Mistake is Mainly Error in Consent

Mistake is called by Sir John Salmond ‘error in consensu’ or ‘It is an erroneous belief concerning something’.

Thus mistake is mainly error in consent. Mistake in legal sense bears a more restricted meaning than in popular parlance. Mistake, which vitiates a contract, is sometimes referred to as “operative mistake”. At common law mistake of expression, want of mutuality and failure of expression would seem to stand apart from the law of mistake. The first concerns the realm of interpretation and not the formation of contract. The second is altogether a negative of agreement and the third appertains to construction. Where a contract is vitiated by mistake, the contract is void because there is no real consensus between the parties.

But if the contract is vitiated by misrepresentation, fraud, duress or coercion then it is only voidable because there is only an error in the motive or the reason which induced one party to give his consent, i.e., error in causa or the inducing cause.

Though law allows only a restricted scope to mistake, common law and equity have differed in their attitudes as to this effect. At common law, in case where mistake operates the effect is to render the agreement or transaction void ab initio. Since no right can be derived from a complete nullity its reaction on third parties is harsh.

Equity may however grant relief in such cases without declaring the transaction a nullity so as to afford protection to innocent third parties who have become involved. Equity may relieve also one of the parties from the effect of mistake. This may be by way of

1. Refusal of order of specific performance or
2. Rectification of a written agreement or
3. Rescission of the agreement [1] .

Mistake can be caused at many stages of the contract and can be related to many issues concerned to it. Therefore Mistake can be better understood by the below flowchart which gives the overview of the mistake.

Mistake of Law:

Mistake can be of two kinds, mistake of law and mistake of the fact. The exact demarcation between mistake of law and mistake of fact is often blurred and difficult to determine. The position is even less clear for instance where the parties have to act on the interpretation not of an enactment or statutory regulation but of private written document. For example the construction of written contract is held to be a matter of law; likewise the erroneous construction of a will has been treated as a question of law.

Mistake of law may be

1. of the Ordinary Law
2. of Foreign Law or
3. of Private Rights

Section 21 of Indian Contract Act, 1872 defines ‘Effect of mistake as to law’ as follows

“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.”

This can be well understood with an illustration below.

‘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.’

As to mistake of general law, every person is deemed to be conversant with the law of land and a person cannot plead that he was ignorant of the law he is governed by.

Ignorantia juris haud excusat i.e, ignorance of law is no excuse.

Lord Ellenborough, C.J., said in Bilbey v Lumley [2]

“Every man must be taken to be cognizant of the law; otherwise, there is no saying to what extent the excuse of ignorance might not be carried. It would be urged in almost every case”.

Though a person cannot plead ignorance of law (in the sense of the law of the land) as an excuse, he is not expected to be familiar with all foreign laws, so that, ignorance of foreign law is put on a level with ignorance of fact.

In Cooper v Phibbs, [3] the plaintiff took a lease of certain fishery rights, and afterwards sought to avoid the contract on the ground of mistake, in that he did not know that the fishery belonged to himself, and ignorantly thought that it belonged to himself, and ignorantly thought that it belonged to the defendant. The defendant contended that this being a mistake of law, the plaintiff could not succeed. But, the Court held that ignorance of a private right was on a par with ignorance of fact and therefore would be excusable in law.

The principle stated in Cooper v Phibbs has also been followed in India. In Kalyanpur Lime Works Ltd. V State of Bihar, [4] the Government represented to A that it had the right to forfeit the lease on Bond and grant a fresh lease to him. A entered into a contract in consequence. But as a result of a Privy Council decision the Government’s title became restricted and it was incapable of making out the title, which it stated it had at the time of the contract. The Supreme Court held that in the circumstances the contract was not void on the ground of mistake and Government must perform that part of the agreement, which it was possible to perform.

Mistake of Fact:

Mistake of fact is a ground of avoidance in the Law of Contract. It should however be added that the distinction between mistakes of fact and mistakes of law has never been clearly defined by the courts.

