CIA 3

LAW OF CONTRACT

CHRIST (Deemed to be University), DELHI NCR

Topic of CIA:

Mistake of Fact & Mistake of Law: Effect on Validity of

Contract

Submitted to: Ms Shradha Sanjeev Submitted by:

Gurbaaz Singh Puri (20213223)

Praney Mehta (20213236)

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 INDEX
Contents
INDEX .............................................................................................................................................................................. 2
INTRODUCTION........................................................................................................................................................... 3
DEFINITION OF MISTAKE ................................................................................................................................................... 3
TYPES OF MISTAKE ............................................................................................................................................................ 3
MISTAKE OF LAW .............................................................................................................................................................. 3
EXCEPTIONS TO MISTAKE OF LAW ..................................................................................................................... 4
Mistake with regard to a Foreign Law: ..................................................................................................................... 4
Mistake with regard to a Private Right: .................................................................................................................... 4
MISTAKE OF FACT ............................................................................................................................................................. 5
BILATERAL MISTAKE .......................................................................................................................................... 5
UNILATERAL MISTAKE....................................................................................................................................... 6

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INTRODUCTION
In general, a 'mistake' is something that does not work out when looking for a solution. The terms 'mistake'
and 'error' are interchangeable. Misunderstanding or incorrect assumption regarding a significant fact may
preclude the establishment of a legal contract in the eyes of the law. Free consent of the parties is a fundamental
aspect of every contract, according to Section 10 of the Indian Contract Act 1872. 'Free consent implies assent
not generated by force, undue influence, fraud, deception, or error,' according to Section 14 of the Indian
Contract Act. Mistake means ‘believe in those things which do not exist in reality’. Mistake is an erroneous
belief.

DEFINITION OF MISTAKE
The Indian Contract Act does not define the term "mistake." The idea of mistake is discussed in sections 20,
21, and 22. A 'mistake' is any action, choice, or judgement that results in an unintended and undesirable
outcome. When parties want to do one thing but inadvertently do something other, they are said to have made
a mistake. Phillips v. Brooks Ltd is a contract law case in England that involves a mistake. In this instance, it
was decided that a person is presumed to contract with the person in front of them unless they can show that
they meant to deal with someone else instead.

TYPES OF MISTAKE
✓ Mistake of Law
✓ Mistake of Fact

MISTAKE OF LAW
Ignorance of the law is not an excuse, according to the Latin maxim ignorantia juris non excusat. As a result,
a contract cannot be considered to be voidable under section 21 of the Indian Contract Act, 1872, because the
parties misunderstood any laws in existence in India. As a result, the contracting parties cannot obtain remedy
based on their ignorance of Indian law.

For Example, A ticket conductor apprehended a guy going on a train without a ticket. The guy cannot claim
ignorance of the requirement for a ticket while travelling and would be prosecuted under Section 138 of the
Indian Railways Act, 1989.1

Grant v. Borg
In this case, the individual was unaware of the provisions of the Immigration Act of 1971 that prohibit people
from exceeding the time limit set by their leave. He is not entitled to a defence based on a legal error.

Mistake of Law can be of two types:

Mistake in Indian Law:
The Latin phrase "Ignorantia Juris non excusat" means "Ignorance of the law is not pardoned." If a person
enters into a contract without understanding any specific requirements of Indian law (which are necessary for

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that deal), the contract is not voidable since everyone is expected to know his country's laws. For example,
under Indian law, we must recover the amount of the loan within 3 months of the due date, after which the
debt becomes time-barred. We cannot cite ignorance of the law (legal error) as an explanation or defence if
we do not show any interest in recovering the loan amount during these three months.

Examples:

✓ If A and B enter into a contract based on the incorrect impression that a certain debt is banned by the
Indian Law of Limitation, the contract is not voidable.
✓ A cannot use mistake of law as a defence since he was unaware of the law at the time of the murder.

Mistake of Foreign Law:

If a person enters into a contract without knowing any specific provisions of foreign law (which are necessary
for that contract), that mistake is treated as a mistake of, i.e., the contract is void if both parties are in error as
to foreign law, because no one can be expected to know the laws of other countries.

