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SHEIK BROS LTD Vs. OCHSNER (1957)

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CITIATION(1957) AC 136
PRIVY COUNCIL APPEAL NO.41 of 1955
COURTThe Court of Appeal for Eastern Africa, Judgement of the Lords of the Judicial Committee of the Privy Council.
DATE OF JUDGEMENT14th January, 1957
APPELLANTSheikh Brothers Limited
RESPONDENTArnold Julius Oshsner and Another
JUDGELord Oaksey., Lord Cohen., Lord Keithof Avonholm., Mr.L.M.D. de Silva.

INTRODUCTION

The case of Sheikh Bros Ltd Vs. Arnold Julius Ochsner and Another is an appeal case wherein the appellant sought over the appeal over the decisions declared over in the lower in favour of the respondents in this present case. He sought over for the compensation under the Section 56 although the contract is declared void, as it was as was claimed by him to be due to improper diligence of the respondents in the matter of entering into the contract. The case was also handed over to be undertook on a decision by the arbitrators according to Clause 12 of the agreement between the appellants and the respondents. It dealt with the concept of Mistake as to Physical Possibility.

FACTS OF THE CASE

  1. The parties have entered into a licensing agreement which was to allow the respondents to cut and deliver all sisal growing in the 5,000 acres of land of the 10,000 acres of land belonging to the appellants.
  2. The agreement required the respondents to cut and deliver a minimum of 50 tons of the sisal fibre per month for sale.
  3. As a security against the licensing agreement, the respondents were obliged to fulfil the requirement of depositing a sum of 50,000 shillings.
  4. The clauses of the agreement were such that, it was a licensing agreement to cut, decorticate, process and manufacture all sisal which is grown up within the sisal area, the license was for a term of 5 years.
  5. The supply is to be made for a continuous term, and only to the appellant company and at every end of the year, the produce shall be measured so as the excess produce shall also be credited to the company.
  6. If the produce is not supplied for a continuous term of three consecutive months as a result of which the company shall suffer a loss of more than 1,000 shillings, then the agreement will be automatically terminated and would lead to a suspension of the license, the exceptions being only drought and fire.
  7. They signed an agreement with inclusion of an arbitration clause to solve disputes through arbitration.
  8. The land was not able to produce the aforesaid quantities as it was impossible to produce it in that land provided. The decision of the lower court was that the contract was void. And this is an appeal for acquiring compensation against the loss incurred by them due to the respondents not supplying the sisal fibre.

ISSUES RAISED

        The arbitrators were asked to decide whether the contract was void due to Section 20 of The Indian Contract Act, 1872 because of Mutual Mistake or due to Section 56 of The Indian Contract Act, 1872 because of Impossibility of Performance.

PROVISIONS CONCERNED

  1. Section 20: 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.
  2. An agreement to do an act impossible of performance is void.
  3. Section 56: In certain circumstance, a void agreement is entitled for compensation.
  4. Section 2(g): An agreement not enforceable by law is void agreement.

CONTENTIONS OF THE APPELLANT

  1. The appellants contended that they did not know but the respondents might with reasonable diligence might have known the impossibility, so therefore they were entitled to compensation.
  2. They made reference to the judgement by Lord Atkin in the case of Bell Vs. Lever Bros, said that any mistake as to the quality will not affect assent unless it is a mistake of both parties to support their contention.
  3. They state that according to Section 56 of The Indian Contract Act, 1872, any agreement to do an act impossible in itself, the third paragraph of the Section shall be applied to entitle him for compensation against the loss incurred by him.

CONTENTIONS OF THE RESPONDENT

The respondents wanted to uphold the previous decision decided by the lower court. The respondents contended that there is mistake as to both the parties because neither of them had assumed the risk of the land being unable to required yield. Mistake of both the parties declares the contract void as per Section 20 of The Indian Contract Act, 1872 and as decided under the latter section the respondents were not entitled to compensation under the Section 56.

JUDGEMENT

      The agreement between the appellants and the respondents was declared void under Section 20 of The Indian Contract Act, 1872 due to mistake of fact. The arbitration panel held that the agreement was void under Section 56, but since the decision has been provided under Section 20, compensation is not payable under the third paragraph of Section 56. The agreement would have also been void under Article 14 if not specifically declared under Section 56. The appeal was dismissed and the appellant was directed to pay all costs.

ANALYSIS

  1. An agreement which is subjected to mistake of fact be declared void only if it is due to the mistake of both the parties.
  2. An agreement declared void under the Section 20 shall not be accrued to the relief under any other Section such as that of the Section 56 on to this case.
  3. The agreement would also have been void pertaining to the provisions of Section 14 and Section 10 of The Indian Contract Act, 1872.

CONCLUSION

        This case provided clarification over, when an act comes under different Sections and the compensation is entitled only under one of such sections, but the agreement has been declared void under the other section, the person would not be entitled for the relief under the former section. This case proved illustrative over this matter of issue.

REFERENCES

  1. https://www.casemine.com/judgement/in/5779f9c1e561096c9313120c#:~:text=Relevant%20Law%3A,impossible%20in%20itself%20is%20void.
  2. https://thelegal.blog/blog/8-legal-cases-where-the-contract-was-void-ab-initio

This Article was written by Magizhini M of The Tamilnadu Dr. Ambedkar Law University (SOEL).

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