Section 20 of Indian Contract Act, 1872 defines this as follows:

“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.”

This can be well understood by the illustrations below:

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.

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.

A, being entitled to an estate for the life of B, agrees to sell it to C, B was dead at the time of agreement, but both parties were ignorant of the fact. The agreement is void.

Section 20 will come into play:

When both the parties to an agreement are mistaken,

Their mistake is as to a matter of fact, and

The fact about which they are mistaken is essential to the agreement.

When parties are really agreed but their written contract does not correctly express what they intended, the mistake is not in the consensus of minds but only in the expression. Solmand calls this error in verbis.

In Waugh v Bussell [5] , where a written contract contained a mistake apparent on its facts namely “one pound” for “one hundred pounds” the contract was construed in accordance with the real intention. Such cases are dealt by courts by rectifying or reforming the contract so as to express the true intention and where this is not possible by directing the cancellation of the contract.

Where neither party are under mistake nor the written contract contains the mistake section 20 of Indian Contract Act cannot apply. In Urban Improvement Trust, Jodhpur v Laxmichand Bhandari [6] , An allottee of plot deposited Rs. 5,000/- initially and later Rs. 20,000/- with Rajasthan Urban Improvement Trust. No possession of land was given due to double allotment of the same land. The Improvement Trust was stopped from wriggling out from by taking recourse to Section 20 of Indian Contract Act.

In State of Karnataka v M/s Stellar Constructions Co. [7] , where the contract was entered into for the construction of road, an offer was made by contractor after taking into consideration all aspects like work place and carrying of the material from distant place, the plea of the contractor that he was required to move the material from nearer quarry to a farther quarry cannot in order to attract Section 20 of the Act to avoid the contract.

But what has to be dealt with is not mistake of expression but mistake as affecting the consenting minds. Cheshire and Fifoot state that factual situations disclose three possible types of mistake namely, common mistake, mutual mistake and unilateral mistake.

Common mistake is used to refer to cases where the parties are genuinely agreed but have done so being mistaken however as to some fundamental fact relating to the agreement, for instance where the parties are unaware that the subject-matter of their agreement did not exist. Traditionally such mistakes are called as mutual mistake. That apart the term common mistake can refer to frequent occurrence of the mistake rather than to the fact that it affects both the parties to the agreement. Perhaps the term ‘bilateral’ may be more appropriate in such a case.

In State Industrial & Investment Corporation of Maharashtra Ltd v Narang Hotels (P) Ltd., [8] the State Industrial and Investment Corporation of Maharashtra entered into a contract with the defendant to provide subsidy for setting of a hotel project under Central Industrial subsidy scheme and advanced a sum of Rs. 6,59,700/-. The plaintiff corporation subsequently sought to cover the same with the interest on the ground that the defendants and plaintiff committed a mistake of law in interpreting the Central Subsidy Scheme and assumed that the hotel industry was an Industrial Unit.

The court held that there could be at least two opinions in respect of interpretation and onus of roof is on the plaintiff to prove that they made payments as a result of mistake. Since the onus has been discharged, the plaintiff neither could seek refund nor refuse to pay balance.

Where one party alleges that he was under a mistaken impression, not induced by the other party, can the contract be avoided?

The Indian Contract Act, 1872, Section 22 says:

‘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.’

In Haji Abdul Rahiman v Bombay and Persia Steam Navigation Co., [9] the plaintiff chartered a steamer to sail from Jedda to Bombay, “on the 10th of August, the 15th day after the Haj”. They subsequently discovered that the 10th August was a mistake and the 15th day after Haj was the 19th July. In a suit for rectification the court held that remedy must be cancellation, if the mistake is bilateral, and since the mistake was only unilateral, and in no way induced by the defendant the contract could not be avoided. But, since we can be guided in law only by the expressions used by parties, the principle of estoppels is brought into operation.

Salmond says “Estoppel is a rule of evidence which prevents a person from denying the truth of facts in whose existence he has led another person to believe, so as to induce him alter his previous position.”

