Mistake under Sections 20, 21 and 22 of the Indian Contract Act, 1872: Bilateral Mistake of Fact, Unilateral Mistake, Mistake as to Identity and to the Nature of a Document, and Mistake of Law

Mistake is the odd member of the group of factors listed in Section 14. The other four concern consent that exists but was improperly obtained, and they make the contract voidable. A mistake of the kind that matters means the parties never agreed upon the same thing in the same sense at all, so there was no consent within Section 13 and the agreement is void. The Act deals with the subject in three short sections that are more restrictive than they first appear: Section 20 covers bilateral mistake of fact, Section 21 excludes mistake of Indian law, and Section 22 makes clear that a unilateral mistake of fact ordinarily changes nothing.

1. The Three Sections

Sections 20, 21 and 22, Indian Contract Act, 1872

20. Agreement void where both parties are under mistake as to matter of fact. 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.

21. Effect of mistakes as to law. A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact.

22. Contract caused by mistake of one party as to matter of fact. A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

2. Bilateral Mistake of Fact: Section 20

Section 20 has three requirements, and all must be satisfied. Both parties must be mistaken; the mistake must be one of fact and not of law; and the fact must be essential to the agreement. Where they are satisfied the agreement is void, and Section 65 requires any advantage received under it to be restored.

2.1 What is essential

A fact is essential where it goes to the root of the agreement, so that the parties would not have contracted at all had they known the truth. The recognised categories are these.

Existence of the subject matter. Where the thing contracted for has ceased to exist, or never existed, at the date of the agreement.
Identity of the subject matter. Where each party has a different thing in mind, as in the case of the two ships named Peerless.
Title. Where a person contracts to buy what already belongs to him, neither party knowing it. There is nothing to sell, and the agreement is void.
Quantity. Where the parties are at cross purposes about the measure of the subject matter, as in Tarsem Singh v. Sukhminder Singh, (1998) 3 SCC 471, where the seller understood kanals and the buyer bighas; the agreement was held void under Section 20 and the earnest money refundable under Section 65.
Possibility of performance. Where performance was physically or legally impossible at the date of the agreement without either party knowing it. Section 56, first paragraph, in any event makes an agreement to do an impossible act void.
Quality, but only where it goes to the substance. A common mistake as to a quality that makes the thing essentially different from what both parties supposed may be essential; a mistake as to a quality that merely affects desirability is not.

📖 Couturier v. Hastie, (1856) 5 HLC 673 (HL)

Facts: A cargo of Indian corn was sold while it was supposed to be in transit from Salonica to England. Unknown to either party, the corn had already begun to ferment and the master had sold it at Tunis before the contract was made. The seller sued for the price, contending that he had sold the shipping documents and had transferred what he had.

Held: The House of Lords held that the buyer was not liable for the price. The contract contemplated the existence of something that was to be sold and bought, and at the time of the agreement there was in truth no cargo answering the description. The whole basis of the transaction had failed.

Ratio: Where the subject matter of an agreement has ceased to exist at the time it is made, and neither party knows it, there is a mistake as to a matter essential to the agreement and nothing passes.

2.2 What is not essential

Value. The Explanation to Section 20 excludes an erroneous opinion as to the value of the subject matter. A party who sells cheap or buys dear because both misjudged the market has no remedy.
Motive. A mistake about a party's private reason for contracting does not affect the agreement.
A collateral fact. A mistake about something that does not go to the root of the bargain leaves the contract standing, even if the parties would have negotiated differently had they known.
A mistake about the expected profitability of the transaction, which is in substance a mistake as to value and is excluded on the same ground.

Which provision governs, and what each produces

3. Unilateral Mistake: Section 22

Section 22 states the general rule flatly: a contract is not voidable merely because one party was mistaken as to a matter of fact. The reason is the objective theory of agreement. Consent is judged by what was said and done, and a party who allows his own carelessness or misunderstanding to lead him into a bargain cannot unmake it for that reason. The word merely nonetheless leaves room for the situations in which something more is present.

3.1 Where a unilateral mistake does affect the contract

Where the mistake was caused by the other party. If it was caused fraudulently, Section 17 applies and the contract is voidable; if innocently, clause (3) of Section 18 applies with the same result.
Where the other party knew of the mistake and took advantage of it, particularly where the mistake relates to the terms of the contract itself rather than to the surrounding facts.
Mistake as to the identity of the other party, where identity was material to the transaction.
Mistake as to the nature or character of the document signed, which is the plea of non est factum.

3.2 Mistake as to identity

📖 Cundy v. Lindsay, (1878) 3 App Cas 459 (HL)

Facts: A rogue named Blenkarn wrote from an address in Wood Street ordering handkerchiefs, signing his name so that it resembled Blenkiron & Co., a respectable firm known to the sellers and carrying on business in the same street. The sellers despatched the goods intending to deal with Blenkiron & Co. The rogue sold them to an innocent third party and disappeared without paying. The sellers sued the third party in conversion.

Held: The House of Lords held that no contract had ever come into existence between the sellers and the rogue. The sellers intended to contract with Blenkiron & Co. and with nobody else; they never intended to deal with Blenkarn, of whom they had never heard. There being no contract, no property passed, and the innocent purchaser acquired no title and was liable in conversion.

Ratio: Where a party intends to contract with a specific identified person and is deceived into dealing with another, there is no consensus and the agreement is void. Since nothing passes, even an innocent purchaser for value takes no title.

