Introduction

An agreement enforceable by law is a contract 1. Every agreement becomes a contract when the basic
essentials of a contract are adhered to. All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void. All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void." Nothing herein contained shall affect any law in force in 1[India], and not
hereby expressly repealed, by which any contract is required to be made in writing 2or in the presence of
witnesses, or any law relating to the registration of documents 2
Consent is said to be free when it is not caused by coercion or undue influence or fraud or
misrepresentation or mistake.3
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. Common law has identified
three different types of mistake in contract: the 'unilateral mistake', the 'mutual mistake' and the 'common
mistake'. The distinction between the 'common mistake' and the 'mutual mistake' is important.Another
breakdown in contract law divides mistakes into four traditional categories: unilateral mistake, mutual
mistake, mistranscription, and misunderstanding45
If the contract that you have entered into contains a mistake then it may affect the validity of the contract.
What will happen concerning the validity of a contract will depend on the nature and the kind of mistake
made but in most cases this will result in the contract being void.
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. Illustrations
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It
turns out that, before the day of the bargain the ship conveying the cargo had been cast away and the
1 Sec 2 (h) , Indian contract act, 1872.
2 Sec 10, Indian contract act , 1872.
3 Sec 13, Indian contract act , 1872.
4 Uniform Fiduciaries Act (1923, as amended), then 36-101 and 106 (1941), now
46-1-1 (B) and 46-1-5 NMSA (1978
5 Sec 20, Indian contract act , 1872.

goods lost. Neither party was aware of these facts. The agreement is void. (a) A agrees to sell to B a
specific cargo of goods supposed to be on its way from England to Bombay. 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 these facts. The agreement is void."
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact. The agreement is void. (b) A agrees to buy from B a certain
horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the
fact. The agreement is void."
(c) A, being entitled to an estate for the life of B, agrees to sell it to C, B was dead at the time of
agreement, but both parties were ignorant of the fact. The agreement is void. (c) A, being entitled to an
estate for the life of B, agrees to sell it to C, B was dead at the time of agreement, but both parties were
ignorant of the fact. The agreement is void."
Mistake in contract can be broken down to into the following four categories:
1.
2.
3.
4.

Common Mistakes
Unilateral Mistakes
Mutual Mistakes
Mistakes relating to Identity

Common Mistakes
In the situation of a common mistake the parties are in agreement with each other but have entered into
the contract upon the same misapprehension, i.e. they have both relied on the mistake when entering into
the contract. In the case of a common mistake which goes right to the root of the contract this will result
in the contract being void as the mistake was fundamental to the contract.

Unilateral Mistakes
A unilateral mistake is where one party is mistaken while the other party is aware of this mistake and
takes advantage of it when forming the contract. A unilateral mistake of this manner will eliminate the
consent required for the proper formation of a contract meaning that there is no contract in existence.
In order for a contract to be void due to a unilateral mistake the mistake must relate to the terms and
conditions of the contract. A unilateral mistake in relation to the quality of the subject matter of a contract
will not result in the contract being void.

Mutual Mistakes
A mutual mistake is a misunderstanding between the parties entering into a contract as to the intentions of
the other party. A mutual mistake between the parties will eliminate the consent required for the proper
formation of a contract meaning that there is no contract in existence

Mistakes relating to Identity

A contract will become void at common law where a mistake was made in relation to the identity of the
other party with whom the contract is made and that the identity of that person is central to the formation
of the contract.This is difficult to prove as a lot of the time when forming a contract the parties will meet
in person. When this is the case there is a presumption that you have intended to do business with the
person in their presence making it very difficult for the contract to be deemed void.
Chapter 2- UNILATERAL MISTAKE
In a contract setting, a mistake is an error in the meaning of words, laws, or facts which causes one or
both parties to enter into the contract without fully understanding the outcomes or responsibilities implied
by the contract. A unilateral mistake is such an error that is held by only one party and not shared by the
other party.
In other words, a unilateral mistake occurs when only one party is mistaken as to the subject matter or the
terms contained in the contract agreement. This type of mistake is generally more common than other
types of contract mistakes, such as a mutual mistake (an error that is shared by both parties).
The essential point is that only one party is mistaken while the other is not. Since only one party is
mistaken, it could lead to an unfair advantage in bargaining power. Therefore, if a contract was entered
into on the basis of a unilateral mistake, it may lead to various types of contract remedies such as contract
rescission or contract reformation6
Unilateral mistakes can occur with regards to any of the terms and provisions contained in a contract.
Most unilateral mistakes involve the definition of a phrase or word.
A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter
contained in a contract. This kind of mistake is more common than other types of mistake. One must first
distinguish between mechanical calculations and business error when looking at unilateral mistake. For
mechanical calculations, a party may be able to set aside the contract on these grounds provided that the
other party does not try to take advantage of the mistake, or 'snatch up' the offer (involving a bargain that
one did not intend to make, betrayed by an error in arithmetic etc.). This will be seen by an objective
standard, or if a reasonable person would be able to know that the mistake would not make sense to one
of the parties. Unless one of the parties 'snatched up' the one-sided offer, courts will otherwise uphold the
contract.Ordinarily, unilateral mistake does not make a contract void. Traditionally, Caveat Emptor (let
the buyer beware), and under Common Law Caveat Venditor (let the seller beware)
For example, in a contract for the sale of screws, one party may incorrectly believe that the word screw
refers to Phillips-head screws, when in fact the term refers to standard-type screws. If only one party
holds this mistaken belief, but the other is clear on the meaning of screw, then this could be called a
unilateral mistake.
On the other hand, if both parties believed that the word screw referred to nails, then this is an example
of a mutual mistake.

