According to the Indian Contract Act 1872, an agreement enforceable by law is a contract.[i] All agreements are contracts if they are made by the free consent of parties competent to contract. Definition of free consent is provided in the Indian Contracts Act under Section 14 as one which is free from coercion, undue influence, fraud, misrepresentation or mistake[ii]. If the consent given has any of these elements then the contract is not a valid one. Free consent ensures fairness and equality between the contracting parties and protects their freedom to either enter or not enter into any contract.
This article talks about consent given by mistake and its effect on the contract.
MISTAKE: ITS MEANING AND SCOPE
When one or both the parties enter into a contract due to some innocent mistake, and if it was not for that mistake they might have not entered into the contract, then the contract so formed becomes invalid. Section 20, 21 and 22 of Indian Contracts Act talks about mistake.
There can be two general types of mistakes[iii]:
- When the contract is formed without meeting of minds of the parties, i.e., when there is no consensus ad idem.
- When the parties were under some mistake regarding some fact relating to the contract.
CONSENSUS AD IDEM:
Section 13 defines consent as, when two or more persons agree on the same thing in the same sense.[iv] This is known as meeting of minds. It is a very fundamental requirement for any contract to become legally enforceable. The contracting parties while agreeing on something should talk about the same subject matter and in the same sense. The parties should examine each and every clause of the contract and there should be mutual agreement on all those terms, only then we can say that there is meeting of minds. However, in case there is no meeting of minds, then the contract becomes void.
A case in point here is, Tarsem Singh v. Sukhminder Singh[v]. The parties here agreed on sale of land. However, there was no meeting of minds regarding the measurement of the land. It was held that since there was no consensus ad idem, so the contract was void.
MISTAKE OF FACT:
Mistake of fact is when the contracting parties are under the mistake regarding some fundamental fact about the agreement.
Elements of mistake of fact are[vi]:
- Both the parties should be under a mistake
- Mistake should be factual
- Mistake should be fundamental to the contract
ELEMENTS OF MISTAKE OF FACT
Both the parties should be under a mistake: It is important that the mistake is made by both the parties. Once it is established that the mistake was made by both the parties then the contract becomes void. However, if the mistake was on part of one party then contract is still enforceable. For example, in Ayekam Angahal Singh v. The Union of India[vii], there was an auction for sale of fishery rights and the plaintiff made the highest bid for Rs. 40000. He thought that this was full and final amount for 3 years. It turned out that it was Rs 40000 per year. Plaintiff wanted to avoid the contract by taking the plea that there was mistake of fact. It was held that this was a unilateral mistake and therefore the contract was valid.
Mistake of fact: If there was some genuine factual mistake by the contracting parties which was essential for the contract, then the contract becomes void. Mistake of fact is treated as an excuse in law. This is also reflected in the Latin maxim, ignorantia facti excusat.
If the parties want to avoid the contract by taking the plea that the parties had some misunderstanding about the law of land, then no relief would be given to them because people are expected to know law of their country. However, if the mistake was regarding some foreign law, then that would be treated as mistake of fact, as no one can be expected to know laws of foreign country.
Mistake should be essential to the agreement: The mistake made by the parties should be such that it should be fundamental to the agreement.
These fundamental mistakes can be:
- MISTAKE RELATED TO THE EXISTENCE OF SUBJECT-MATTER: If the contracting parties were under a mistake regarding the existence of the subject matter, then the contract becomes void. An English case here is, Couturier v. Hastie[viii]. The parties contracted for sale of a cargo of corn which was to be in transit from Salonica to the United Kingdom. Even before the contract, the corn got fermented and was disposed by the master of the ship. This was unknown to both the parties. It was held that since there was a mistake regarding the existence of the subject matter, therefore the contract was void. However, if there is only unilateral mistake regarding the quality of the subject matter, then the contract remains valid.
- MISTAKE RELATED TO THE POSSIBILITY OF THE PERFORMANCE OF THE CONTRACT: If it becomes impossible to perform a contract because of nonexistence of the subject -matter or if it becomes impossible legally or physically to perform it, then the contract becomes void.
For example, if A and B enter into a contract for sale of a house. Unknown to both the parties the house got destroyed in a fire. Since the act of selling the house becomes impossible because of nonexistence of the house, therefore, the contract becomes void.
