Contract law (2022): Excuses for non-performance: Mistake

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 misunderstanding.

The law of mistake in any given contract is governed by the law governing the contract. The law from country to country can differ significantly. For instance, contracts entered into under a relevant mistake have not been voidable in English law since Great Peace Shipping Ltd v Tsavliris (International) Ltd (2002).

Examples.

Mistake can be:

Mistake of law, or,

Mistake of fact

Mistake of law: when a party enters into a contract, without the knowledge of the law in the country, the contract is affected by such mistakes, but it is not void. The reason here is that ignorance of law is not an excuse. However, if a party is induced to enter into a contract by the mistake of law then such a contract is not valid.

Illustration: Harjoth and Danny make a contract grounded on the erroneous belief that a particular debt is barred by the Indian law of Limitation; the contract is not voidable.

Mistake of fact: Where both the parties enter into an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is voidable.

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.

Illustration: Lady found a stone and sold it as a topaz for $1 ($25 today). It was a raw uncut diamond worth $700 (today $17,000). The contract is not voidable. There was no mistake because neither party knew what the stone was.

Anti-illustration: A sells a cow to B for $80 because it is infertile. The cow is actually pregnant and worth $1000. The contract is void.