Mistake as to subject matter:

Mistake as to subject matter can be classified into six classes.

1. Existence
2. Quality
3. Quantity
4. Identity
5. Title
6. Price

Mistake as to Existence: Lord Atkin observed in Bell v Lever Ltd. [10] Where the parties have contracted under a mistake as to the existence of the subject matter, and subsequently discover that, unknown to either of them, the subject matter had ceased to exist at the time of contracting, the contract becomes void.

In Couturier v Hastie, [11] the contract was to purchase Indian corn described as shipped from Salonica on board a vessel chartered to England. But a fortnight previous to the contract, the cargo had become damaged owing to heat and had to be discharged at an intermediate port and sold at the best price available. Neither of the parties are aware of this fact at the time of the contract. The court held that the subject matter is destroyed therefore the contract is void.

In Nursingdass Kothari v Chutto Lal, [12] where a contract to sell a plot of land had been made, but unknown to the vendor and the vendee, the plot of land had been notified as land to be acquired under City Improvements Act. It was held that the contract was void on the ground of mistake. There was no belonging to the vendor for the vendee to purchase.

Mistake as to Quality: Lord Atkin observed in Bell v Lever Bros. [13] “Mistake as to the quality of the thing contracted for raises more difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality essentially different from the thing as it was believed to be.”

In Nicholson and Venn v. Smith Marriot [14] a seller describes the details of a particular good to the buyer but later the buyer finds that it was not same as the seller described to him and the quality of the good differs. Therefore the contract is void.

Mistake as to Quantity: In Charlesworth v Jennings [15] The mistake may also be as regarded the quantity or extent of the subject matter contracted for. Thus, where a broker delivered a bought note and a sold note to the seller and purchaser respectively in relation to an identical contract, but the two notes differed in quantity sold and brought, the contract was held unenforceable.

In Henkel v Pape, [16] the defendant wrote to plaintiff enquiring the prices of rifles and suggesting that he might take as many as fifty rifles. On receipt of a reply he gave a telegraphic order “Send three rifles” which owing to the mistake of the telegraph office was transmitted as “Send the rifles”. The plaintiff, in accordance with the tenor of the defendant’s letter of inquiry sent fifty rifles. The defendant accepted three and returned rest. In a suit for the price of fifty rifles, the court held that there was no contract between the parties and the buyer was liable to pay, as on an implied contract, only the value of the three rifles retained by him.

Mistake as to Identity: Where the parties are agreed as to the identity of the subject matter of the contract, the contract is vitiated on the ground of mistake, and is void. The case of Raffles v Wichehaus [17] is in point. The contract was for purchase of 125 bales of Surat cotton to arrive ‘Ex Peerless’ from Bombay. There were two ships of the same name sailing from Bombay to England one in October and the other in December. Plaintiff sued for breach of contract as the defendant refused to take delivery. The defendant pleaded that he had meant the “Peerless” sailing from Bombay in October and not that sailing in December. Pollock, C.B said that it appeared that both parties did not mean the same thing. If the defendant meant one “Peerless” and the plaintiff another, there is no consensus ad idem and therefore no binding contract. In Cundy v Lindsay [18] a fraudulent person Blenkarn forged the name of a company and delivered goods to Cundy through Lindsay. There is a mistake as to the identity of the subject matter therefore the contract is void.

Mistake as to Title: Corresponding to the mistake as to the existence of the subject matter is mistake as to title in cases where unknown to the parties, the buyer is already the owner of that which the seller purports to sell him. The parties intended to effectuate a transfer of ownership: such a transfer is impossible: the stipulation is naturaliratione inutilis. This is the case of Cooper v Phibbs [19] where A to take a lease of fishery from B, though contrary to the belief of both parties at the time A was tenant for life of the fishery and B appears to have had no title at all. To such a case Lord Westbury applied and misapprehension as to their relative and respective rights, the result is that the agreement is liable to be set aside as having proceeded upon a common mistake.

