Important types of Mistake of Fact are listed below:
1. Bilateral mistake; or
2. Unilateral mistake.
ADVERTISEMENTS:
1. Bilateral mistake:
Where the parties to an agreement misunderstood each other and are at cross purposes, there is a bilateral mistake. Here there is no real correspondence of offer and acceptance, each party obviously understanding the contract in a different way.
In fact in such cases, there is no agreement at all, there being entire absence of consent. This has been termed by Salmond as ‘error in consensus ‘as distinguished from ‘error in causa ‘(i. e. where consent is not free and is caused by coercion, undue influence, misrepresentation or fraud).
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ADVERTISEMENTS:
In case of bilateial mistake of essential fact, the agreement is void ab-initio. Section 20 provides that “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”. Thus for declaring an agreement void ab- initio under this Section, the following three conditions must be fulfilled:
(i) Both the parties must be under a mistake i.e., the mistake must be mutual. Both the parties should misunderstand each other so as to nullify consent.
Illustration:
M, having two houses A and B, offers to sell house A, and N not knowing that A/has two houses, thinks of house B and agrees to buy it. Here there is no real consent and the agreement is void.
ADVERTISEMENTS:
(ii) Mistake must relate to some fact and not to judgement or opinion etc. 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 (Explanation to Section 20).
Illustration:
If A buys a motorcar, thinking that it is worth Rs 80,000, and pays Rs. 80,000 for it, when it is only worth Rs 40,000, the contract remains good. A has to blame himself for his ignorance of the true value of the motorcar and he cannot avoid the contract on the ground of mistake.
(iii) The fact must be essential to the agreement i.e., the fact must be such which goes to the very root of the agreement. For example, the following mistakes may be covered under this condition:
(a) Mistake as to the existence of the subject-matter of the agreement:
If at the time of the agreement and unknown to parties, the subject-matter of the agreement has ceased to exist, or if it has never been in existence, then the agreement is void (Bell vs Lever Bros.).
Illustrations (To Sec. 20):
(a) A, agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts. The agreement is void.
(b) 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.
(b) Mistake as to the identity of the subject-matter Where both parties are working under a mistake as to the identity of the subject-matter i.e., one party had one thing in mind and the other party had another, the agreement is void for want of consensus-ad-idem.
Illustration:
Where there was a contract for the sale of a certain quantity of cotton arriving per ‘ex ship Peerless, and there were two ships of that name sailing, and the parties had in mind different ships at the time of entering into the contract, held there was no contract.
The Court observed; “the defendant meant one Peerless and the Plaintiff another.” That being so, there was no consensus-ad-idem and therefore no binding contract (Reffles vs Wichelaus).
(c) Mistake as to the quantity of the subject-matter. If both the parties are working under a mistake as to the quantity of the subject-matter, the agreement is void.
Illustration:
P enquired about the price of rifles from H stating that he may buy as many as 50. H quoted the price. P telegraphed “Send three rifles.” The telegraph clerk transcribed the message as “Send the rifles.” sent 50 rifles. P accepted only three and returned 47.
H filed a suit for damages for non- acceptance of 47 rifles. It was held that there was no contract as there was no consent and it made no difference even if the mistake was caused by the negligence of a third party. Of course P must pay the price of three rifles accepted by him (Henkel vs Pope).
2. Unilateral mistake:
Where only one, of the contracting parties is mistaken as to a matter of fact, the mistake is a unilateral mistake. Regarding the effect of unilateral mistake on the validity of a contract, Section 22 provides that “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.”
Accordingly, in case of unilateral mistake a contract remains valid unless the mistake is caused by misrepresentation or fraud, in which case the contract is voidable at the option of aggrieved party.
On the basis of judicial decisions, however, in certain exceptional cases even a unilateral mistake, whether caused by fraud, misrepresentation, etc., or otherwise, may make an agreement void ab-initto.
With a view to elucidating the above mentioned various possibilities regarding the validity of a contract under unilateral mistake; we shall now discuss them in some detail.