⚠ Identity and attributes are different, and the difference falls on an innocent buyer

A mistake as to the identity of the other party makes the agreement void, so no title passes and a subsequent innocent purchaser gets nothing. A mistake merely as to the other party's attributes, such as his creditworthiness or his solvency, is a fraud as to a quality and makes the contract voidable, so title passes and a purchaser for value in good faith before avoidance is protected. The distinction is easy to state and difficult to apply, and it generally turns on whether the mistaken party had in mind a specific existing person, as in Cundy v. Lindsay, or merely the person in front of him whom he wrongly believed to be creditworthy.

3.3 Mistake as to the nature of the document

📖 Foster v. Mackinnon, (1869) LR 4 CP 704

Facts: An elderly man of feeble sight was asked to endorse what he was told was a guarantee. The document was in fact a bill of exchange for a substantial sum. He endorsed it, and it passed to a holder in due course who sued him on the endorsement.

Held: The endorsement was held void. The defendant never intended to sign a bill of exchange at all. Where a person signs a document under a mistake as to its very character, and without negligence on his part, his signature is a nullity, because his mind never went with the act of signing. The plea is available even against a holder in due course.

Ratio: Non est factum applies where the signer was mistaken as to the nature of the document rather than its contents, and was not careless. The signature is then no signature at all and the instrument is void.

The Indian counterpart is Ningawwa v. Byrappa Shiddappa Hireknrabar, AIR 1968 SC 956, in which the Supreme Court held that a fraudulent misrepresentation as to the character of a document makes it void, while a fraudulent misrepresentation as to its contents makes it only voidable. A person who intends to sign a sale deed and is deceived about how much land it covers has consented to a document of that character, and his remedy lies in avoidance.

4. Mistake of Law: Section 21

Section 21 makes two distinct provisions. A mistake as to a law in force in India does not make a contract voidable, on the maxim that ignorance of the law is no excuse. A mistake as to a law not in force in India has the same effect as a mistake of fact, because a foreign law is proved as a fact in Indian courts and no one is expected to know it.

Kind of mistake	Provision	Effect on the agreement
Bilateral mistake of fact, essential to the agreement	Section 20	Void. Restoration of any advantage received under Section 65
Bilateral mistake as to the value of the subject matter	Explanation to Section 20	No effect. The agreement stands
Unilateral mistake of fact	Section 22	No effect, unless caused by the other party, known to him, or going to identity or to the character of a document
Mistake as to identity of the other party	Section 13, read with Section 20	No consensus, so the agreement is void and no title passes
Mistake as to the character of a document	Section 13; non est factum	Void; the signature is a nullity
Mistake as to the contents of a document, induced by fraud	Sections 17 and 19	Voidable at the option of the party deceived
Mistake as to a law in force in India	Section 21	No effect on the validity of the contract
Mistake as to a foreign law	Section 21, second limb	Treated as a mistake of fact

4.1 Mistake of law and money paid under it

Section 21 governs the validity of the contract; it says nothing about the recovery of money paid. That is governed by Section 72, under which a person to whom money has been paid by mistake must repay it. The Supreme Court held in Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135 that the word mistake in Section 72 is wide enough to include a mistake of law as well as of fact, so that tax paid under a mistaken view of the law is recoverable.

The two provisions therefore operate on different questions and are not in conflict. A mistake of Indian law leaves the contract perfectly valid under Section 21, while money paid under such a mistake may nonetheless be recoverable under Section 72, subject to the ordinary defences, including that the payment was made in settlement of a disputed claim or with full knowledge of the facts.

5. The Position Stated Shortly

A mistake of the kind that matters negatives consent under Section 13, which is why Section 20 makes the agreement void rather than voidable.
Section 20 requires that both parties be mistaken, that the mistake be one of fact, and that the fact be essential to the agreement.
Essential facts include the existence, identity, title, quantity and possibility of performance of the subject matter, and quality where it goes to the substance.
The Explanation excludes an erroneous opinion as to value, and motive and collateral facts are outside the section.
Couturier v. Hastie: where the subject matter had ceased to exist, there is nothing to sell and the price is not payable.
Section 22 makes a unilateral mistake of fact irrelevant unless it was caused by the other party, known to him, or goes to identity or to the character of a document.
Cundy v. Lindsay: a mistake as to identity produces voidness, so even an innocent purchaser takes no title; a mistake as to attributes produces only voidability.
Foster v. Mackinnon: non est factum applies to a mistake as to the character of a document by a signer who was not careless.
Ningawwa distinguishes fraud as to the character of a document, which is void, from fraud as to its contents, which is voidable.
Section 21 excludes mistake of Indian law and treats foreign law as fact; money paid under a mistake of law is nonetheless recoverable under Section 72, per Kanhaiya Lal.

6. Related Topics and Provisions

Topic or provision	Connection
Free Consent under Sections 13 and 14	Consensus ad idem, and why mistake is the odd factor in the list
Fraud under Section 17	Fraud as to the character of a document
Misrepresentation under Section 18	Innocently causing a mistake as to the substance of the subject matter
Void vs Voidable Contract	Why the distinction decides the position of an innocent purchaser
Sections 20 to 22, Indian Contract Act	The three provisions on mistake
Section 56, Indian Contract Act	Agreements to do an impossible act, and frustration
Section 65, Indian Contract Act	Restoration where an agreement is discovered to be void
Section 72, Indian Contract Act	Money paid by mistake, including a mistake of law