Chapter 6

Mistake

Definition of Consent

The provisions of the Contract Act relevant to a study of the effect of “mistake” upon a contract
that the parties have purported to make may be noted first. Mistake may operate upon a
contract in two ways. It may, firstly, defeat the consent altogether that the parties are
supposed to have given, that is to say, a consent is unreal. Secondly, the mistake may mislead
the parties as to the purpose which they contemplated.

Two or more persons are set to consent when they agree upon the same thing in the same
sense.

An agreement upon the same thing in the same sense is known as true consent for
consensus ad idem, and is at the root of every contract.

This seems to have been picked up from a passage in the judgement of Lord HANNEN in
Smith v Hughes.

“ it is essential to the creation of a contract that both the parties should agree to the
same thing in the same sense. Thus if two persons enter into an apparent contract concerning
a particular person or ship, and it turns out that each of them, misled by similarity of name, had
a different person or ship in mind, no contract would exist between them; Raffles v
Wichelhaus.

Definition of mistake

Where the mistake does not defeat consent, but only misleads the parties, section 20 shall
apply. This section provides:

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.

21. Effect of mistakes as to law. - A contract is not voidable because it was caused by a
mistake as to any law in force in India; but a mistake as to a law not in force in India has the
same effect as a mistake of fact.

Section 22 who deals with the situation where only one party is mistaken:
22. Contract caused by mistake of one party as to matter of fact: - A contract is not
voidable merely because it is caused by one of the parties to it being under a mistake as to a
matter of fact.

What facts are essential

What factors are essential to an agreement? The answer is naturally linked with the nature of
promise in each case. The plaintiff was a wholesale dealer under rationing order. He was
entitled to transport charges variable according to distance for collecting goods from
government godowns. He was paid at the rate applicable to a zone less than 25 miles of
distance. The distance in fact, exceeded 25 miles but both parties were aware of it. As soon as
the mistake was discovered future payments were made according to the actual distance. The
plaintiff's claim for the arrears after the time of rectification was dismissed, by the court saying
that the mistake did not relate to an essential fact. Thus, essentiality depends upon each
case. In the above case, the mistake was related to a minor distance. The fact would have
become more important and essential to the contract if a longer distance had been
involved.Speaking broadly, certain facts are essential to every agreement such as:

1. The Identity of the parties

2. The identity and nature of the subject matter of the contract and
3. The nature and content of the promise itself.

Mistake as to identity

Assumption of false identity

Mistake as to identity occurs where one of the parties represents himself to be some person
other than he really is. Thus, for example, in Jagannath v secretary of state of India:

A person called S, a brother of the plaintiff, represented himself as plaintiff, and thereby
induced a government agent to contract with him.

The court, finding out the government's agent was deceived by the conduct of the plaintiff and
his brother has to the person with whom he was dealing, held that there was no valid contract.
The defendant’s agent intended to contract only with S and not with the brother of S and S
knew this.

In the above case, the government's offer was meant for S and his brother posing as S
accepted it. This prevented real consent. It means that an offer which is meant for one person
cannot be accepted by another.
Mistake caused by takeover of business.

In England there is a long line of cases on the subject. In Boulton v Jones the mistake arose
naturally in the course of business.

The plaintiff had taken over the business of one Brocklehurst. The defendant used to
deal with Brocklehurst and not knowing of the change, sent him an order for certain goods.The
order was received by the plaintiff who sent the goods. The defendant came to know of the
change only when he received an invoice and by that time he had already consumed the
goods. The defendant had a set-off against Brocklehurst and therefore, refused to pay the
price. The plaintiff sued him.

4 judges unanimously held the defendant not liable. “ the rule of law is clear, that if you
propose to make a contract with A, then B cannot substitute himself for A, without your
consent and to your disadvantage, securing to himself all the benefit of the contract.”. Similarly,
when anyone makes a contract in which the personality, so to speak, of the particular party
contracted with is important, any reason, whether because it is to write a book or paint a picture
or to do any work of personal skill, or whether because there is a set-off due from that party, no
one else is at liberty to step in and maintain that he is the party contracted with.

Mistake of Identity caused by fraud

The principle of this case found for the support in Hardman v Booth:

The plaintiffs, meaning to deal with Thomas Gandell and sons, went to their office and
took an order from a person who represented himself to be a partner in the firm. He told the
plaintiff that the goods should be sent in the name of Edward Gandell and sons. He received
the goods, carried them away and sold them to the defendant, a bonafide buyer. The plaintiffs
sued the defendant to recover their goods.