6 http://www.legalmatch.com/law-library/article/unilateral-mistakes-in-a-contract

Unilateral mistakes also frequently involve prices, quantities, dates, and the description of goods or
services.
In unilateral mistakes only one of the parties is mistaken. There are two categories within unilateral
mistakes: mistakes relating to the terms of the contract and mistakes as to identity.

CASE LAWS
Dr. Kohli And Ors vs Atul Products Ltd7 on 12 February, 1985 The facts of this case indicate that the
Department was virtually inveigled into a trap by the respondent suggesting that it was too eager to pay
excise duty on certain goods which to the knowledge of the respondent were not liable for excise duty
with the object of getting the benefit of the right to clear its products which were liable for higher excise
duty because of their increased value without payingany duty at all. Rule 10 of the Rules deals with four
kinds of mistakes on the part of an officer which bring a case within its sweep. Of them 'inadvertence'
'error' and' mis-construction' are mistakes which can be committed unilaterally by the officer himself.
`Collusion' involves a pact between two or more persons to defraud the Government- This case does not
involve any such unilateral mistake on the part of an officer or collusion as explained above. Nor is this a
case where through mis-statement as to the quantity, description or value of such goods on the part of the
owner short levy has occasioned. Further the error in this case has not taken place at the time of the
assessment or at the time when assessment ought to have been made under Rule 52. The discussion and
correspondence between the assessee and the officers concerned had taken place on December 20, 1961
and January 416, 1962 was in the nature of an advice and not an assessment as contemplated under Rule
52. Hence this case is not covered by Rule 10 of the Rules at all. Rule 10-A of the Rules which is
aresiduary provision is, therefore, necessarily attracted. Hence the plea of limitation raised on the basis of
Rule 10 of the Rules does not survive.
Hartog v Colin & Shields - 8defendants, Colin & Shields were London hide merchants. Mr Louis-Levie
Hartog was a Belgian furrier, living in Brussels. Colin & Shields discussed selling Mr Hartog 30,000
Argentinian hare skins at 10d per skin (which would have come to 1,250). When they put the final
offer in writing Colin & Shields mistakenly wrote 30,000 skins @ 10d per lb. As hare skins weigh
around 5oz, this was a third of the price previously discussed and orally agreed upon.
Mr Hartog tried to hold them to this very good offer. He claimed loss of profit, or, in the alternative, the
difference between the contract price and the market price at the time of the breach. Colin & Shields
pleaded that their offer was by mistake wrongly expressed. They alleged that they had intended to offer
the goods sold at certain prices per piece, and not at those prices per pound, as their offer was expressed.
They argued Mr Hartog was well aware of this mistake on their part, and fraudulently accepted an offer
which he well knew that the defendants had never intended to make. In the circumstances, the defendants
denied that any binding contract was entered into, and, if there was, counterclaimed for its rescission.
7 Dr. Kohli And Ors vs Atul Products Ltd
8 Hartog v Colin & Shields [1939] 3 All ER 566

The judge found in Colin & Shields favour on the grounds that the plaintiff must have realised the
defendants error, which, as it concerned a term of the contract, rendered the contract void.
Smith v Hughes (1871) LR 6 QB 9597 is an English contract law case. In it, Blackburn J set out his
classic statement of the objective interpretation of people's conduct when entering into a contract. Mr
Hughes was a racehorse trainer. Mr Smith, who was a farmer, brought him (Mr. Hughes) a sample of oats,
and Hughes ordered forty to fifty quarters of oats at 34 shillings a quarter. Sixteen quarters were sent to
start with. But when they arrived, Hughes said they were not the oats he thought they were. He had
apparently wanted old oats (which are the only ones racehorses can eat), and he was getting new, green
oats. In fact, Smith's sample was of green oats. Hughes refused to pay and Smith sued for breach of
contract, for the amount delivered and for damages for the amount for oats that were still to be delivered.

