Case Summary

Tarsem Singh v. Sukhminder Singh (1998) 3 SCC 471

This Case Summary is written by Kritika Soni, a student of National Law Institute University, Bhopal

Introduction

The Tarsem Singh v Sukhminder Singh case dealt mainly with Section 20 of the Indian Contract Act, which states that an agreement or contract will be declared void if both parties are in error as to a material fact essential to the agreement, implying that both parties must verify the facts before entering into an agreement. The agreement shall be considered null and void if one of the facts is incorrect.

Facts

An amount of Rs.77,000 was provided to the petitioner as earnest money at the time of the agreement’s execution. The respondent filed a suit for Specific Performance against the petitioner because the petitioner did not execute the sale deed in favour of the respondent in accordance with the agreement, despite the fact that the respondent was ready and eager to perform his side of the contract and the trial court decreed the suit. The decree was modified on appeal by the Additional District Judge, who found that the parties to the agreement, namely the petitioner and respondent, both underwent mistakes of fact regarding the area of the land to be sold as well as the price (sale-consideration), which was to be paid per “Bigha” or per “Canal.” The defendant was also said to have neither been ready nor willing to perform his side of the contract, according to the Lower Appellate Court. As a result, the decree for Specific Performance was not issued, but the petitioner was ordered to refund the earnest money of Rs. 77,000. The High Court upheld this decision. The petitioner’s counsel also contended that since the lower court found that the respondent wasn’t neither ready nor willing to perform his part of the contractual obligations in as much as the balance of the sale consideration of Rs. 77,000 was not offered to him by the petitioner, the Lower Court as well as the High Court, that upheld the decree of the Lower Appellate Court, were erroneous in passing a judgement for return of earnest money particularly because the parties had expressly and clearly stated in the contract that if the deed of sale wasn’t obtained by the respondent on payment of the balance amount of Rs. 77,000, the amount that the respondent advanced should stand forfeited.

During the time when the appeal was pending before the Add. District Judge, the respondent made certain changes to the plaint, including:

  • Changing the area of the suit land from 48 canals 11 biswas to 48 bighas 11 biswas
  • He corrected the figure of Rs. 1,56,150 to Rs. 2,35,750 in paragraph 3 of the plaint
  • He also added that this land was mortgaged by the defendant with Canara Bank for Rs. 20,000 and the defendant was to be directed to pay the due amount to Canara Bank or the plaintiff would be authorised to retain the mortgage money.
  • How the plaintiff had met Tarsem Singh in September, 1988 and offered him money to register the sale deed in his favour but he ended up refusing to do so
  • The value of the case for purposes of court fee and jurisdiction would be Rs. 2,40,000 on which a fee stamp is fixed.

The Lower Court found that since the total price of the land as per the amended plaint was Rs. 2,35,750, then according to the original plaint and evidence provided by the respondent, it was very clear that he wasn’t ready and willing to pay the full price to the appellant and that the amount that he had been ready and willing to pay, was before the plaint was amended and that amount was only Rs. 1,56,150. They also held that it was very clear from the original pleadings as well as the amended ones that both parties were under a mistake of fact in as to how much area was to be sold off and whether it was 48 canals 11 marlas or 48 bhigas 11 biswas, thereby making the contract void under Section 22 of the Indian Contract Act. It proceeded to say that it’s very clear that the parties were never ad-idem as to the exact area of land that had to be sold. The decree for the return of the earnest money of Rs. 77,000 paid to the petitioner was issued as a result of the above findings, particularly because the petitioner was found to be under a legal obligation to return that amount, plus interest at the rate of 6% per annum from the date of contract to the date of actual refund. The High Court also upheld these findings.

The question of law that arose in this suit was

  • What is the effect and impact of “Mistake of Fact” on this agreement in contention?

Held (Judgement)

The Supreme Court said that to a limited extent, under Section 65 of the Act, the petitioner, having received Rs. 77,000 as earnest money from the respondent in accordance with that arrangement, is obligated to repay that amount to the respondent. The Lower Appellate Court was consequently correct in issuing a decree for the refund of this money and for these reasons, the Special Leave Petition was dismissed.

The Court discussed about the meaning of “contract” and how according to Section 2 (h), a contract is an agreement enforceable by law whereas Section 2 (g) sets out that an agreement not enforceable by law is void. They also went on to say how it’s not always necessary under law that every contract must be in writing and that oral agreements are also equally binding contracts between the parties unless there’s a law specifically asking for the agreement to be in writing. The essentials of a contract under Section 10 were also discussed in detail that included a) free consent (b) competence of parties to contract (c) lawful consideration and (d) lawful object. Section 20 of the Indian Contract Act provides for an agreement where both the parties are under a mistake of fact to be rendered void. The mistake of fact shall also be in respect of a matter that is essential to the contract. The Appellate Court was correct in saying that the parties were not ad-idem with respect to the unit of measurement because the defendant intended to sell it in “canals” whereas the plaintiff intended to purchase it in “bighas”. Therefore, the dispute was not just about the unit of measurement and was also about the area of land that was agreed to be sold and hence, was a matter essential to the agreement.

It also held that since the agreement was void ab initio, the forfeiture clause would also be void and the petitioner would not be able to legally forfeit the amount and seek enforcement of that clause. The court said that in the present case, they were only dealing with the matter of which one party had received an advantage under an agreement that was void on account if Section 20 of the Act. The court directed the petitioner to refund the Rs. 77,000 to the respondent and upheld the judgement of the Lower Appellate Court and hence, the Special Leave Petition was dismissed.

Conclusion

The Supreme Court referred to many articles of the Indian Contract Act in this case including Section 10-20 and also 73 and 74. It reiterated the point again and again that if the parties are under a mistake of fact as to a matter essential to the agreement, then that contract will have said to be void ab initio i.e. void from the beginning.  It also referred to Section 65 that talks about how its obligation of a person who has received an advantage under void agreement that becomes void, to restore that advantage to the person from whom he received it.

Critical Analysis/ Suggestions

Going about this case, it is very clear from its inception that both the parties had been under a mistake as to what unit of measurement was to be used in relation to the area of land that had to be sold, which was an essential part of the contract between the parties.

Even in the case of Ram Chandra Misra & Ors v. Ganesh Chandra Gangopadhya[1], the Calcutta High Court decided that the agreement entered into, between the parties was void under Section 20, as soon as the mistake has been discovered and the plaitniffs were entitled to receive their money back under a contract that turned out to be void after it was entered into. The Supreme Court rightly referred to Section 65 of the Indian Contract Act, which is based on equitable doctrine that provides for restitution of any benefit received under a void agreement and therefore mandates any person to refund the money or pay compensation to the person from whom he received that advantage.

The Supreme Court was correct in dismissing the Special Leave Petition and upholding the decree of the Lower Appellate Court.


[1] AIR (1917) Cal 786

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