Mistake of Fact and Mistake of Law

In one line

Mistake is the odd one out among the five vitiating factors: where it works at all it makes the agreement void rather than voidable, and most of the time it does not work at all.

In the words a student can write in an exam: section 20 of the Indian Contract Act 1872 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." Section 21 provides that a contract is not voidable because it was caused by a mistake as to any law in force in India, but that a mistake as to a law not in force in India has the same effect as a mistake of fact. Section 22 provides that a contract is not voidable merely because it was caused by one of the parties being under a mistake as to a matter of fact.

Why mistake is treated so differently

The other four vitiating factors all involve one party doing something to the other: threatening, dominating, lying, or misstating. Mistake involves nobody doing anything. The parties are simply wrong.

That changes what the law is trying to achieve. With fraud, the question is what remedy the victim should have against the wrongdoer, and giving him an option is sensible. With mistake there is no wrongdoer and no victim, only two people who have discovered that the thing they were bargaining about was not what they thought.

So the Act asks a different question: was there really an agreement at all? Where both parties are wrong about something essential, there was no genuine meeting of minds under section 13, and the agreement is simply void. Where only one is wrong, the other party has done nothing and has arranged his affairs on the footing of a contract, so the law leaves the contract standing.

That is also why the Act is so restrictive. If every mistaken party could escape, no bargain would be safe, and every buyer who paid too much would call it a mistake. Explanation to section 20 says so in terms: 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.

The provisions

Section 20:

"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.

Explanation. 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."

Its illustrations: