Mistake may be defined under Section 20 of Indian Contract Act, 1872, as "an erroneous belief about something". If the agreement is made under an erroneous belief it cannot be said that the parties enjoyed free consent i.e. both the parties shall understand the same thing in the same sense.
Types of Mistake:
Mistake may be of two types:
1. Mistake of law
2. Mistake of fact
1. Mistake of law: Mistake of law may be:
A) A mistake as to a law in the country (India)
Or
B) A mistake as to a law of foreign country
2. Mistake of Fact: Mistake of fact can be divided as bilateral and unilateral mistake.
A) Bilateral Mistake:
According to Section 20 "where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement shall be void".
Various cases that fall under bilateral mistake are as follows:
a) Mistake as to the subject matter:
Mistake as to the subject matter may be ‑ regarding existence of the subject matter, quality of the subject matter, quantity and price of the subject matter.
b) Mistake as to the possibility of performance:
If the parties believe that the agreement is capable of being performed when in fact it is not the case, then the consent is nullified. The agreement is void on the ground of impossibility.
B) Unilateral Mistake: If the mistake is only unilateral, i.e. one party to the contract is under a mistake of fact, the contract is not voidable. Unilateral mistakes do not affect the validity of the contract unless they concern some fundamental fact and the other party is aware of the mistake.
a) Mistake as to the nature of the transaction:
A contract shall be void if a party to the contract without any fault of his own makes a mistake about the very nature of the contract. It may be because of blindness, illiteracy, or servility of the person signing the contract or due to the trick or fraudulent misrepresentation as to the nature of the document.
b) Mistake as to identity of the contracting parties:
The person or with whom the contract is to be made must be identified correctly by the other party. It is a fundamental mistake on the part of the other party not to recognize the correct person. The principle of the contract holds good only when the identity of the contracting party is given importance.
Elements of Mistake
1. Mistake must be bilateral. Unilateral mistake is no mistake.
2. The mistake must be in relation to some fact.
3. The fact concerned must be essential to the agreement.
4. As regards mistake of law, if there is mistake of about Indian Law then it is not considered as a mistake of fact to an Indian. But a mistake of law of foreign country is a mistake of fact.
Effects of Mistake:
1. If there is a mistake, the agreement is void. But as the mistake is subsequently discovered it is called discovered to be void.
2. When an agreement is discovered to be void then any party who has received any benefit from the other party shall restore it to him or make compensation for it.