Pollock CB explained the principle thus: “ There are some cases in which it is very clear that
there is no contract at all; and the present case seems to be one of those cases. It is argued
that the contract was made personally with the particular individual who made the
communication; it is very true that the words were uttered by and to him; but what they imported
was a contract with Gandell & Co, the facts being that he was not a member of the firm, and had
no authority to act as their agent, and Gandell & Co, therefore were not the buyers; and
consequently at no time there were two consenting minds drawn together to the same
agreement”.

Distinction between identity and attributes

A distinction has been made for this purpose between a person's identity and his attributes and
a mistake about the letter has been held not to avoid the agreement. There can be a mistake of
Identity only when a person bearing a particular identity what's in the knowledge of the plaintiff,
and the plaintiff intends to deal with him only. If the name assumed by the swindler is fictitious,
there will be no mistake of Identity.

The scope for operative mistake as to identity is further reduced when the parties are in each
other's presence. Please refer Phillips v Brooks Ltd.

Where fraud does not lead to mistaken identity

In the descending judgement, Delvin LJ emphasized the need for a new approach. In his view,
cases like these pose a problem of practical justice, and theoretical considerations such as
whether the contract is void or voidable should not stand in the way of doing practical justice.
Why should the title of the innocent buyer be made to depend on the state of a contract
between third parties? It is this approach that found favour with the court of appeal in Lewis v
Averay:

Lewis, plaintiff had a car to sell. A man, described in the judgement as “rouge”, came
along and introduced himself as Richard Green, a famous film actor. He tested the car and
offered a cheque. The plaintiff told him to wait till the cheque was cleared, but when his
resistance was broken, he demanded proof of Identity. The rogue produced a special pass of
admission to a film studio which showed his photograph and official stamp. This convinced the
plaintiff and allowed the car to be taken away for the cheque.The rogue lost no time in disposing
of the car to an innocent buyer, the defendant. The worthless check came back and the plaintiff
sued the defendant to recover his car.

The court of appeal held that the car was delivered under a contract voidable by reason of the
fraud and the contract having not been avoided before the car was passed on to the hands of
an innocent buyer, he acquired a good title.

When the parties are present face to face, the presumption is that the contract is made with the
person actually present, even though there is a fraudulent impersonation by the buyer sending
himself as a different man than he is. In Ingram v Little:

“The courts hold that if A appeared in person before B, impersonating C, an innocent

purchaser from A gets the property in the goods against B.

Where identity especially important

Where, however, the identity of the other party is of vital importance to the offeror, a mistake as
to identity will prevent an agreement from arising. Importance of Identity must depend upon the
nature of the promise in each case. Please refer Said v Butt and Sowler v Potter

Mistake as to subject-matter
Another fact essential to every agreement is the identity or quality of the subject matter of the
contract. Mistake as to subject matter may take various forms.

1. Non-existent subject matter

In the first place, the subject matter may have ceased to exist before the contract was made.
This has happened in Couturier v Hastie

The defendant was employed to sell the plaintiff’s cargo which was on voyage. After
the defendant had sold the cargo to a third person, it was discovered that the cargo, having
been damaged by bad weather, had been sold at an intermediate port. The buyer repudiated
the contract and the defendant, being a del credere agent was sued for the price.

But he was held not reliable. Lord Cranworth said: “The contract plainly imports and there was
something which was to be sold at the time of the contract, and something to be purchased.”
As the goods had been totally lost before the contract was made, the contract was void ab initio
( from the very beginning). on the same principle, the sale of a horse which, unknown to the
parties, was dead at the time of the bargain and the sale of the life estate of a person who,
unknown to parties, was dead at the time of the sale, would be void.

2. Mistake as to title or rights.

“ corresponding to mistake as to the existence of subject matter is mistake in cases where,

unknown to the parties, the buyer is already the owner of that, which the seller for pots to sell to
him. The parties intend to effectuate a transfer of ownership: such a transfer is
impossible…….”

In such a case, however, equity only allowed the agreement to be set aside. This was affirmed
by the house of Lords in 1867 in the great case of Cooper v Fibbs. In that case, an uncle had
told his nephew, not intending to misrepresenting anything but being in fact in error, that the
uncle was entitled to a fishery, and the nephew, after the uncle's death, acting on the behalf of
the truth of what the uncle has told him, entered into an agreement to rent the fishery from the
uncle's daughter, where as it actually belonged to the nephew himself. The house of Lords held
that the mistake was such as not only to make the agreement voidable, but also liable to be set
aside on such terms as the court thought it fit to impose.