The jury at the County Court of Surrey holden at Epsom, initially held for Mr Hughes that there
was a mistake on his part, but were directed by the judge that if Mr Hughes was under a mistake
about the oats (thinking they were old when they were green oats) and Mr Smith had known it,
they should find in Mr Hughes' favour. The Court of the Queen's Bench found that the jury had
been misdirected and ordered a retrial. Leaning in Mr Smith's favour, they held that the question
was not merely whether the parties were at consensus ad idem, but what they had communicated
by their conduct and words to one another. Mr Smith was held to be under no duty to inform Mr
Hughes of his possible mistake about the kind of oats, reaffirming the old idea of caveat emptor
(buyer beware).[2] A unilateral mistake is therefore in principle no ground for rescission of a
contract
Mistake as to identity
Mistakes as to identity are generally induced by fraud in that one of the parties is claiming to be
someone who they are not. There is thus an overlap with misrepresentation. A claim based in
mistake is more favorable to one based in misrepresentation as the affect of a finding of mistake
is that the contract is void as oppose to voidable. This is important where a rogue has acquired
goods and sold them on to a third party. If the contract is void the rogue will never receive title to
goods and will not be able to pass title when selling the goods. However, if the contract is
voidable the contract exists and title passes. If the goods are sold before the innocent party
rescinds the contract, the purchaser acquires good title to the goods. In determining whether a
contract will be held void for mistake the courts draw a distinction between contracts made inter
absentes (at a distance) and contracts madeinter praesentes (face to face transactions).10
Inter absentes
Where the parties are not physically present when the contract is made, eg where the contract is
made through dealings through the post, telephone or over the internet, the courts will only make
a finding of mistake if the claimant can demonstrate an identifiable person or business with
whom they intended to deal with. A mistake as to their attributes will not suffice

Smith v Hughes (1871) LR 6 QB 597

10 CONTRACT BY MISTAKE, AVTAR SINGH

Cundy v Lindsay (187778)11is an English contract law case on the subject of mistake, introducing the
concept that contracts could be automatically void for mistake to identity, where it is of crucial
importance.[1] Some lawyers argue that such a rule is at odds with subsequent cases of mistake to
identity, such as Phillips v Brooks,[2] where parties contracting face to face are merely voidable for fraud,
protecting a third party buyer.[3] However, the ultimate question is whether the identity of the other
contracting party was crucial to the contract. The problem for the courts was essentially which of the two
innocent parties should bear the loss of the goods
Mistakes relating to signed documents - non est factum
If one of the parties signs a document under the complete misapprehension as to its affects a plea of non
est factum (it is not my deed) may be raised. However, this is rarely successful. It applies only where the
document signed is fundamentally different to what was believed to be signed and only where the party
was not careless in signing.
The Effects of a Unilateral Mistake
If a unilateral mistake occurs during the contracting process, it could affect the outcome of the contract. It
is unfair if one party understands the contract while the other party does not- therefore a court will usually
issue one of two remedies to correct the unilateral mistake:
Rescission: Contract rescission is where the contract is completely cancelled and the parties restored to
their position before the contract was entered into. Rescission is only available if the non-mistaken party
knows or should have known about the unilateral mistake.
Reformation: Contract reformation is where the written agreement is changed to reflect the parties
original understanding. Reformation is granted only if one party was not aware that the writing does not
conform to the actual agreement.
In other words, it makes a significant difference whether the non-mistaken party is aware that the other
party does not understand a term in the contract. If the non-mistaken party knows that the other party has
made a unilateral mistake, the result is usually contract rescission (cancellation). On the other hand, if the
other party was not aware of the mistake, the contract can usually be reformed (rewritten).

11 Cundy v Lindsay (187778) LR 3 App Cas 459

CHAPTER 3 MUTUAL MISTAKE

An error of both parties to a contract, whereby each operates under the identical misconception
concerning a past or existing material fact. 12
For example, a customer goes to the sample room of an interior decorator to select a carpet and asks the
clerk to show him a navy carpet, which he subsequently purchases and takes with him. The sales slip
notes that the carpet purchased is navy. When, upon examining the carpet in daylight, the customer
discovers that it is black, not navy as he thought when he bought it, a mutual mistake would have
occurred, since both the seller and buyer were in error concerning the correct color of the carpet sold.
Since there had never been a true and complete meeting of the minds, no mutual assent was actually
arrived at, and the buyer would be entitled to return the carpet and obtain a full refund.
A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact
within their contract. They are at cross-purposes. There is a meeting of the minds, but the parties are
mistaken. Hence the contract is voidable. Collateral mistakes will not afford the right of rescission. A
collateral mistake is one that 'does not go to the heart' of the contract. For a mutual mistake to be void,
then the item the parties are mistaken about must be material (emphasis added). When there is a material
mistake about a material aspect of the contract, the essential purpose of the contract, there is the question
of the assumption of the risk. Who has the risk contractually? Who bears the risk by custom? Restatement
(Second) Contracts Sec. 154 deals with this scenario. 13
Mutual mistake is one where the parties are at cross purposes. The courts apply an objective test to see if
the contract can be saved. Ie would a reasonable person looking at the correspondence between the parties
have understood the contract to have a single meaning. If yes the contract is valid on that meaning. If a
reasonable person could not determine the meaning then the contract will be void for mistake.
CASE LAWS