Mistake as to Price: In Webster v Cecil, [20] already referred to the defendant who offered to sell his property, while he intended to write £2250 wrote £1250 instead and the buyer immediately accepted the offer but the Court declined to enforce the contract, as it stood and refused a decree for specific performance.

Similarly in Garrarad v Frankel, [21] where a contract of lease of a house was agreed to at a rent of £ 230 but in the written contract the figure £ 130 was inserted by inadvertence, the Court held that the contract could not be enforced without amending the figure.

Mistake as to the person Contracted:

The identity of the person with whom one is contracting or proposing to contract may not be material in many cases, for example to a shopkeeper selling goods across the counter for cash, or to an auctioneer accepting bids at a public auction but in some other cases it may become material for special reasons.

In Boulton v Jones [22] Pollock, C.B., said :

“It is rule of law that if a person intends to contract with A, B cannot give himself any rights under it”.

In Ingram v Little, [23] the plaintiffs advertised their car for sale. A rouge calling himself Hutchinson presenting himself personally offered to buy the car and pay with a cheque. The offer being rejected the rouge gave his initials and address describing himself as a respectable man of business. After verifying at the local post office from the telephone directory that there was such a person living at the given address, the plaintiffs accepted the cheque, which was later, dishonoured on presentation. In the meanwhile the rouge who had taken the case sold it, which subsequently came into the hands of the defendant, a bona fide purchase for value. In an action by the plaintiffs for recovery of their car or its value, the Court of Appeal held that the contract between the plaintiffs and the rouge was void for mistake as to identity, and that the plantiffs were entitled to the car as it was still their property.

Mistake as to the nature of contract:

In Thoroughgood’s case, [24] an illiterate person had to execute a document of release and when the document was brought ready prepared for execution, he asked if the document was a document of release in respect only of rent of the property and nothing more. On being assured that it was, he sealed the deed. It turned out to be a document by which all his rights to the property were released. The court held, that he was not stopped by his sealing the deed, that the maxim litera scripta manet would not apply and that the defence of non est factum was available. The contract was therefore set aside on the ground of mistake.

Foster v Mckinnon [25] extended the doctrine to simple contracts and based on “want of consent” or “intention of mistaken identy” as justification for the plea. Here the defendant was not illetrate, but “far advanced in years.” He desired to execute a document of guarantee. He however, signed the document placed before him, which infact a Bill of Exchange; but, he had been told that it was a guarantee. The plaintiff, the endorsee of the bill, sued thereon. The jury found the defendant was not negligent in signing the document and the Court held he was not bound by it.

Byles, J., said: “The case presented by the defendant is that he never made the contract declared on; that he never saw the face of the bill; that the purport of the contract was fraudulently mis-described to him; that when he signed one thing he was told and believed that he was signing another and an entirely different thing; and that his mind never went with his act.”

Lewis v Clay [26] extends this principle still further. The defendant, an educated young man, signed certain papers produced by his friend Lord William Neville on his representation that the signatures were required as attester. The defendant’s signature was taken in four places, the body of the documents was in fact promissory notes, on which the plaintiff sued as a bona fide endorsee.

In Dularia Devi v Janardan Singh, [27] an illiterate women put her thumb impression on two deeds honestly believing that the thumb impression taken from her were in respect of a single transaction of making gift of some of her properties in favor of her daughter. But two documents were got executed from her of them one was gift deed and the other was sale deed and the other was sale deed of properties in favor of persons who perpetrated fraud on the woman. The sale deed so executed was held by the Supreme Court to be totally void and not voidable.

Performance of subject matter:

Performance of subject matter can be classified as two types. They are

1. Physical Impossibility
2. Legal Impossibility

Physical Impossibility: When the subject matter is destroyed the contract becomes impossible to perform and it amounts to physical impossibility of performance and the contract is void [28] .

Legal Impossibility: When a war like situation arises between two trading countries then it becomes legally impossible for the countries to perform the contract and it becomes void [29] .