When the lease in question was executed by the defendant, and when the plaintiff took the assignment of it, the parties to both instruments understood that the water power which was the subject of the lease could be used in manufacturing pulp. With this understanding, the lease and assignment were made, and without it, it is apparent that no lease nor assignment would have been executed. The water could not be used for such purpose. Clement v. Gould, 61 Vt. 573. The lease was made and assigned in ignorance of this fact; an instance of a mistake as to the subject matter of the thing contracted for, a common mistake as to the rights conveyed by the lease. It is clear that the defendant supposed he was selling and the plaintiff that he was buying a right to water which could be used in making pulp. The plaintiff secured by the contracts no such rights, for the defendant had none to convey. It is analogous in principle to those cases of sale in which the subject of the sale has ceased to exist, and the parties are ignorant of the fact, like the destruction of a building by fire before the sale, or the death of an animal, or the sale of - an annuity when the annuitant is dead. An error of-fact takes place *410when some fact is supposed to exist which does not exist. The parties in entering into the contracts in question, supposed the water could be used by them in making pulp; it could not be so used. Clearly an error of fact. In respect of such a state of facts the law is this : If an agreement is induced by a mistake common to both parties, without which mistake the agreement would not have been made, and the mistake was in respect of the subject matter of .the contract, the agreement is inoperative and void. Such was the civil law. Domat’s Civil Law, Pt. i, Book i, Title XVIII, s. i, Art VII. The same rule has been adopted as a part of the common law, and is based upon the idea that in such cases no contract has been consummated, that the minds of the parties have never met in respect of the real subject matter of the contract. It is not a case of a mere failure of consideration, for that implies the existence of a contract, while a mutual mistake prevents the existence of one.
The law in this state in such cases was announced in Ketchum v. Catlin, 21 Vt. 191. The defendant sold produce which both parties supposed was in Whitehall; in fact it was in Boston. By reason of this mutual mistake, the plaintiff' was permitted to recover what he had paid defendant on account of it, and that vigorous master of the common law, the late Bennett, J., says, “if a contract is made in mutual error of material facts which have induced the contract, it is invalid and may be set aside. This is upon the principle, mainly, that when the parties are under a mutual mistake as to material facts, affecting the subject matter of the contract, there is a want of a binding assent; and we think a contract so made may be avoided in a court of law.” And see Kelley v. Solari, 9 M. & W. 59 ; Wheadon v. Olds, 20 Wend. 174; Fleetwood v. Brown, 109 Ind. 567; Newell v. Smith, 53 Conn. 72, in which case a compromise was set aside for that the parties mutually supposed a cow was *411not in calf, when in fact she was. The effect of a mistake, when it has any operation at all, is to avoid the contract, and if the contract is avoided, an action lies to recover money paid under it.
The parol evidence was properly admitted not to vary the terms nor the effect of the contract, but to show that it never took effect as a valid agreement. The claim was not based upon the lease, but upon a fact back of it, the mutual mistake of the parties, which led to the execution of it and the assignment. The plaintiff is not estopped from asserting this •claim against, the defendant. It is true he had constructive notice of the limitation upon the water rights, as the deed limiting them was upon record ; but the defendant had taken the water to the pulp mill and had leased it in connection with the mill, and the plaintiff might well infer, without actual notice, that there was no limit nor restriction upon the water rights.
The mistake was discovered before the payment, which the plaintiff is seeking to recover, was made. After it was discovered that Clement made claim to the water rights, the defendant insisted that he, Clement, had no title to the water .and that the plaintiff must pay him, the defendant, the rent, and the effect of the report is that he did agree that if in respect •of the lease he was liable to any one, it was to the plaintiff, .and that'he would pay him what he was compelled to pay ■Clement.
We do not think a technical, narrow construction should be given to the terms of the defendant’s agreement. He promised the plaintiff that he would pay “ if his lease made him liable ” : he would do ‘ ‘ whatever his contract called upon him to do.” It is true he cannot be made liable in an action upon the lease, but he is liable in respect of it, and the lease being inoperative and void, the law calls upon him to refund whatever he has received upon it. The agreement although •conditional has become absolute, the plaintiff is entitled to *412its performance, and the defendant should “pay him what he paid Clement,” and thus “stand between, him and all harm” as he agreed to do.-
Judgment affirmed.