The Indian Contract Act, 1872 provides that a contract entered into under a mistake of fact may be void. Section 20 provides that where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. This is bilateral (mutual) mistake. Section 21 provides that a contract is not voidable merely because it was caused by a mistake of law. Section 22 provides that a contract is not voidable merely because it was caused by one party being under a mistake as to a matter of fact — unilateral mistake does not ordinarily make a contract void.
Misrepresentation under Section 18 is a false statement of fact made by a party to the contract that induces the other party to enter into the contract. Innocent misrepresentation allows the innocent party to rescind the contract but not to claim damages. Fraudulent misrepresentation under Section 17 — where the statement is made knowing it to be false or without belief in its truth or recklessly — entitles the innocent party to both rescission and damages.
The distinction between mistake and misrepresentation matters: in mistake, there is no false statement by either party; both are operating under a shared false belief about the facts. In misrepresentation, one party has actively created a false impression in the other's mind.
