Mistake of law and Mistake of fact
Mistake of Law and Mistake of Fact in Contract Law: Explained
Mistake, in the context of the law of contract, is a situation in which the parties to a contract did not mean the same thing or when one or both while meaning the same thing formed untrue conclusions about the subject-matter of the contract as a result of which the contract may be rendered void. Section 20, 21 and 22 of the contract Act 1872 are relevant in this connection.
MEANINGS AND DEFINITION OF MISTAKE:
(i) According to Black’s Law Dictionary: Mistake means, "An error, misconception, or misunderstanding, an erroneous belief"
(iil) According to E. Allan Fransworth: "The word mistake is generally used in the law of contracts to refer to an erroneous belief, a belief that is not in accord with the facts".
GENERAL RULE AS TO MISTAKE:
The general Common Law rule is that mistake made by one or both parties in making a contract has no effect on the validity of the contract.
Example: An error of judgment is not an operative mistake and does not affect the validity of the contract. If A buys an article thinking it is worth Rs. 100, when in fact it is worth only Rs. 50, the contract is good and A must bear the loss if there has been no misrepresentation by the seller.
KINDS OF MISTAKES:
Mistake fundamentally is of two kinds;
- mistake of fact
- mistake of Law.
MISTAKE OF FACT
mistake of fact is also termed as, error in fact, error of fact. It is also called “Vital operative mistake
According to Black’s Law Dictlonary; mistake of fact is a mistake about a fact that is material to a transaction.
Effect of mistake of fact:
According to section 20 of the contract Act;
where both the parties to an agreement are under a mistake as to a matter of fact essential to an agreement, the agreement is void.
Thus, to be operative, so as to render the contract void; the mistake must be
- On the part of both the parties,
- Of fact and not of law or opinion, and
- So fundamental as to negate agreement.
Therefore, where the parties contracted under a fundamental mistake of fact, the contract would be void. Such as mistake prevents the formation of any contract at all, and the court will declare it void. But as section 22 of the contract Act provides unilateral mistake of fact will not render the contract voidable.
CLASSIFICATION OF MISTAKE OF FACT
Mistake of fact may be:
- Mistake as to nature of contract.
- Bilateral mistake. And
- Unilateral mistake
MISTAKE AS TO THE NATURE OF THE CONTRACT
The general rule is that a person who signs an instrument is bound by its terms even if he has not read it and no question of any notice arises.
illustration: A, a lady purchased an automatic machine from B on terms contained in a document, described as a “Sale agreement” and including a number of clauses. She signed this document without reading it. It was held that she was bound by these terms and no question of notice arose. (L' Estrange Vs. Grancob)
When a person makes a contract in the mistaken belief that he is signing a document absolutely of different type or character, there-is a mistake as to nature of contract and the contract is void. Such a mistake should not be as to the contents of the documents. It must be due to either of the causes such as:
- the blindness, illiteracy, or senility of the person signing, or
- a trick or fraudulent misrepresentation made by the other party as to the nature or the document.
In such cases the person signing the document will not be liable even if he acted negligently.
illustration: an old man of poor sight, endorsed a bill of exchange for 3,000 Pounds thinking it was a guarantee. The court held that there was no contract and so he was not liable on it.
BILATERAL MISTAKE
A bilateral mistake arises when both parties to a contract are mistaken as regards a fact essential to the contact. They may have made a common or identical mistakes or a mutual or non identical mistake.
CLASSIFICATION OF BILATERAL MISTAKE
a) Common mistake regarding existence of subject-matter:
Where both parties believe the subject-matter of the contract to be in existence at the time of the contract but in fact it is not in existence, there is an operative mistake and the contract is void, because the seller innocently undertakes obligation which he cannot fulfil
Example: If A agrees to sell his car to B,and they both don't know that the car had at the time of sale been destroyed by fire, then the contract will be void.
b) Common mistake as to fact fundamental to the agreement:
Where the parties have made a contract based on a common misapprehension relating to the fundamental subject-matter of the contract, there is operative mistake.
Example: A and B believing themselves to be married, made a separation Agreement in which A agreed to pay B RS 500 a week. It was later discovered that they were not validly married. B claimed the payments. The agreement was held void. As there was. mistake on their part of fact which was material to the existence.