EXCEPTIONS TO MISTAKE OF LAW

Mistake with regard to a Foreign Law:

✓ A mistake on a foreign law is similarly treated as a mistake of fact, according to Section 21. This is
because the contracting parties are not required to understand all of the foreign law's provisions and
their meaning. As a result, if both parties make a mistake of foreign law, the contract will be ruled
worthless.
✓ Example: An Indian company promises to supply 200 cans of a certain combination containing 45
percent sulphuric acid to an American company. The acquisition and selling of mixes containing more
than 30% sulphuric acid was prohibited under country law. This is seen as a misunderstanding of
foreign law, and the contract is thus declared void.

Mistake with regard to a Private Right:

✓ Because it is impossible for one person to completely understand the private rights of another, the
existence of any private right is a matter of fact, subject to the principles of law.
✓ The plaintiff in Cooper v Phibbs (1867) accepted a lease of a fishery right from the defendant without
realising that he already had a life interest in the fishery right. As a result, the plaintiff filed a lawsuit
to have the lease terminated, and the defendant claimed that this was a legal error. It was decided that
a mistake about general ownership or right is on the same level as a legal mistake, and so was ruled
void.

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MISTAKE OF FACT
Any contract performed by parties without understanding any significant information (or disregarding the
fact) that is relevant to that contract is referred to as a factual mistake. 'Mistake of Fact' is addressed under
sections 20 and 22 of the Indian Contract Act. Mistake of Fact is of three types:

✓ Bilateral mistake,
✓ Unilateral mistake
✓ Common mistake.

Case : A is a court official who is directed to arrest Y in the case of The State of Maharashtra versus Mayer
Hans George. A makes the mistake of arresting Z because he assumes Z is Y. In this case, A can use the
defence of bona fide purpose to defend himself against the factual error.

The act of a person who, by error of fact, believes himself to be justified by law is dealt with under Section
79 of the Indian Penal Code. If the criminal defendant can show that he committed the conduct as a result of
a factual error or misinterpretation, that part of the offence will be eliminated.

Chirangi v. the State of M.P., 53 CrLJ 1212 (1952). (M.P.)

In this example, a widower with an axe and his kid went into the woods to collect 'siadi' leaves. His nephew
noticed the accused sleeping under the tree and the child disappeared after some time. The child was later
discovered dead. It was established in evidence that the accused was in a state of mind at the time when he
visualised that a tiger was going to attack him as by mistake he killed his son considering his son as the tiger.
The court stated that it was a mistake of fact that immunized him from liability. He had no intention to kill his
son.

Khora Ghasi v. State of Orrisa

While defending his land, the accused fired an arrow at a moving object, believing it to be a bear, however
the shot resulted in the death of a person. He is granted immunity in this case due to a factual error.

While defending his land, the accused fired an arrow at a moving object, believing it to be a bear, however
the shot resulted in the death of a person. He is granted immunity in this case due to a factual error.

BILATERAL MISTAKE
Section 20 says “Where both parties to an agreement are in mistake as to a matter of fact essential to the
agreement, the agreement is void,”2. In simple terms, if parties enter into an agreement without first learning
all of the essential facts about the agreement, this is referred to as a Bilateral Mistake, and the agreement will
be nullified. For instance, A pledges to sell any products on their journey from America to Bombay to B. The
ship carrying the commodities had been tossed overboard and the goods had been lost before the day of the
transaction. Neither side, however, was aware of these facts. The contract is null and invalid.

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Elements of Bilateral mistakes:

✓ Both parties must be under mistake.

✓ Mistake must be of fact, not of law.
✓ Mistake must be related to an essential fact.

Facts essential in Bilateral Mistake:

An agreement is a void where there is a bilateral mistake as to subject matter. Bilateral mistake as to the
subject matter includes:

