Mutual and Unilateral Mistakes in a contract

(This Project work has been submitted towards the fulfilment of 1 semester LLB 3year
st

Law)

SUBMITTED TO MR. HARANARYAN MAHAPATRA

SUBMITTED BY: ATRI KARMAKAR

REGISTRATION NUMBER:

BATCH: LLB (H) [1ST SEMESTER]

Siksha ‘O ’Anusandhan National Institute of Law (SNIL)

SIKSHA O ANUSANDHAN (Deemed to be university),

BHUBANESHWAR

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 ABSTRACT

This assignment examines the legal concepts of mutual and unilateral

mistakes within the framework of contract law. It delineates the defini-
tions, key characteristics, and legal implications of each type of mis-
take, highlighting their significance in determining the enforceability of
contracts.
Mutual mistakes occur when both parties share an erroneous under-
standing of a material fact, rendering the contract voidable.
In contrast, unilateral mistakes arise when only one party is mistaken,
and the enforceability of the contract largely depends on whether the
non-mistaken party had knowledge of the mistake.

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 DECLARATION

I, Atri Karmakar, hereby, declare that this project report titled “Mutual and
unilateral mistakes in law of contract” is the result of my independent work
and has not been submitted elsewhere for any academic or professional pur-
pose. All the sources consulted and references used in this report have been
duly acknowledged. Any assistance received in preparation of this report has
been appropriately cited.

NAME :- ATRI KARMAKAR

ROLL NO/ CLASS / SECTION :- LLB (H) 1ST YEAR

DATE :- 28TH OCTOBER 2024

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 ACKNOWLEDGEMENT
To list who all helped me is difficult because they are so numerous
and the dept is no enormous.

I would like to acknowledge the following as being idealistic

channels and fresh dimensions in the completion of the project.

I take this opportunity to thank SIKSHA ‘O ’ANUSANDHAN ,

BHUBANESHWAR for giving me the chance to do this project.

I would also like to express my sincere gratitude towards my

project guide Prof. HARANARAYAN MAHAPATRA whose
guidance and care make the project successful.

I would also like to thank my Collage Library, for having provided

various reference books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project especially
my classmates who supported me throughout my project.

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 TABLE OF CONTENTS

PAGES

Cover Page Pg 1

Abstract Pg 2

Declaration Pg 3

Acknowledgement Pg 4

Table of Contents Pg 5

Introduction Pg 6

What are Mistakes ? Pg 7

Mutual Mistakes in Law Pg 9

Unilateral Mistakes in Law Pg 15

Case Laws Mutual mistake pg 11

Unilateral Mistake Pg 17

Conclusion Pg 25

Bibliography Pg 26

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 INTRODUCTION
What is a contract ?

The Indian Contract Act of 1872 defines contract as an

agreement between two or more parties that is enforceable by
law. It determines the terms and conditions that are being made
during the formation of the contract and the circumstances in
which promises made by the parties should be legal binding.
In easier words if we would explain contract it would be like an
agreement that is enforceable by law.

A contract is a document of relationship between the buyer and

the seller signed at a particular place and time. A contract would
be considered as valid if it consists roles, responsibilities and
expectations of the party those are involved in the contract. As a
whole everything (demands, wants, region of authorisation)
should be cleared at the time of making a contract. It could
involve any fact (moveable, immovable).
Before the contract is made mutual assent is needed and both the
parties should be well communicated about the offer been made
in the contract with a valid expression and acceptance, adequate
consideration of the contract, capability and liability.

A contract, in simple terms, can be understood as an agreement

in writing made between the parties which creates mutual rights

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and obligations between them. It binds the in a relationship where
both of them promise to fulfil their duties and obligations. The
failure to perform the obligations.

Now, talking about the mistakes :-

In contract law, a Mistake is an erroneous belief, at contracting, that cer-

tain facts are true. A common mistake about a contract is the circum-
stances where all parties to a contract are “mistaken” regarding a funda-
mental matter of fact. If both the parties are under the same misappre-
hension it may render the contract void at law or, in some circumstances,
voidable in equity.
The Mistakes in a contract could make it a void contract or voidable con-
tract. The law determines the Mistakes of a contract of 4 types majorly

1.Unilateral Mistake
2.Mutual Mistake
3.Bilateral Mistake
4.Common Mistake

Among all those of mistakes we will be talking about UNILATERAL & BI-
LATERAL Mistakes of a contract.

A Mistake in contract law, refers to erroneous belief about a vital fact.

Such a mistake renders the contract voidable at the option of
the adversely affected party.

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Mistakes in a contract law play a crucial role in determining the enforce-
ability of agreements. The concepts of mutual and unilateral mistake sig-
nificantly influence the validity of a contract. This assignment explores
these two types of mistakes, providing a detailed explanation, relevant
case laws d pertinent sections of contract law.

