II. Mistake of Fact

If one or both of the parties to a contract are subject to a misunderstanding about an essential component of an agreement, this is known as a Mistake of Fact. There must be a connection between this misunderstanding and a significant truth that is fundamental to the contract. Section 20 of the Indian Contract Act states that “a contract is null and unenforceable if both parties are under the impression that they are in possession of a mistake of fact.” The contract might be null and invalid. 

For example, party A agrees to sell an automobile to party B, but both parties are misinformed about the real damaged state of the car. So this is a case of a Mistake of Fact.

Mistake of Fact may be of two types:

1. Unilateral Mistake: In the event when just one of the parties to the contract is in error, this is known as a Unilateral Mistake. The contract may still be enforceable in such circumstances, provided that the other party is aware of the mistake and that it would be inexcusable for them to take advantage of the mistake. Section 22 of the Indian Contract Act addresses circumstances in which one party makes a mistake that is not shared by the other party, rendering the contract null and void since the other party is aware of the error.

For example, if party A makes a mistake and quotes a cheaper price for a product, and party B is aware of this error but still goes forward with the contract, this might be called a unilateral mistake on the part of party B. However, the contract would still be valid.

2. Bilateral Mistake: Following Section 20 of the Indian Contract Act, “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.” Whenever this occurs, the contract might be deemed null and void if the parties were aware of the faults that each other had made.

Below are the essential elements of Bilateral mistakes:

• Both parties must be under a mistake.
• The mistake must be of fact, not of law.
• The mistake must be related to an essential fact.

Mistake in general means something that does not work out in search of a solution. In law, misunderstanding about a material fact prevents the formation of a valid contract. Mistakes can play a big role in the construction of the legal landscape, which is a complex domain that encompasses the world of contracts. It is possible to make use of the Indian Contract Act 1872, which provides a comprehensive framework that may be used to study and deal with several aspects of contracts, including shortcomings. As per Section 10 of the Indian Contract Act 1872, the Free consent of parties is an essential element of any contract. Section 14 of the act states that ‘Free consent means consent not caused by coercion, undue influence, fraud, misrepresentation and mistake.’

Geeky Takeaways:

• Fraud involves intentionally misleading someone; whereas, Misrepresentation involves making mistakes in either knowledge or perception.
• Revocation is an important remedy that is accessible to parties who have been impacted by mistakes. It gives them the ability to terminate the contract and return to the position they were in before the contract was signed.
• If a mistake has been made, the courts have the authority to cancel contracts, which highlights the significance of legal involvement in the process of resolving contractual disputes.
• To avoid making mistakes and improve the legally binding nature of contracts, the parties involved should participate in due diligence, seek the opinion of legal professionals, and ensure that they communicate clearly.