Agreement Made Under a Mutual Mistake of Fact: Understanding Section 20
The Indian Contract Act, 1872 provides for various laws and principles that govern commercial and general contracts. Section 20 of the Act deals with “Agreement Made Under a Mutual Mistake of Fact.” In this article, we will discuss the key aspects of Section 20 and its implications.
What is a Mutual Mistake of Fact?
A mutual mistake of fact occurs when both parties to a contract are mistaken about an essential element of the contract. The mistake should be an objectively ascertainable fact, and not a belief or opinion. For example, if two parties enter into a contract for the sale of a particular car, and later discover that the car was destroyed in an accident before the contract was signed, there is a mutual mistake of fact.
What does Section 20 say?
Section 20 of the Indian Contract Act, 1872 states that “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.” This means that if there is a mutual mistake of fact, the agreement cannot be enforced by either party.
It is important to note that the mistake should be about a matter of fact that is essential to the agreement. If the mistake is about something that is not essential to the agreement, the contract can still be enforced.
For example, if two parties enter into a contract for the sale of a car, and both parties believe that the car has air conditioning, but later discover that it does not, this is not a mistake that makes the agreement void. This is because the presence or absence of air conditioning is not an essential element of the contract.
What are the implications of Section 20?
Section 20 has several implications for contracts entered into by parties. Firstly, it emphasizes the importance of ensuring clarity and accuracy in the terms of the contract. Parties should ensure that they have a common understanding of the essential terms of the agreement, and that all the facts are accurately recorded in the agreement.
Secondly, Section 20 provides protection to parties in case of a mutual mistake of fact. If both parties are mistaken about an essential fact, they can avoid the contract and seek a remedy if they have suffered any losses due to the mistake.
Finally, Section 20 highlights the need for parties to conduct due diligence before entering into a contract. Parties should take reasonable steps to verify the facts and information provided by the other party, to ensure that there is no mistake of fact.
Conclusion
Section 20 of the Indian Contract Act, 1872 provides for the consequences of an agreement made under a mutual mistake of fact. It is essential for parties to ensure that they have a common understanding of the essential elements of the contract, and that all the facts are accurately recorded in the agreement. By doing so, they can avoid the risks and consequences of a mutual mistake of fact, and ensure that their contractual relationships are legally binding and enforceable.