An agreement wherein both the parties are under a mistake of fact is void.

Question: An agreement wherein both the parties are under a mistake of fact is void. [Gujarat JS 2020]

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Answer

Mistake may be shared or common mistake, or a mutual mistake. The former is a mistake possessed or shared alike by both or all the persons or things in question and nullifies a consent that exists in an agreement. This renders an agreement void. The latter 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.

Where the mistake does not defeat consent, but only misleads the parties. Section 20 shall apply. This section provides:

“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 example, A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.

Thus, Section 20 will come into play:

1. when both the parties to an agreement are mistaken,
2. their mistake is as to a matter of fact, and
3. the fact about which they are mistaken is essential to the agreement.

Speaking broadly, certain facts are essential to every agreement. They are:

1. The identity of the parties;

The Supreme Court observed that mistake of identity will prevent consent in the sense of an agreement of two persons in the same sense [Central National Bank Ltd v. United Industrial Bank Ltd, AIR 1954 SC 181]

Mistake as to identity occur where one of the parties represents himself to be some person other than he really is. Thus, for example, in Jaggan Nath v. Secy of State for India [(1886) 21 Punj Rec No 21, p. 37]: A person, called S, a brother of the plaintiff, represented himself as plaintiff, and thereby induced a Government agent to contract with him.

The court, finding that the Government’s agent was deceived by the conduct of the plaintiff and his brother as to the person with whom he was dealing, held that there was no valid contract. The defendant’s agent intended to contract only with S’s brother and not with 5 and S knew this. In the above case, the Government’s offer was meant for S and his brother posing as S accepted it. This prevented real consent. It means that an offer that is meant for one person cannot be accepted by another.

2. The identity and nature of the subject matter of the contract

Another fact essential to every agreement is the identity or quality of the subject matter of the contract. Mistake as to subject matter may take various forms such as non-existent subject matter, different subject matters in mind, mistake as to the substance of the subject matter.

3. The nature and content of the promise itself.

The principle is well established by authorities that when a deed of one character is executed under the mistaken impression that it is of a different character, then it is wholly void and inoperative. Thus where a gift deed is signed under the impression that it is only a power of attorney, the deed is inoperative. If a mistake of this kind is common to both parties, the agreement is void under Section 20, the parties being mistaken about the very nature of the promise.

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 under Section 65 of The Contract Act which lays down the provision for restoration.

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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