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

Sunita, a coaching centre owner in Indore, agrees to sell her flat to Rajesh. Later it is found that the flat was destroyed in a fire a day before the agreement was signed, which neither party knew. How is the agreement treated?

The agreement is void. Both Sunita and Rajesh were mistaken about a fact essential to the agreement, namely that the flat existed, since it had already been destroyed. A bilateral mistake of this kind makes the agreement void from the start, not voidable or illegal.

  1. AValid contract, because both parties consented freely
  2. BVoidable contract at Rajesh's option, because of mutual mistake
  3. CVoid agreement, because of mistake of both parties on a fact essential to the agreementCorrect
  4. DIllegal contract, because the subject matter did not exist

Explanation

Where both parties are under a mistake about a matter of fact essential to the agreement, the agreement is void. Existence of the flat is such a fact, and neither party knew it was destroyed. It is not voidable, since no party has an option, and it is not illegal because no law forbids it.

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