Mistakes in contract law play a crucial role in determining enforceability

of agreements. The concepts of mutual and unilateral stake significantly
influence the validity of a contract. This assignment explores these two
types of a mistakes, providing a detailed explanation, relevant case laws,
and pertinent sections of contract law.

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 MUTUAL MISTAKE
A mutual mistake occurs when both parties to a contract share a common
erroneous belief about a vital fact.
Such a mistake renders the contract voidable at the option of the ad-
versely affected party.

A Mutual Mistake occurs when the parties to a contract are both mistak-
en about the same material fact within the contract. They are at cross
purposes.

According to the Indian Contract Act where both the parties to an agree-
ment are under a mistake as to a matter of fact essential to the agree-
ment, the agreement is void.

“ A Mistake in a contract in modern world is used a very contradictory

statement this concept sometimes used as defense in the court. “

The courts will apply an objective test to the question of whether there is
an agreement, considering whether one party’s interpretation was more
reasonable than the others.

Key features of a Mutual Mistake :-

1. Both parties are mistaken about the same fact.

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2. The mistake must relate to the fundamental aspect of the con-
tract

3. It affects the essence of the contract.

4. Offer, legality, consideration are some of the partial components

5. Intention to create legal legislations

6. Capacity, Awareness, Conceptual Capacity

How Can Parties Avoid Mutual Mistakes?

• Due Diligence: What steps can parties take to conduct due diligence to
prevent mutual mistakes?

• Contract Clarity: How can the language in a contract be crafted to

minimize misunderstandings?

• Disclosure Requirements: What are the disclosure obligations of par-

ties in a contract to avoid mutual mistakes?

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 Case Laws on Mutual Mistake
1.Sherwood v. Walker (1887)

• Citation: 66 Mich. 568, 33 N.W. 919

• Facts: A farmer sold a cow to a buyer, believing it to be barren. The

buyer, however, believed the cow could produce calves. After the sale,
it was discovered that the cow was pregnant.

• Legal Issue: Was the contract voidable due to mutual mistake about the
cow's reproductive status?

• Decision: The court ruled that both parties were mistaken about a mate-
rial fact (the cow's ability to reproduce), making the contract voidable.

• Illustration: If two parties agree to sell a car, both believing it has a

clean title, but later find out it has a lien, they can rescind the contract
due to mutual mistake about the title.

2. Raffles v. Wichelhaus (1864)

• Citation: 2 H & C 906

• Facts: The parties entered into a contract for cotton to be shipped on a

vessel named "Peerless." However, there were two ships named Peer-
less, and each party referred to a different one.

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 • Legal Issue: Was there a mutual mistake regarding the identity of the
subject matter of the contract?

• Decision: The court found that since both parties were referring to dif-
ferent ships, there was a mutual mistake that rendered the contract void.

• Illustration: If a buyer and seller agree on a specific model of a laptop

without specifying the year, and they each have different models in
mind, this mutual misunderstanding can invalidate the contract.

3. Cundick v. Broadbent (1875)

• Citation: 43 L.J. Ch. 145

• Facts: A property was sold based on the assumption that it was free
from encumbrances. Both parties were unaware of a mortgage on the
property.

• Legal Issue: Did the mutual misunderstanding about the encumbrance

render the contract voidable?

• Decision: The court ruled in favor of the buyer, declaring the contract
void due to mutual mistake about a material fact.

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 • Illustration : Imagine two parties agree to sell a piece of land, both be-
lieving it has no zoning restrictions. If it turns out there are significant
restrictions, they may rescind the contract based on mutual mistake.

4. Carter v. Boehm (1766)

• Citation: 3 Burr. 1905

• Facts: An insurance contract was formed under the belief that the in-
sured property was in a good condition. One party, however, did not
disclose that the property was already damaged.

• Legal Issue: Could the contract be voided due to a mutual misunder-

standing of the property's condition?

• Decision: The court held that a contract could be voided if there was a
mutual mistake regarding a material fact that both parties relied upon.

• Illustration: Consider a situation where both parties believe an artwork

is an original. If it is later discovered to be a reproduction, this mutual
mistake can render the contract void.

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Summary of Illustrations
Each of these cases demonstrates how a mutual mistake regarding a material
fact can affect the enforceability of a contract. Here’s a recap:

• Sherwood v. Walker: Misunderstanding about the reproductive status

of a cow.

• Raffles v. Wichelhaus: Confusion over the identity of a ship due to

identical names.

• Cundick v. Broadbent: Unawareness of encumbrances on property.

• Carter v. Boehm: Misbelief about the condition of an insured property.

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 UNILATERAL MISTAKE
A unilateral mistake occurs when only one party to a contract is mistaken
about a material fact. This lecture will explore the nature of unilateral mis-
takes, their implications, and relevant questions that arise in such situations.