The principal was further explained by the court of appeal in Solle v Butcher

No contract would follow where though the buyer is not the owner, the vendor also does not
have the right to sell and the parties have mistakenly believed that he has the right. Where a
vendor purported to sell all rights in a land ,including the rights to mine minerals, the agreement
was held void when it was subsequently found that the vendor's rights simply did not include the
right to mine. Without this right, the land was worthless for the buyer whose only object was to
work the mines. A mistake of this kind must be reasonable in the circumstances. Where, for
example, “the position was too notorious at well known to all concerned in the locality that the
tenants of an estate, which was the subject matter of sale, had the right to sell Tendu leaves to
whomsoever they pleased”, the buyers ignorance of this right was not reasonable and
consequently the contract was valid. In a case before the Bombay High Court:

C mortgaged the property of his brother L.M. fraudulently representing himself to be

LM. The defendant, who was not the mortgagee , transferred his interest to the plaintiff. The
plaintiff insisted that the owner of the property should join the transfer and C again committing
the same fraud , executed transfer. Discovering the fraud, the plaintiff sued the defendant for
the return of the purchase money.

It was held that he must succeed. “Both the parties being in the belief that the real owner had
joined in the transfer were under mistake of fact essential to the agreement which was,
therefore, avoided under section 20.”

3. Different subject matters in mind

Where the parties, due to reasonable mistake of fact, have different subject matters in mind,
the agreement will be void for want of true consent. as for example, in Raffles v Wichelhaus:

The defendant bought the plaintiff a quantity of Surat cotton to arrive ex-peerless from
Bombay. Two ships with the same name Peerless sailed from Bombay, one in October, which
the defendant had in mind and another in December, which the plaintiff had in mind.

The court said the “defendant meant one P\peerless and the plaintiff and another. That being
so, there was no consensus ad idem and therefore no binding contract.”

Where the buyer believed that the land was being sold at the stated price per bigha in the seller
thought the price was applicable per kanal, it was held that there was no agreement on the
matter of an essential fact and, therefore, no contract.

4. Mistake as to substance of subject matter

Another kind of mistake as to subject matter may relate to its substance, nature or quality. Two
parties may be mistaken as “to the existence of some fact or facts forming an essential and
integral element of the subject matter” . The decision of the privy council in Seikh Bros Ltd v
Ochener, on appeal from Kenya and decided under section 20 of the Indian Contract Act,
provides an instructive illustration.

The appellant company, the lessor of a forest in Kenya, granted a licence to the
respondent to cut, process and manufacture all sisal growing in the forest. Respondent in
return, undertook to manufacture and deliver to the appellant 50 tons of sisal fibre per month.
But it turned out that the leaf potential of the sisal area was not sufficient to permit the
manufacture of the stipulated quantity and the respondent was sued for the breach.
 The agreement was held to be void, Their Lordships came to the conclusion that having
regard to the nature of the contract, which was a kind of a joint venture, it was the very basis of
the contract that the sisal area should be capable of producing an average of 50 tonnes a month
throughout the term of the licence, and the mistake was, as a matter of fact essential to the
agreement.

Misapprehension as to parties’ respective rights

The court of appeal has reiterated in Magee v Pennine Insurance Co., that a common
misapprehension either as to facts or to the parties relative and respective right will not make
the contract void but only voidable provided that the misapprehension was fundamental and that
the party seeking to set a side was not himself at fault. The facts of the case were:

The plaintiff bought a car for his 18 year old son. The son had a provisional driving
licence. The proposal form for the insurance of the car was filled by the manager of the firm
from where the car was bought and he happened to state that the plaintiff had a provisional
driving licence when in fact he had none. The son made an accident and the plaintiff claimed
600 Pounds for it. The company compromised the claim by undertaking to pay 385 pounds. But
before paying the company came to know the misstatement and declined to pay.

The agreement of compromise was entered into under the common and fundamental mistake
that the original Policy was valid and binding, when in fact it was voidable for the misstatement.
In Bell V Lever Bros,the original contract of employment was supposed by the parties to be
binding when in fact it was terminable for the breaches of duty. The only difference was that in
Bell the compromise amount had already been paid. The court of appeal held that the argument
was liable to be set aside on the ground that the parties were mistaken in as to a fundamental
assumption.

