Mistake of Law and Mistake of Fact

One important factor of a valid contract is free consent. Both the parties involved in the contract must enter the contract willingly and under no pressure. There are factors which impair the free consent of either party. Once such factor is “mistake”, which includes a mistake of law and mistake of fact. Let us take a more detailed look into it.

Free Consent

According to section 14 of the Indian Contract Act 1857, free consent is defined as “consent is said to be free when it is not caused by coercion, under influence, fraud, misrepresentation, and mistake.” In the previous article about Free Consent, we have already covered the first four factors. Here we will be looking at the mistake factor.

A mistake is an erroneous belief that is innocent in nature. It leads to a misunderstanding between the two parties. Now when talking about a mistake, the law identifies two types of mistakes, namely

1. A Mistake of Law
2. A Mistake of Fact

(Source: Slideshare)

Mistake of Law

This mistake may relate to the mistake of the Indian laws, or it can be a mistake of foreign laws. If the mistake is regarding Indian laws, the rule is that the ignorance of the law is not a good enough excuse. This means either party cannot simply claim it was unaware of the law.

The Contract Act says that no party shall be allowed to claim any relief on the grounds of ignorance of Indian law. This will also include a wrong interpretation of any legal provisions.

However, ignorance of a foreign law is not given a similar treatment. Ignorance of the foreign law is given some leeway, the parties are not expected to know foreign legal provisions and their meaning. So a mistake of foreign law is in fact treated as a mistake of fact under the Indian Contract Act.

Mistake of Fact

Then there is the other type of mistake, a mistake of fact. This is when both the parties misunderstand each other leaving them at a crossroads. Such a mistake can be because of an error in understanding, or ignorance or omission etc. But a mistake is never intentional, it is an innocent overlooking. These mistakes can either be unilateral or bilateral.

Bilateral Mistake

When both parties of a contract are under a mistake of fact essential to the agreement, such a mistake is what we call a bilateral mistake. Here both the parties have not consented to the same thing in the same sense, which is the definition of consent. Since there is an absence of consent altogether the agreement is void.

However, to render an agreement void the mistake of fact should be about some essential fact that is of importance in a contract. So if the mistake is about the existence of the subject matter or its title, quality, quantity price etc then it would be a void contract. But if the mistake is of something inconsequential, then the agreement is not void and the contract will remain in place.

For example, A agrees to sell to B his buffalo. But at the time of the agreement, the buffalo had already died. Neither A nor B was aware of this. And so there is no contract at all, i.e. the contract is void due to a mistake of fact.

Unilateral Mistake

A unilateral mistake is when only one party to the contract is under a mistake. In such a case the contract will not be void. So the Section 22 of the Act states that just because one party was under a mistake of fact the contract will not be void or voidable. So if only one party has made a mistake of fact the contract remains a valid contract.

However, there are some exceptions to this. In certain conditions, even a unilateral mistake of fact can lead to a void or voidable agreement. Let’s see a few of these exceptions via some examples and case studies.

1. When Unilateral Mistake is as to the Nature of the Contract: In such a case the contract can be held as void. Let us see the example of Dularia Devi v. Janardan Singh. Here an illiterate woman put her thumb impression on two documents thinking they were the same. She thought the document was to gift some property to her daughters. But the other document was a Sale deed to defraud the women out of more of her property. This contract was held void by the courts
2. When the Mistake is regarding the Quality of the Promise: There was an auction being held by A to sell hemp and tow. B thinking the auction was only for hemp, mistakenly bid for a tow. The amount bid was on par for hemp but very high for a tow. Hence the contract was held as voidable.
3. Mistake of the Identity of the Person contracted with: For example, when A wants to enter into a contract with B but mistakenly enters into a contract with C believing him to be B.

Solved Example on Mistake of Law and Mistake of Fact

Q: A mistake of law always leads to a valid contract. True or False?

Ans: The statement is False. A mistake of India law if is regarded as a valid contract since ignorance of the law is not a good enough excuse. But a mistake of foreign law is considered as a mistake of fact, and if such a mistake is bilateral it will lead to a void contract.