Unilateral mistakes play a significant role in contract law, impacting the en-
forceability and validity of agreements. Understanding the nature of unilateral
mistakes, the legal framework surrounding them, and the potential remedies
available is crucial for parties involved in contractual relationships. By being
aware of the risks and implementing preventive measures, parties can better
navigate the complexities of contract law and protect their interests.

In contract law, the concept of unilateral mistake is not codified in a specific

statute but is primarily governed by common law principles and interpreted
through case laws.
KEY CHARACTERISTICS

1.Material Fact: The mistake must relate to a significant aspect of the con-
tract that affects its value or enforceability.

2.Awareness: The non-mistaken party's knowledge of the mistake is crucial.

If they know or should have known about the mistake, the mistaken party
may have grounds to rescind the contract.

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3. No Alteration of Terms: Unlike mutual mistakes, where both parties are
misinformed, a unilateral mistake does not automatically void the contract.
4. Good Faith: The mistaken party typically must demonstrate that they acted
in good faith. Courts are more likely to grant relief if the mistaken party can
show that they made a reasonable effort to verify the facts.

5.Judicial Discretion: Courts have discretion in addressing unilateral mis-

takes, often considering the intentions of the parties and the specific circum-
stances surrounding the contract.

6. Potential for Rescission: The mistaken party may seek rescission (cancel-
lation) of the contract, especially if they can prove that the mistake was fun-
damental and the other party had knowledge of it.

Key Questions in Cases of Unilateral Mistake :

• What Did the Parties Intend?: How do courts determine the intent of
the parties involved?

• Materiality of the Mistake: What criteria do courts use to assess the

materiality of the mistaken fact?

• Is the Mistaken Party Acting in Good Faith?: How does the good
faith of the mistaken party influence the court’s decision?

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Legal Consequences:

• Enforceability: Generally, contracts affected by unilateral mistakes

remain enforceable unless the mistaken party can prove that the non-
mistaken party knew of the mistake.

• Rescission: The mistaken party may seek rescission if they can demon-
strate that the mistake was material and that the other party had
knowledge of it.

• Reformation: In some cases, the court may reform the contract to re-
flect the true intent of the parties.

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CASE LAWS ON UNILATERAL MISTAKE

1. Klein v. Dempsey (1930)

• Citation: 77 P.2d 977 (Cal. Ct. App. 1938)

• Facts: In this case, the seller mistakenly believed that a piece of proper-
ty was worth significantly more than its market value. The buyer, how-
ever, was unaware of this mistaken belief and purchased the property at
the inflated price.

• Legal Issue: Can the seller rescind the contract based on a unilateral
mistake regarding the property's value?

• Decision: The court ruled that the contract was enforceable because the
buyer did not know of the seller's mistake. The mistaken party (seller)
could not void the contract as they had not demonstrated that the buyer
was aware of the error.

• Illustration: Imagine a seller listing a rare painting for $100,000, be-

lieving it to be an original. If the buyer purchases it without knowing
the seller's mistaken belief, the seller cannot later rescind the contract
based solely on their error.

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2. Lefkowitz v. Great Minneapolis Surplus Store (1957)

• Citation: 86 N.W.2d 689 (Minn. 1957)

• Facts: The store advertised a fur coat at a remarkably low price, intend-
ing to sell it to the first customer. A customer arrived to purchase the
coat but was refused on the grounds that the advertisement was a mis-
take.

• Legal Issue: Was the store bound by the advertisement despite the al-
leged mistake?

• Decision: The court held that the store was bound to sell the coat at the
advertised price. The customer acted in good faith, and the store could-
not escape the contract based on its unilateral mistake.

• Illustration: If a retailer mistakenly prices a laptop at $50 instead of

$500 and a customer attempts to purchase it at that price, the retailer
may be bound by the advertised price if the customer acted without
knowledge of the mistake.

3. Cundy v. Lindsay (1878)

Citation : 3 App. Case. 459 (House of Lords)

• Facts: In this case, a seller mistakenly believed they were dealing with
a legitimate business, "G. W. Cundy," and sold goods to an individual

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 who misrepresented himself as a representative of that company. The
seller was unaware of the fraud.
• Legal Issue: Can the contract be voided due to the seller’s unilateral
mistake about the identity of the buyer?

• Decision: The court held that the contract was void because the seller
was mistaken about the identity of the party they were contracting with,
and this mistake was material to the agreement.

• Illustration: If a person sells a car believing they are dealing with a

reputable buyer but later discovers the buyer used a false identity, this
unilateral mistake regarding the buyer's identity can void the contract.
4. Morris v. Baron & Co (1918)

• Citation: [1918] 2 KB 100

• Facts: In this case, the plaintiff entered into a contract to sell goods
based on an incorrect understanding of the terms. The seller believed
the goods were of a certain quality but had not verified this.