(c) Mutual or non-identical mistake regarding identity of subject-matter:
Where the parties are both mistaken as to a fundamental fact concerning the Contract but each party has made a different mistake there is a mutual or Non-identical mistake.
Example: If A offers to sell his ambassador car, and B agrees to buy thinking A means his Fiat car, there is a bilateral mistake which is mutual or non-identical.
There would be no contract even if the mistake was caused by the negligence of a third party.
(d) Mistake regarding quality of subject-matter or promise:
If the subject-matter is essentially different from what the parties thought it would be, the agreement is void.
(e) Mistake regarding quantity of subject-matter:
Where both parties to a contract work under a mistake regarding the quantity of subject-matter, the agreement is void.
(f) Mistake regarding title to subject-matter:
Where a person sells a thing or gives on lease any property which does not belong to him, and both parties are under mistake, the agreement is void.
(g) Mistake regarding price of subject-matter:
Where both parties are working under a mistake regarding the price of the subject matter, the agreement is void.
UNILATERAL MISTAKE
(a) According to Black’s Law Dictionary: "Unilateral mistake is a mistake by only one party to a contract and is generally no ground to rescind the contract".
Where the offeror makes a material mistake in expressing his intention, and the offeree knows, or is deemed to know of the error, the mistake is operative and the contract is void. But if there is a mistake on the part of one party alone, and the other does not, and cannot be deemed to, know the mistake, the contract-is binding. In other words, unilateral mistake cannot be used as a defense to avoid the contract.
(b) Exception to the rule: Following is the exception to the above rule.
Mistake as to identity of person: Where a person intends to contract with a particular person but by mistake enters into a contract with a different person presuming that he is the same man with whom he intended to contract, the contract is void. This principle holds good only when the intent of the contracting party is of importance. Mistake as to identity of the person with whom the contract is made will operate to nullify the contract only if;
(i) the identity is of material importance to the contract , and
(ii) the mistake is known to the other party, i.e. he knows that it is not intended that he should become a party to the contract but some other person is intended.
illustration: A, a lady was convicted of permitting disorderly contract in her café and was asked to vacate the premises. Later she assumed a slightly different name and obtained the lease of premises of B. The Court held that the lease was void ab intio because of B's mistaken belief that he was contracting with a different person. (Solivef Vs. Patter)
Mistake OF LAW:
mistake of law is also termed as “error of law” or "error in law"
According to Black’s Law Dictionary; mistake Of law means, "a mistake about the legal effect of a known fact or situation."
CLASSIFICATION OF MISTAKE OF LAW:
mistake of law may be:.
- (i) Mistake of law of the country, i.e. law of Pakistan
- (i) Mistake of foreign law, and
- (ii) Mistake of private law.
Mistake of law of the country:
if there is a mistake of law of the land, the contract is binding because everyone is deemed to have knowledge of his own law, and ignorance of law is no excuse. Following this principle section 21 of Contract Act declares that a contract is not voidable because it was made by a mistake as to any law in force in Pakistan. So no one can be allowed to get any relief on the ground that he had done a particular act in ignorance of law. A contract, therefore, cannot be avoided on the ground of mistake of law.”
illustration: A and B entered into a contract on the erroneous belief that a particular debt was time barred by the Pakistani Law of Limitation. Such contract is not voidable.
(ii) (iii) Mistake of foreign law and mistake of private law:
Mistake of foreign law and mistake of private rights are treated as mistakes of fact, and are excusable. The laws of a foreign country require to be proved in Pakistani Courts as ordinary facts, and so a mistake of foreign law makes the contracts void. Similarly, if a contract is made in ignorance of private rights, it would be void. For example, A buys property which already belongs to him.
CONCLUSION:
To conclude that mistake means, "An error, misconception, or misunderstanding or an erroneous belief." The law believes that contracts are made to be kept, the whole structure of business depends on this, as the businessmen depend on the validity of the contract. Accordingly, the law very clearly declares that it will not help anyone to avoid consequences on the pretext that he was mistaken while making the contract. The law, on the other hand also realizes that mistake do occur and sometimes a mistake may be so fundamental that no contract is formed.