cundy v. Lindsay), or it has no effect. Where the mistake is induced by the other party's fraud, the contract is voidable, but that is under section 19.

How this is examined

Essay: “Explain the effect of mistake on a contract” or “Mistake of fact and mistake of law distinguished.” Structure: kinds, section 20 with illustrations and Couturier, Raffles; section 21; section 22 and its exceptions with Cundy, Phillips, Foster v. Mackinnon. Short notes on non est factum and on mistake as to identity are set regularly. A problem on a horse or cargo that had perished before the contract is answered from illustrations (a) and (b) to section 20.