• Legal Issue: Is the contract enforceable if one party is mistaken about

the quality of goods?

• Decision: The court ruled in favor of the non-mistaken party, emphasiz-

ing that the mistaken party could not claim rescission as they failed to
act on the mistake or confirm the facts prior to the agreement.

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• Illustration: Consider a scenario where a buyer purchases a batch of
wine believing it to be vintage, but the seller knows it is not. If the buy-
er later discovers the truth and the seller did not mislead them, the buyer
may have limited grounds for rescission.

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 Summary of Illustrations
Each of these cases demonstrates the principles surrounding unilateral mis-
takes:

• Klein v. Dempsey: A seller's mistaken belief about property value does not
invalidate a contract with an unaware buyer.

• Lefkowitz v. Great Minneapolis Surplus Store: A retailer is bound by its

advertisement, even if it was a mistake, as the buyer acted in good faith.

• Cundy v. Lindsay: A unilateral mistake about the identity of the contracting

party can void a contract.

• Morris v. Baron & Co: A mistaken belief about the quality of goods does
not automatically lead to rescission if the other party is unaware.

The legal provisions for mutual and unilateral mistakes in contract law are
primarily derived from common law principles, the Restatement (Second) of
Contracts, and the Uniform Commercial Code (UCC) in the United States.
Here’s an overview of the relevant legal frameworks for each type of mistake:

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 LEGAL PROVISIONS FOR: Mutual Mis-
take / Unilateral Mistakes
Restatement (Second) of Contracts:

• Section 152: This section defines mutual mistake and states that a con-
tract is voidable if both parties are mistaken about a basic assumption
on which the contract is based, and the mistake has a material effect on
the agreed exchange.
• Section 151: This section defines unilateral mistake and indicates that a
contract is voidable by the mistaken party if:
◦ The mistake is about a basic assumption on which the contract is
made.
◦ The non-mistaken party had reason to know of the mistake or
caused it.
Legal Implications:

• If both parties share a misunderstanding about a fundamental fact, the

contract may be rescinded.
• Examples include cases where both parties believe a specific item is in
existence or has a certain quality, which is not the case.
• Generally, a unilateral mistake does not void a contract unless the non-
mistaken party was aware of the mistake.
• Courts may allow rescission if the mistaken party can demonstrate that
the mistake was significant and that the other party had knowledge of it.

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Uniform Commercial Code (UCC):

• Section 2-151: Similar to mutual mistakes, this section provides guid-

ance regarding unilateral mistakes in contracts for the sale of goods, al-
lowing for rescission in certain cases.

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 CONCLUSION
In summary, the doctrines of mutual and unilateral mistakes play a pivotal
role in the law of contracts, influencing the enforceability and validity of
agreements. Mutual mistake arises when both parties share a misunderstand-
ing regarding a material fact essential to the contract, rendering it voidable.
The Restatement (Second) of Contracts and relevant provisions in the Uni-
form Commercial Code (UCC) provide the legal framework for addressing
such situations.

Conversely, unilateral mistake occurs when only one party is mistaken about
a fundamental aspect of the contract, while the other party remains unaffected
by this misunderstanding. The enforceability of contracts involving unilateral
mistakes hinges on the awareness of the non-mistaken party regarding the
mistake and the conduct of the mistaken party, as articulated in the Restate-
ment and UCC

Understanding these principles is vital for parties engaged in contractual ne-

gotiations, as they highlight the importance of clear communication, thorough
due diligence, and good faith conduct. By recognizing the potential implica-
tions of mutual and unilateral mistakes, parties can better navigate the com-
plexities of contract law and safeguard their interests in any contractual ar-
rangement. Ultimately, these doctrines serve to promote fairness and integrity
within contractual relationships, ensuring that parties are held accountable for
their representations and understandings.

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 BIBLIOGRAPHY

. Morris v. Baron & Co (1918)

Citation: [1918] 2 KB 100
. Cundy v. Lindsay (1878)
Citation : 3 App. Case. 459 (House of Lords)

. Klein v. Dempsey (1930) Citation: 77 P.2d 977 (Cal. Ct. App. 1938)
. Efkowitz v. Great Minneapolis Surplus Store (1957)
Citation: 86 N.W.2d 689 (Minn. 1957)
. Sherwood v. Walker (1887)
Citation: 66 Mich. 568, 33 N.W. 919
. Raffles v. Wichelhaus (1864)
Citation: 2 H & C 906

. Carter v. Boehm (1766)

Citation: 3 Burr. 1905

. Cundick v. Broadbent (1875)

Citation: 43 L.J. Ch. 145

. Universals Indian contract Law bare act pg-3/4

. sklaw.au pg-5
. ipleadersblog.com pg-6
. lawteachers.net
. legalvision.co.uk
. wikipedia.com

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