Doctrine of Mutual Mistake

Introduction:-

The Doctrine of Mutual Mistake is a pivotal legal concept that comes into effect when two parties engage in a contractual agreement, and both parties make a significant error regarding a fundamental fact pertinent to the contract. This mistake often pertains to a critical element that would have influenced their decision to enter into the contract initially. In cases of mutual mistake, the parties may have the opportunity to void or cancel the contract, thereby releasing themselves from their respective obligations.

However, it is essential to note that not all mistakes within contracts qualify as mutual mistakes. These errors must be substantial and must strike at the very core of the agreement. Minor errors or misunderstandings typically do not fall under the purview of this doctrine. Additionally, the specific rules and conditions for applying the doctrine of mutual mistake can vary significantly depending on the jurisdiction and the unique circumstances of each case.

Legal Position in India:-

The legal framework governing the Doctrine of Mutual Mistake in India is primarily established under Section 20 of the Indian Contract Act, 1872. This section succinctly states:?

"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."

In essence, Section 20 of the Indian Contract Act, 1872, dictates that if both parties involved in an agreement are operating under a mutual mistake concerning a matter of fact that is essential to the agreement, the entire contract becomes void. This section specifically addresses situations in which both parties to a contract are collectively mistaken about a fundamental fact critical to the agreement. Consequently, in such instances, the contract is rendered null and void, and both parties are absolved of their respective obligations under the contract.

Case Laws :-

1. M.K Balakrishnan and Others v. Government of Karnataka (2010 AIR KANT R 3 528): In this case, the Hon’ble Supreme Court of India examined the dispute involving the Bangalore Horse Racing Club. The government had reclaimed land previously allotted to the racing club through a Government Order and issued a lease for alternative land for the club's operations. However, the court found that the original land had been granted to the club, and the government lacked the authority to reclaim it through a Government Order. Therefore, the court concluded that when both parties to an agreement are under a mistake concerning a matter of fact essential to the lease agreement, the agreement becomes void. In this case, the critical fact in question was the government's power to issue a Government Order to acquire land.
2. ITC Ltd v George Joseph Fernandes (1989 AIR SC 839): In this case, the Hon’ble Supreme Court of India addressed a contract involving the lease of two fishing trawlers. The parties had agreed that the trawlers would be equipped for deep-sea fishing with refrigeration capabilities of -20°C. However, the trawlers failed to meet these standards, reaching only -10°C in refrigeration, unsuitable for deep-sea fishing. The owner of the trawlers attempted repairs but fell short of the agreed specifications. When the owner sought to void the contract based on the Doctrine of Mutual Mistake, the court observed that both parties were aware of the requirement for -20°C refrigeration, negating the presence of mutual mistake.
3. All India Management Association v Union of India (LPA No.1794/2006): In this case, the Hon’ble Delhi High Court held that a unilateral mistake, made by the Postal Service, whereby they provided an incorrect interest rate to a depositor due to an erroneous assessment under the wrong category, did not amount to a mutual mistake.

Conclusion:-

Therefore, the Doctrine of Mutual Mistake in India recognizes that if both parties to an agreement are mistaken about a material fact, the agreement can be declared void. However, a unilateral mistake may not render the agreement void unless the other party was aware of the mistake or engaged in fraudulent or unfair conduct.