“Mistake in the formation of contracts may be common; mutual or unilateral”. Discuss this statement, and explain briefly the cases where such mistakes may avoid the contract.

Question: “Mistake in the formation of contracts may be common; mutual or unilateral”. Discuss this statement, and explain briefly the cases where such mistakes may avoid the contract. [BJS 2006]

Find the answer to the mains question only on Legal Bites. [“Mistake in the formation of contracts may be common; mutual or unilateral”. Discuss this statement, and explain briefly the cases where such mistakes may avoid the contract.]

Answer

Section 20 of The Indian Contract Act,1872 lays down as under:-

“Agreement void where both parties are under mistake as to 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.”

This Section provides that an agreement would be void if both the parties to the agreement were under a mistake as to a matter of fact essential to the agreement. The mistake has to be mutual and in order that the agreement be treated as void, both the parties must be shown to be suffering from the mistake of fact. Unilateral mistake is outside the scope of this Section.

Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement is void. In order to render an agreement void for a mistake, both the parties should be laboring under the same mistake of fact. Where one party knows the facts, but refrains from communicating the same to the other party, an agreement is not void.

Mistake may be shared or common mistake, mutual mistake, or unilateral mistake.

• Common Mistake: The common mistake is possessed or shared alike by both or all the persons or things in question, and nullifies a consent which exists in an agreement. This renders an agreement void.
• Mutual Mistake: The mutual mistake is where the parties misunderstand each other and are at cross purposes; it is a mistake possessed or entertained by each of two persons towards or with regard to each other, and it negates consent, and there is no agreement at all.
• Unilateral mistake: A mistake is unilateral where one party is mistaken. 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.

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. But if one party is caused to commit a mistake by the other party, however innocently, as to the substance of the thing which is the subject of the agreement, the contract is voidable at the option of the party mistaken.

Mistake will not affect the contract where it was the duty of the party to know or the party had the means of knowledge about the fact essential to the agreement. The other requirement is that the mistake, apart from being mutual, should be in respect of a matter which is essential to the agreement.

Effect of mistake: An agreement vitiated by mutual mistake of fact essential to the agreement is void. The party who has received any advantage under an agreement discovered to be void must restore the advantage to the other party or compensate the other party.

Where the parties are agreed, but the language or the terms used by them in the written document do not convey the true meaning or reflect their true intention, such mistake does not render the agreement void, but is a mistake in expression and capable of being rectified, if not mutually, with the assistance of the court. This relief is available under The Specific Relief Act for correcting the language of an instrument for making it in accord with the true intention of the parties by reason of a mutual mistake of the parties.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X