A mistake can be defined as a false assumption about something. When both parties do not concur on the same object and in the same sense, a contract may be the result of error. These categories of error include:
(i) Factual error;
(ii) Legal error; and
(iii) Both parties made a mistake.
(1) Factual Error
A mistake of fact is one that involves an important fact and affects both parties, not just one. It is one that involves an important fact and both parties.
For instance, Ram signs a contract to deliver to Shyam a ship-consignment of commodities that are scheduled to arrive from America. However, the ship had already sunk in the water before arriving, and neither party was aware of this. This agreement is void as a result of both parties' errors.
Mistake of fact can also be categorised as:
Bilateral Error (A). In cases where both parties to an agreement are mistaken about a truth that is crucial to the agreement, the agreement is void, according to Section 20 of the Indian Contract Act. As a result, the Act stipulates that the error must be bilateral and relate to a fact that is crucial to the agreement.
Example, For a price of Rs. 1,000, A consents to sell B his horse. However, neither A nor B were aware of the horse's death a day earlier. This agreement is null and void because there was a bilateral error.
To be deemed void ab-initio under this provision, the following two requirements must be satisfied.
I Both parties must have erred—they must both have made a mistake that they were both responsible for. There must be a miscommunication between the two parties.
Ex T, who owns both houses A and B, offers to sell house A. N, who is unaware that T owns both houses, decides to buy house B. Given that there isn't actual consent, the agreement in this case is null and void.
(ii) There must be a factual error that is material to the agreement; the error must relate to a fact, not a judgement or an opinion. The fact has to be one that forms the basis of agreement. What facts are necessary to an agreement in each circumstance depends on the type of promise made.
Cases covered by bilateral error: The errors that, in light of legal rulings, may be covered by bilateral error may be categorised under the following headings.
(a) Error as to existence of subject matter: If both parties think that the contract's nonexistent subject matter exists, then the contract is void.
For instance, A consents to purchase a specific horse from B. Unfortunately, neither party was aware that the horse had already passed away when the deal was made. Such a contract is invalid.
(b) When both parties are wrong about the identification of the subject matter—that is, when one party had one idea in mind and the other had another—the agreement is null and void for lack of consensus.
(c) Mistake regarding the title of the subject matter. If the seller is selling something that he is not authorised to sell and both parties are acting in error, the agreement is null and void.
Ex: Someone leased a fishery that previously belonged to him, but neither side was aware of it. It was decided that the lease was invalid.
(d) Mistake about the nature of the subject-matter. If both parties are mistaken about the nature of the subject-matter, i.e., if they think the subject-matter is different from what it is, then the agreement is null and void.
Ex. B and A have a contract whereby A is to sell B a specific horse that both parties believe to be a racehorse. However, it is eventually discovered that it is a cart horse. The deal is null and invalid.
(B) Irregular action. Unilateral mistake occurs when only one party to the contract is wrong about the subject's pricing or quality. A contract is not voidable just because one of the parties to it made a factual error, according to Section 22 of the Indian Contract Act. It is obvious that a unilateral error-based agreement cannot be avoided.
Example: A proposes to B the sale of his home. Inadvertently, he makes a written offer of Rs. 50,000 instead of the anticipated Rs. 1,50,000. He is not permitted to reject the contract due to an error.
(II) Legal error
With regard to mistake of law there is a well established rule known as ‘Ignorantia juris non excusat’ i.e., ignorance of law is no excuse. A party cannot seek any relief on the plea that he was ignorant of law. Thus, a contract based on ignorance of law cannot be avoided since a person is expected to have knowledge of law of his land. However, if a person gets into a contract by presuming a law through the inducement of an other, the contract may be avoided.
A mistake of foreign law is viewed as a mistake of fact, and the agreement is null and void in such circumstances. To quote Sec: 21 of the Indian Contract Act, “A contract is not voidable because it was caused by a mistake as to any legislation in force in India; but a mistake as to a law not in force in India has the same effect as an error of fact.”
Example. After being caught, A snatches B's watch. A claims he was unaware that theft is a punishable offence. He should not be given a pass based on this.
