Law: Contract, Act, 1872

Section: 20&65

(a) Contract Act (IX of 1872)--- ----Ss. 20 65---Agreement void where both parties under a mistake as to matter of fact---Principles and scope---According to S.20 of the Contract Act, 1872, a mistake of fact took effect when the parties to an agreement were under a mistake as to a matter of fact essential to the agreement, thus, rendering the agreement void---Judicial consensus that had developed on the common mistake of fact rendering an agreement void, was to discourage frequent intrusions by the court on the smallest of mistakes and to encourage positive exercise of jurisdiction on fundamentally apparent mistake of facts, so as to uphold freedom of contracts and certainty of terms of contracts---As to the nature of what would render the state of affairs a vital attribute or fact, the mistake must be fundamental or essential to the agreement going to the root of the contract, which would render execution of the contract wholly or partially unenforceable, and must not be a minor mistake of fact---Effect of such fundamental mistake of fact must be such that the vendee would not have made payment for the object being sold, had the mistake been known to the vendee at its inception---Function of mistake was to show that the benefit, which had been received was an unintended benefit---Satisfying this element was important to ensure that freedom of contract was protected and that parties could not avail provision of S.20 of the Contract Act, 1872 on minor mistakes to try get out of a bad bargain---In order to render an agreement, void under S.20 of the Contract Act, 1872, both the parties must be labouring under the same mistake of fact---Where one party knew the facts but refrained from communicating the same to the other party, S.20 of the Contract Act, 1872 was not attracted, therefore, a unilateral mistake did not enable a party to avoid the contract---Mistake must be a bilateral one, where both parties were mistaken about the same vital fact---Once a common mistake of fact between the contracting parties was established, the legal consequence to ensue was that the agreement entered between the parties was to be declared void under S.20 of the Contract Act,…

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