Mistake as to nature of promise

The principle is well established by authorities that when a deed of one character is executed
under the mistaken impression that it is of a different character, then it is wholly void and
inoperative. Thus, where a gift deed is signed under the impression that it is only a power of
attorney, the deed is inoperative. If a mistake of this kind is common to both parties, the
agreement is void under Section 20, the parties be mistaken about the very nature of the
promise. But more frequently a mistake of this kind is brought about by the fraud of one party.
One of the parties, being under a duty to do so, fails to disclose to the other the true nature of
the document and thereby induces him to sign the same under the belief that he is singing
some other document of a different nature. In such a case, there is no real agreement as the
consent is nullified by the mistake.

Where the contract fails to express parties’ intention

 Where an agreement is finally made, fails to express or embody the agreement between the
parties was originally made, it can be had rectified so as to bring it in accord with the intention of
the parties. Where neither party had disclosed his intention as to the effect of the agreement but
coincidentally both entertained the same thought as to the effect of their bargain, it was held
that such undisclosed intention was irrelevant for the purpose of interpretation of their contract.
It is necessary that each party should know what is agreed at the time the contract is made.

Documents mistakenly signed or non est factum

The defence of non est factum enables a person who has signed a contract to say that it is not
his document because he signed it under some mistake. It was evolved by the courts to relieve
illiterate or blind people from the effect of contracts which they could not read and which were
not properly explained to them. But subsequently it was extended to others.

The Supreme Court of India considered the principle of Foster v Mackinnon and in Ningawwa v
Byrappa Shidhappa Hirekurabar concluded on the facts that where a husband obtained the
signature of his wife to a gift deed without making any misrepresentation as to the character, but
subsequently included two more plots in the deed, the transaction was only voidable and not
void.

Limitations

Mistake operates to avoid an agreement subject to the following limitations.

1. Mistake of both the parties

Under section 20, an agreement is void by reason of mistake when both parties are mistaken
as to a matter of fact essential to the agreement. This is further supplemented by the
declaration in section 22 to that a contract is not voidable merely because it was caused by one
of the parties to it being under a mistake as a matter of fact. Thus, View the government sold by
auction the right of fishery and plaintiff offered the highest bid under the impression that the right
was sold for 3 years, when in fact it was for one year only, he should not avoid the agreement
because it was his unilateral mistake.

In Thomas Thomas & Son Ltd V Wyndham Ltd The court came to the conclusion that where A
lease deed contained arbitration clause but the new did which was prepared by the landlord did
not contain the provision without the knowledge of the landlord and do the lessee was aware of
the emission he did not draw it to the attention of the landlord, the landlord was entitled to seek
rectification of the document for inserting arbitration clause.

The mistake of both parties of which section 20 speaks may be either common or mutual; The
classification of mistakes in terms of “common”, “mutual” and “unilateral'' is adopted by Cheshire
and Fifoot, The law of contract. The expression common mistake is thus explained in his
learned work:
“In common mistake both parties made the same mistake each knows the intention of the other
and accents, but each is mistaken about some underlying and fundamental fact. the parties for
example are unaware that the subject matter of the contract has already perished.”

2. Erroneous opinion about value of matter

Explanation to section 20 provides that “ 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 matter of
fact”. In a case before the Travancore Cochin High Court:

A property which was subject to a substring lease was sold. The lessee had the right to
receive value of the improvements, but the agreement of sale was silent about this. the buyer
wanted to have the agreement set aside on the ground of mistake about this right.

But the court held “ that there was no mistake and that even if there was a mistake it was not so
as to a matter of fact essential to the agreement for sale. It could only be an erroneous opinion
Which the parties had formed as to the real value of the subject matter and would not be
deemed to be a mistake vitiating the agreement.

3. Mistake of fact and not of law

Mistakes should be of fact and not of law, for Section 21 declares that “ a contract is not
voidable because it is caused by a mistake as to any law in force in India. The section carries
an illustration.

A and B make a contract grounded on the erroneous belief that a particular debt is
barred by the Indian law of limitation; the contract is not voidable.

Mistake as to the effect of registration upon the validity of a document has been regarded by the
supreme court as a mistake of law. but a mistake as to a foriegn law will avoid

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