✓ Existence of subject matter: A and B are parties to a contract to sell a horse for a set price. However,
the horse dies before the contract is fulfilled, and both parties (A and B) are unaware that the horse
no longer exists. The Contract is null and invalid in this circumstance
✓ Identity of subject matter: The contract between 'A' and 'B' stated that 'A' would sell his automobile
to 'B'. There are two distinct sorts of cars in the letter ‘A.' (one for racing and other for tourism
purpose). The true identification of the car is unknown, and both sides are considering several sorts
of vehicles.
✓ Quantity of subject matter: A and B formed a deal involving the exchange of 200 pens in exchange
for a sum of money. However, before the contract could be fulfilled, the brother of 'A' sold 100 pens
early, and both parties (A and B) were ignorant that only 100 pieces existed. The contract is null and
invalid in this circumstance.
✓ Quality of subject matter: ‘A' and ‘B' concluded a deal in which ‘A' sold his automobile in exchange
for a sum of money from ‘B.' They mistook the automobile for a race car, but it was actually used for
tourism. The Contract is null and invalid in this circumstance.
✓ Price of subject matter: 'A' and 'B' agreed to sell items in exchange for a sum of money that was not
a legitimate amount, and both parties (A and B) were oblivious of this. The Contract is null and
invalid in this circumstance.

UNILATERAL MISTAKE
A contract is not voidable just because one of the parties to it made a factual error, according to Section 22.
A mistake like this does not render the agreement void. For instance, suppose 'A' and 'B' established a
contract in which only 'A' was misled about any goods included in the transaction. The contract will
thereafter be classed as a legitimate contract because it is not voidable for 'A.'

CASES IN WHICH UNILATERAL MISTAKE MAKES A CONTRACT VOID AND

VOIDABLE:

Unilateral Mistake makes a contract voidable

If a unilateral mistake is caused by fraud or deceit, the contract is voidable in favour of the person that made
the mistake. Put simply, if ‘A' arranges such conditions and engages in such activities in order to deceive
‘B,' then ‘B' has made a mistake as a result of A's actions and has entered into a contract with ‘A.' The
contract will thereafter be voidable if you choose option ‘B.'

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Unilateral Mistake makes a contract void
Unilateral mistake makes a contract void in two cases:

✓ Unilateral mistake about the nature of Contract: If a person intends to sign into a contract but
inadvertently enters into a separate contract. For example, if an illiterate individual accidentally leaves
a fingerprint on any paper, the contract made as a result of the thumbprint will be invalid.

In the case of Dularia Devi v. Janardan Singh (1990), an illiterate mother put her thumbprint on two
documents, believing that they were both intended to give her daughters some property. She then
realised that the second paper was intended to cheat her of even more of her belongings. Despite the
fact that this was a unilateral error on the side of the illiterate lady, the contract was declared void by
the courts since the permission for the agreement was obtained via deception and the woman was
unaware of the nature of the transaction.

✓ Unilateral mistake about the identity of the person: If ‘A' wishes to engage into a contract with ‘C,'
but by mistake does so with ‘B.' The contract will thereafter be null and invalid. For instance, suppose
'A' is a regular customer of 'C.' He gives 'C' the task of delivering the supplies. However, he is unaware
that 'B' is the new owner of the store, and he enters a contract with him by accident. The contract will
be null and invalid in this scenario.

In the case of Cundy v Lindsay (1878) Lindsay & Co, producers of linen handkerchiefs among other
things, got an order for 250 dozen handkerchiefs from a guy named Blenkarn, who mimicked the
signatures of "Blenkiron & Co." a known concern headquartered at "123, Wood Street". The individual
further stated that his address was 37 Wood Street, Cheapside. Lindsay and Co thought the order came
from a reputable business on Wood-street, and so they fulfilled it. Later, the individual sold the
products to Cundy, an unwitting third party. Lindsay & Co sued Cundy for the items when Blenkarn
failed to pay for the order. Lindsay and Co argued that there was no true assent to the contract of sale
since they sold the products to Blenkarn on the incorrect idea that they were selling them to Blenkiron
& Co. The claimants made a unilateral mistake about the identity of the other party, rendering the
contract unlawful, and therefore the ownership to the goods did not pass to Blenkarn, and hence could
not have gone to Cundy, who was obligated to return the items to Lindsay and Co.

CONCLUSION
All agreements are contracts if they are formed with the free consent of parties competent to contract, for a
legitimate price, and with a lawful intent,' according to Section 10 of the Indian Contract Act of 1872. 'Consent
is considered to be free when it is not caused by mistake, subject to the provisions of Sections 20, 21, and 22
of the Indian Contract Act,' according to Section 14 of the Indian Contract Act. There are two categories of
mistakes: legal mistakes and factual errors. A mistake of fact is an excuse for non-performance of contract
obligations, but a mistake of law is not a justification for non-performance of contract obligations.