Business Laws and Management · Elements of Law of Contracts

Mistake of Law and Mistake of Fact in a Contract

Updated 11 October 2026 · Fact-checked

Under Section 21 of the Indian Contract Act, 1872, a contract is not voidable because of a mistake about any law in force in India. A mistake about a foreign law is treated like a mistake of fact. Under Section 20, only a mutual mistake about an essential fact makes an agreement void.

Understand Mistake of Law and Fact (Section 21)

A mistake means a wrong belief. In contract law, the question is simple: does the wrong belief let a party escape the deal? The answer depends on what the belief was about.

Mistake of law of India (Section 21). If both parties, or one of them, make a contract on a wrong belief about a law in force in India, the contract is not voidable. The law presumes everyone knows the law of their own country. The Act's own illustration: A and B contract believing a debt is barred by the Indian law of limitation. They are wrong. The contract is still not voidable.

Mistake of foreign law. If the wrong belief is about a law not in force in India, Section 21 says it has the same effect as a mistake of fact. So you then apply Sections 20 and 22.

Mistake of fact, both parties (Section 20). Where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Examples from the Act: a cargo that had already been lost at sea, or a horse that was already dead, with neither party knowing. An erroneous opinion about the value of the thing is not a mistake of fact.

Mistake of fact, one party (Section 22). A contract is not voidable merely because one party was under a mistake as to a matter of fact. So a one-sided mistake does not help that party.

Key formulas to remember

Section 21: mistake of Indian law: Mistake as to a law in force in India → contract is NOT voidable; Applies to a mistake by one or both parties. The contract stays valid.
Section 21: mistake of foreign law: Mistake as to a law not in force in India = mistake of fact; Then check whether it is bilateral (Section 20) or unilateral (Section 22).
Section 20: bilateral mistake of fact: Both parties mistaken + fact essential to the agreement → agreement is VOID; Both conditions must be met. The Explanation says a wrong opinion about value does not count.
Section 22: unilateral mistake of fact: Only one party mistaken as to fact → contract NOT voidable merely for that reason; The word 'merely' matters. Other grounds such as fraud or misrepresentation are separate.

How to solve Mistake of Law and Fact (Section 21) questions

Use this order for any question on mistake. It works for MCQs and short written answers.

1Identify what the wrong belief is about: a law, or a fact.
2If it is a law, ask whether it is in force in India.
3If it is Indian law, apply Section 21: the contract is not voidable.
4If it is foreign law, treat it as a mistake of fact and move on.
5For a fact, ask whether both parties made the mistake. If only one did, apply Section 22: not voidable merely for that reason.
6If both made it, ask whether the fact is essential to the agreement. If yes, apply Section 20: the agreement is void.
7Check whether the mistake is only about value. If so, it is not a mistake of fact, so Section 20 does not apply.
8Write the conclusion with the section number and one line of reasoning.

Quickest way: Three-question filter

When to use it: Use this in the OMR paper when you have under a minute per question.

Law or fact? Indian law means not voidable. Stop.
Fact: one party or both? One party means not voidable. Stop.
Both parties: is the fact essential and not just value? If yes, void. Otherwise the contract stands.

Common mistakes in Mistake of Law and Fact (Section 21)

Saying a contract made under a mistake of Indian law is void or voidable.
Students assume any mistake gives a way out.
Fix: Remember Section 21: mistake of Indian law never makes the contract voidable.
Treating foreign law mistakes the same as Indian law mistakes.
Students read only the first half of Section 21.
Fix: A mistake about a law not in force in India is treated as a mistake of fact, so test it under Sections 20 and 22.
Calling a one-sided mistake of fact a ground to void the agreement.
Students mix up Sections 20 and 22.
Fix: Section 20 needs both parties to be mistaken. A one-party mistake leaves the contract not voidable merely on that ground.
Treating a wrong guess about price as a mistake of fact.
The word 'mistake' feels broad.
Fix: The Explanation to Section 20 says an erroneous opinion as to value is not a mistake of fact.
Forgetting that the fact must be essential to the agreement.
Students focus only on 'both parties mistaken'.
Fix: Check both tests: mutual mistake and essential fact. The subject-matter being non-existent, as with the dead horse, is the classic case.
Confusing 'void' with 'voidable'.
The two words look alike.
Fix: Void means not enforceable by law. Voidable means enforceable at the option of one party only (Section 2). Section 20 gives void; Sections 21 and 22 say not voidable.

Worked examples

Example 1

Ravi and Meena enter into a contract believing that a debt Meena owes Ravi is barred by the Indian law of limitation. In fact it is not barred. Meena later wants to cancel the contract because of this belief. Can she?

Show the solution

The wrong belief is about a law, the Indian law of limitation.
That law is in force in India.
Section 21 says a contract is not voidable because of a mistake as to any law in force in India.
So the mistake gives Meena no right to cancel.

Answer: No. The contract is not voidable under Section 21.

Example 2

Anil agrees to buy a specific cargo of goods that both he and Bhavna, the seller, believe is on a ship coming to Mumbai. Before the agreement, the ship had sunk and the goods were lost. Neither knew this. What is the status of the agreement?

Show the solution

The wrong belief is about a fact: the cargo exists.
Both parties made the same mistake.
The existence of the cargo is essential to the agreement.
Section 20 applies: where both parties are mistaken as to a matter of fact essential to the agreement, it is void.
This matches the Act's own illustration of a cargo lost at sea.

Answer: The agreement is void under Section 20.

Exam tips

In MCQs, the words 'Indian law' or 'law in force in India' point straight to Section 21: not voidable.
Look for 'both parties' and 'essential' to spot a Section 20 void agreement.
If the option says 'mistake as to value', treat Section 20 as not applying.
Watch the words void and voidable in the options. They are the usual trap.
In a written answer, name the section, state the rule, and apply it to the facts in one or two lines.

Practice questions from Elements of Law of Contracts

Mistake of Law and Fact (Section 21) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Mistake of Law and Fact (Section 21): frequently asked questions

What does Section 21 of the Indian Contract Act say?

It says a contract is not voidable because it was caused by a mistake as to any law in force in India. A mistake about a law not in force in India has the same effect as a mistake of fact.

What is the difference between mistake of law and mistake of fact in a contract?

A mistake of Indian law does not make a contract voidable. A mistake of fact can make an agreement void, but only if both parties are mistaken about a fact essential to the agreement (Section 20). A one-sided mistake of fact does not make the contract voidable merely for that reason (Section 22).

When is an agreement void for mistake?

Under Section 20, it is void when both parties are under a mistake as to a matter of fact essential to the agreement. An erroneous opinion about the value of the subject-matter does not count as a mistake of fact.

How are mistake questions asked in CSEET Paper 4?

They come as one-mark MCQs with a short fact situation. You decide whether the mistake is of law or fact, then whether it is mutual or one-sided, and pick the option that matches Section 20, 21 or 22.