1.

Mistake and its Effects on Contract

Contract law is very broad. It can consist of both written contracts and verbal contracts, and contracts
interact with many other areas of law. One important area of contract law involves the consequences of
entering into a contract that has a mistake. The concept of mistake is an extremely difficult area of the law
of Contract. In contract law, a mistake is an erroneous belief, at contracting, that certain facts are true. It
can be argued as a defense, and if raised successfully, can lead to the agreement in question being
found void ab initio or voidable, or alternatively, an equitable remedy may be provided by the courts.

Section 20-22 of the Contract Act, 1872 deals with the concept of mistake in a contract and its effect on
the validity of a contract.

2. Meaning of Mistake:

According to Black’s Law Dictionary, 10th Edition, and Page #1153;

“An error, misconception, or misunderstanding”

3. Classification of mistake

There are two ways of classifying mistakes;

i. Mistake of fact
ii. Mistake of law

4. What is a Mistake of Fact?

a) General definition:

A mistake which occurs when both the parties are factually mistaken about the subject matter of the
agreement.

b) Dictionary Meaning:

According to Black’s Law Dictionary, 10th Edition, and Page #1153;

“A mistake about a fact that is material to a transaction”

c) Statutory Concept:

Mistake of Fact: According to Section 20; “when both the parties to an agreement are under a mistake as
to matter of fact essential to the agreement, the agreement is void.”

(a)Illustration:

‘A’ enters into an agreement with ‘B’ to sell his car which both the parties believe to be in ‘A’s garage.
Actually the car was destroyed by fire an hour before the agreement was made. Since this fact was not
known to both the parties, so agreement is void.
 d) Explanation of Mistake of Fact:
When both parties of a contract are under a mistake of fact essential to the agreement, such a mistake is what
we call a bilateral mistake or mutual mistake or common mistake or mistake of fact. Here both the parties
have not consented to the same thing in the same sense, which is the definition of consent. Since there is an
absence of consent altogether the agreement is void. However, to render an agreement void the mistake of
fact should be about some essential fact that is of importance in a contract. So if the mistake is about the
existence of the subject matter or its title, quality, quantity price etc then it would be a void contract. But if
the mistake is of something inconsequential, then the agreement is not void and the contract will remain in
place. Example: A agrees to sell to B his buffalo. But at the time of the agreement, the buffalo had already died.
Neither A nor B was aware of this. And so there is no contract at all, i.e. the contract is void due to a mistake of
fact.

e) Essentials of Mistake of Fact (Section 20)

 Both the parties to an agreement are mistaken
 Mistake must be of matter of fact
 Mistake of fact must be essential to the agreement

5. Effect of Mistake of Fact on Contract:

Contract becomes void where the mistake is a fundamental mistake of fact:

The general rule for mutual mistake is that the contract is void if both the parties at the time of entering
into contract make the same fundamental mistake about the subject-matter; such a mistake makes a
contract void at common law.

9. Unilateral Mistake:

A unilateral mistake is where only one party to a contract is mistaken about the terms or subject-matter
contained in a contract. This kind of mistake is more common than other types of mistake. Ordinarily,
unilateral mistake does not make a contract void. Section 22 of the Act states that just because one party was
under a mistake of fact the contract will not be void or voidable. So if only one party has made a mistake of fact
the contract remains a valid contract. Following are the effects of unilateral mistake:
10. Mistake of Law:

(i)Mistake of Pakistani Law:

Where the parties to an agreement make a mistake of law of the country to which they belong, the contract
is binding because everyone is supposed to know the law of his own country. There is also a maxim in this
regard i.e. ignorance of law is no excuse. Therefore as provided in Section 21 of the Act, a contract is not
voidable merely because it was caused by a mistake as to any law in force in Pakistan.

(ii)Mistake of Foreign Law:

According to Section 21 of the Contract Act, a contract is not voidable because it was caused by a mistake
as to any law in force in Pakistan; but a mistake as to a law not in force in Pakistan has the same effect as a
mistake of fact.

(iv)Burden of Proof:
Burden to prove is on the party alleging the mistake. AIR 1934 Cal. 778

11. Mistake V. Misrepresentation:

Mistake in contract law should not be confused with misrepresentation. A misrepresentation is a false
statement of fact made by one party to another – whether innocent, negligent or fraudulent – which,
whilst not being a term of the contract, induces the other party to enter the contract.

The effect of an actionable misrepresentation is to render the contract voidable, giving the aggrieved party
the right to rescind the contract or to have it set aside by the court. A mistake, on the other hand, can
potentially render a contract void or voidable. A void contract is one that is declared a nullity, such that it
is wholly lacking in legal effect and no rights or obligations can be derived under it.

Landmark Judgments

 Section 20 would come into play only when both the parties to an agreement are under a
mistake as to a matter of fact essential to the contract. 2008 AC680 (AJ & K)
 Mistake of fact should be pleaded in the written statement and in the absence of any plea the
question cannot be allowed to be raised. AIR 1943 Pat.327
 Where there is a mutual mistake as to a fact, which goes to the root of the contract, and
frustrates the object of the agreement, section 20 will apply and the agreement is void. PLD
1973 Kar. 444 (DB)
 Where mistake occurs, one of the two persons must suffer loss and the loss should fall on the
one who is most culpable, who would most easily have avoided its consequences and on whom
the greater duty to discover the cause and defect rested. 2001 YLR 1193

RELEVANT QUESTIONS FROM PAST PAPAERS

 Mistake of fact and its effect on the contract (CJ-cum-JM, 2022)