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CA Foundation · Business Laws · The Indian Contract Act, 1872

Gaurav agrees to sell a house to Hema for Rs 50 lakh. Gaurav and Hema both believe the house is in Nashik, but it was destroyed in a fire a week earlier, unknown to both. Hema sues for performance. What is the legal position?

The agreement is void. Both parties were mistaken about a fact essential to the contract, namely that the house still existed, and under section 20 such a bilateral mistake makes the agreement void, so Hema cannot enforce it.

  1. AVoidable at Gaurav's option for misrepresentation
  2. BVoid because of mutual mistake as to a matter of fact essential to the agreementCorrect
  3. CValid, because the buyer should have inspected the house
  4. DValid, but Hema can claim a reduced price

Explanation

Under section 20, where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void. The destruction of the house goes to the root of the contract. The caveat emptor view fails because both parties shared the mistake and no fraud or misrepresentation was involved.

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