Section 20 of Indian Contract Act

20. Agreement void where both parties are under mistake as to matter of fact.— 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.

Illustrations

(a) 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 these facts. The agreement is void.

(b) 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) 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.

Final Thoughts

Introduction

The Indian Contract Act, 1872, governs the law of contracts in India. Section 20 of this Act deals with the situation where both parties enter into an agreement based on a mistaken belief about a fact that is essential to the contract. If such a mutual mistake exists, the agreement becomes void, meaning it has no legal effect.

Key Elements of Section 20

To declare an agreement void under Section 20, the following conditions must be satisfied:

There must be a mistake.
The mistake must be of fact (not law).
The mistake must be mutual (i.e., both parties are mistaken).
The mistaken fact must be essential to the agreement.

What is a “Mistake of Fact”?

A mistake of fact occurs when both parties believe in something that is not true, and this belief relates to an essential matter of the contract.

Examples of “Matter of Fact”:

Existence of the subject matter (e.g., a horse is alive).
Identity of the subject matter.
Quality or condition of the subject matter.

Void Agreements Under Section 20

When such a mutual mistake of fact occurs, the agreement is void from the beginning (void ab initio). It means:

The agreement is considered as if it never existed.
Neither party can enforce the contract in a court of law.
There is no legal obligation created.

Explanation – Mistake About Value is Not a Mistake of Fact

The law clearly says that if parties are only mistaken about the value or price of a subject matter, that does not make the agreement void. Valuation is considered an opinion, not a fact.

Example: If A sells a painting to B thinking it’s worth ₹10,000, and later it turns out to be worth ₹1,00,000 — the agreement is still valid.

Important Illustrations from the Act

(a) Cargo Lost in Shipwreck

A agrees to sell to B a cargo of goods supposed to be coming from England to Bombay.
Unknown to both, the ship had already sunk and the goods were lost.
Agreement is void because the subject matter no longer exists.

(b) Dead Horse

A agrees to sell a horse to B.
The horse was already dead at the time of agreement.
Both were unaware → Agreement is void.

A sells an estate to C, which he holds during the life of B.
Unknown to both, B had already died.
The estate ends with B’s death → Agreement is void.

These examples clearly show how non-existence or non-availability of the subject matter due to a mutual mistake of fact makes the contract void.

Difference Between Mistake of Fact and Mistake of Law

Mistake of Fact	Mistake of Law
Concerned with facts related to the contract.	Concerned with understanding the law.
May render contract void (Section 20).	Does not make a contract void.
Example: Subject matter already destroyed.	Example: Not knowing that selling ivory is illegal.

Only mutual mistake of fact can make the contract void, not mistake of law.

Conclusion

Section 20 of the Indian Contract Act plays a crucial role in ensuring fairness in contractual relationships. When both parties enter into an agreement based on a wrong belief about a fundamental fact, the law treats such an agreement as void, because there is no real “meeting of minds”.

This provision helps to protect both parties from being unfairly bound to a contract based on false assumptions. However, the law does not allow cancellation just because one party made a poor bargain or misjudged the value — that is considered a business risk, not a legal mistake.