Page 57 - DCOM103_COMMERCIAL_LAW

Commercial Law

Notes 5.1.5 Meaning of ‘ Mistake’

Mistake may be defined as an erroneous belief on the part of the parties to the contract concerning

something pertaining to the contract. For example, A agrees to buy from B a certain house. It
turns out that the house had been destroyed by fire before the time of the bargain though neither

party was aware of the fact. The agreement is void. A cannot insist for possession of the house.
The agreement is void as there is a mistake on the part of both the parties about the existence of
the subject matter.

Different Kinds of Mistake

Broadly there are two kinds of mistake:
1. Mistake of fact
2. Mistake of law.

Mistake of Fact

Further mistake of fact may be either: (a) Bilateral or (b) Unilateral. The mistake of law may be
(a) mistake of law of the land and (b) mistake of foreign law.
When both the parties to the agreement are under a mistake of fact essential to the agreement, the
mistake is called a bilateral mistake and the agreement is void.

For example, A agrees to sell to B a specific cargo of goods supposed to be on its way from
London to Mumbai. 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 the facts. The agreement is
void. An erroneous opinion, however, as to the value of thing which forms the subject matter of
the agreement is not to be deemed a mistake as to a matter of fact.

The mistake must be mutual, i.e. both the parties should misunderstand each other and should
be at cross-purposes.
The mistake must relate to a matter of fact essential to the agreement. As to what facts are essential
in an agreement will depend upon the nature of the promise in each case.

Example. A man and a woman entered into a separation agreement under which the
man agreed to pay a weekly allowance to the woman, mistakenly believing themselves lawfully
married. Held, the agreement was void as there was mutual mistake on a point of fact which was
material to the existence of the agreement [Galloway v. Galloway, (1914) 30 T.L.R. 531].
But an erroneous opinion as to the value of a thing which forms the subject-matter of an agreement
is not to be deemed a mistake as to a matter of fact (Explanation to Sec. 20).

Example. A buys an old painting for ` 5,000 thinking that it is an excellent piece of art.
Actually the painting is a new one and is worth only ` 500. A cannot avoid the contract on the
ground of mistake.
The various cases which fall under bilateral mistake are as follows :
(1) Mistake as to the subject-matter. Where both the parties to an agreement are working under
a mistake relating to the subject-matter, the agreement is void. Mistake, as to the subject-matter
covers the following cases:

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