Section 20 of the Indian Contract Act, 1872: Agreement Void Due to Mutual Mistake of Fact
Section 20 explains when an agreement becomes void because both parties are mistaken about a fact essential to their bargain. The rule concerns a fundamental mutual mistake, not merely an incorrect assessment of value.
Text of Section 20: Agreement void where both parties are under mistake as to matter of fact
20. 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.
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.
Meaning and essential conditions of Section 20
A mutual or bilateral mistake of fact exists when both parties share a mistaken belief concerning a fundamental fact on which the agreement is based. Section 20 applies when the mistake relates to an essential fact and exists at the time of the agreement. The result is a void agreement, rather than a contract that one party may simply elect to cancel.
Under Section 2(g), a void agreement is an agreement not enforceable by law. An ordinary error in judging the price or commercial value of the subject matter does not, by itself, satisfy Section 20 because the statutory Explanation expressly excludes an erroneous opinion about value.
Official illustrations under Section 20
(a) Cargo lost before the agreement
A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the facts. The agreement is void.
(b) Horse already dead
A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.
(c) Life interest already ended
A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.
Difference between Sections 20, 21 and 22
Section 20 concerns a mistake of an essential fact shared by both parties, making the agreement void. Section 21 generally provides that a contract is not voidable because of a mistake about a law in force in India; a mistake about a law not in force in India has the same effect as a mistake of fact. Section 22 provides that a contract is not voidable merely because one party alone made a mistake of fact.
These distinctions matter because not every misunderstanding affects the legal validity of a bargain. Questions involving fraud, misrepresentation, or the absence of consent may also require consideration of Section 13, Section 18 and Section 19, as applicable.
Effect of a void agreement
When Section 20 applies, the agreement is void and cannot be enforced as a valid contract. If one party has received an advantage under an agreement discovered to be void, Section 65 may require restoration of that advantage or compensation, depending on the facts and the applicable legal principles. This is separate from enforcing the void agreement itself.