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CSEET · Business Laws and Management · Elements of Law of Contracts

Meera and Karan agree to the sale of a specific cargo believed to be on its way from England to Bombay. Before the bargain the ship had sunk, and neither knew. Karan later says he also wrongly believed that a foreign law not in force in India allowed the import. Which is correct?

The agreement is void. Both parties were unaware that the cargo had been lost, which is a mistake about a fact essential to the agreement, and Section 20 makes such an agreement void. The foreign-law belief is treated as a mistake of fact and does not rescue the contract.

  1. AThe agreement is void because both were mistaken about an essential fact, the cargo's existenceCorrect
  2. BThe agreement is valid because a mistake of law does not affect a contract
  3. CThe agreement is voidable at Karan's option because of his mistake as to foreign law
  4. DThe agreement is valid because the mistake concerned the value of the goods

Explanation

Both parties were mistaken about the existence of the subject-matter, an essential fact, so Section 20 makes the agreement void, as in the cargo illustration. Karan's foreign-law belief is treated as a mistake of fact under Section 21, but it does not change that result. The mistake was not about value, so the last option is wrong.

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