12 http://legal-dictionary.thefreedictionary.com/MutualMistake
13 https://en.wikipedia.org/wiki/Mistake_(contract_law)

Raffles v Wichelhaus14
In Raffles, there was an agreement to ship goods on a vessel named Peerless, but each party was referring
to a different vessel. Therefore, each party had a different understanding that they did not communicate
about when the goods would be shipped.
In this case, both parties believed there was a "meeting of the minds," but discovered that they were each
mistaken about the other party's different meaning. This represents not a mutual mistake but a failure of
mutual assent. In this situation, no contract has been formed, since mutual assent is required in the
formation stage of contract. Restatement (Second) Contracts Sec. 20 deals with this scenario.
CHAPTER 3- COMMON MISTAKE
A common mistake is where both parties hold the same mistaken belief of the facts.
The House of Lords case of Bell v Lever Brothers Ltd. established that common mistake can void a
contract only if the mistake of the subject-matter was sufficiently fundamental to render its identity
different from what was contracted, making the performance of the contract impossible.
Later in Solle v Butcher, Lord Denning added requirements for common mistake in equity, which
loosened the requirements to show common mistake. However, since that time, the case has been heavily
criticized in cases such as Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd. For
Australian application of Great Peace Shipping (other than in Queensland), see Svanosio v McNamara
For Queensland, see Australian Estates v Cairns City Council
Those categories of mistake in the United States exist as well, but it is often necessary to identify whether
the error was a "decisional mistake," which is a mistake as a matter of law (faced with two known
choices, making the wrong one), or an "ignorant mistake," unaware of the true state of affairs.
The difference is in the extent to which an innocent in the information chain, passing along or using or
processing incorrect information, becomes liable. There is a principle that an entity or person cannot be
made more liable merely by being in the information chain and passing along information taken in good
faith in the belief that it was true, or at least without knowledge of the likelihood of falsity or inaccuracy.
Common mistakes exist where both parties to the contract make the same mistake. Three categories have
emerged as giving rise to a cause of action:15
Res extincta - the subject matter of the contract no longer exists
Res sua - where the goods already belong to the purchaser

14 Raffles v Wichelhaus.

15 http://e-lawresources.co.uk/Mistake.php

Mistake as to quality - only available in very narrow limits

Res extincta
Res extincta will apply where both parties enter a contract with the belief that the subject matter exists
when in fact it does not exist. The contract will be held to be void for mistake:
Scott v Coulson [1903] 16. At the time of entering a contract for life insurance both parties believed the
person whose life was to be insured was living. When in fact he was dead. The contract was void for
mistake as it was a common mistake as to the existence of the subject matter (Res extincta)
Res sua
This applies where a party contracts to buy something which in fact belongs to him. This will generally
render the contract void. Although if the action is based in equity this will render the contract voidable
Mistake as to quality
A mistake as to quality is only capable of rendering a contract void where the mistake is as to the
existence of some quality which renders the subject matter of the contract essentially different to that
what it was believed to be
Roswell State Bank v. Lawrence Walker Cotton Co 17
Under American law a bank, title company, document processing firm, or the like is not liable for false
information provided to it, any more than a bank was liable for false information from a trusted customer
turned embezzler who drew an unauthorized cashiers check. Roswell State Bank v. Lawrence Walker
Cotton Co., A thing is done in good faith within the meaning of this act, when it is in fact done
honestly, whether it be done negligently or not.[a] transferee is not bound to inquire whether the fiduciary
is committing a breach of his obligation as fiduciary in transferring the instrument, and is not chargeable
with notice that the fiduciary is committing a breach of his obligation as fiduciary unless he takes the
instrument with actual knowledge of such breach or with knowledge of such facts that his action in taking
the instrument amounts to bad faith.

16 Scott v Coulson [1903]

17 Roswell State Bank v. Lawrence Walker Cotton

CONCLUSION
The hypothesis taken by the researcher has been proved correct. Mistake in contract law

BIBLIOGRAPHY
Books
1. LAW OF CONTRACT PART 1, AVTAR SINGH
2. LAW OF CONTRACT PART 1 , R.K BANGIA
WEBSITE
1.
2.
3.
4.

www.lawteacher.net
www.wikipedia.org
www.esourcelaw.co.uk
www.legalstudy.com