- MISTAKE AS TO THE TITLE: The parties here are under an innocent mistake regarding the title of the subject-matter. It may happen that unknown to the buyer, he already has the possession of what is to be sold to him and the seller has no right to sell it. In such cases the contract becomes void.
In Copper v. Phibbs[ix], plaintiff took lease of fishery from defendant. It turned out that the plaintiff was already a tenant for life of the fishery right and the defendant had no title to the same. The contract between them was held to be void on the basis that there was a mutual mistake between the parties regarding the title.
- MISTAKE AS TO PROMISE: When the real intention of the parties is not reflected in the agreement owing to their mutual mistake, then the contract becomes void.
In Hartog v. Colins & Shielda[x], the parties negotiating in the contract had made innocent mistake regarding the rate of sale of goods. Plaintiff sued defendant for non-delivery of goods. It was held that there existed no contract, because the intention of the contracting parties was clearly reflected in the contract.
- MISTAKE ABOUT THE IDENTITY OF THE PARTIES: An agreement ripens into a contract only when the contracting parties entered into the contract with the parties they intended to. So, if A makes an offeror to B, then C has no right to accept the offer. However, if C accepts the offer and sends the goods at A’s place, then A is under no obligation to pay for it. In cases where a person sends his agent to make the offer, knowing that the offeree would not accept his offer, the offeror cannot sue the offeree for breach of contract.[xi]
A case in point here is, Boulton v. Jones[xii], the defendant wanted to enter into a contract with Brocklehurst. Unknown to the defendant, Brocklehurst had already sold his business to Boulton. Boulton accepted defendant’s offer and likewise supplied the goods. Defendant refused to accept the goods saying that he never intended to enter into a contract with the plaintiff. The order was in favour of defendant considering that there was a mistake as to the identity of the contracting party.
A more complicated aspect of this type of mistake is when the contracting parties were in the presence if each other. Two crucial judgements given in this regard were in Phillips[xiii] and Lewis[xiv]. The facts of both these cases were similar. In Lewis case, a rouge approached plaintiff to purchase his car. He wanted to pay through cheque. He convinced the plaintiff that he was some famous actor and also showed a special invitation card to prove the same. After buying the car he sold it to the bona fide defendant. The cheque given by him was dishonoured. Plaintiff sued the defendant to recover his car back. It was held that in case of face-to-face contracts if there is any mistake regarding the identity of the other party then the contract does not become void but becomes voidable on the ground of fraud done in respect of payment.[xv] Further, as the rogue had already sold the car to the defendant before the contract could have been avoided by the plaintiff, therefore, defendant got the title of the car.
Mistake in a contract is one of those factors which hinder free consent in a contract. Section 10 of Indian Contracts Acts mandates that free consent is essential in formation of a valid contract. Mistake is an innocent but erroneous belief made by contracting parties which may turn the contract void. Mistake can be a factual mistake or when the there is no meeting of minds of the contracting parties or related to some fundamental matter of the contract. A party can use the plea of mistake in free consent to avoid a contract.
[i] Indian Contracts Act 1872, s 2(h).
[ii] Indian Contracts Act 1872, s 14.
[iii] R. K. Bangia, Contract-1 (7th edn, Allahabad Law Agency 2017) 187.
[iv] India Contracts Act 1872, s 13.
[v] A.I.R 1998 S.C. 1400.
[vi] R. K. Bangia, Contract-1 (7th edn, Allahabad Law Agency 2017) 189.
[vii] A.I.R 1970 Manipur 16.
[viii] (1856) 5 H.L.C 673.
[ix] (1867) L.R. 2 H.L. 149.
[x] (1939) 3 All E.R. 566.
[xi] R. K. Bangia, Contract-1 (7th edn, Allahabad Law Agency 2017) 194.
[xii] (1857) 2 H.&N. 564.
[xiii] (1919) 2 K.B. 243.
[xiv] (972) 1 Q.B. 198.
[xv] R. K. Bangia, Contract-1 (7th edn, Allahabad Law Agency 2017) 196.
This article is authored by Madhavi Raje, 1st year student of Dr. Ram Manohar Lohia National Law University Lucknow.
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