SRI TARSEM SINGH V/S SRI SUKHMINDER SINGH, 1998

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SRI TARSEM SINGH V/S SRI SUKHMINDER SINGH, 1998

CITATION	(1998) 3 SCC 471 100
DATE OF JUDGMENT	2^nd FEBRUARY, 1998
COURT	SUPREME COURT OF INDIA
PETITIONER	SRI TARSEM SINGH
RESPONDENT	SRI SUKHMINDER SINGH
BENCH	S. SAGIR AHMAD, M. JAGANNADHA RAO

INTRODUCTION

Section 20 of the Indian Contract Act of 1872 forms the backdrop of the case of “Tarsem Singh v. Sukhminder Singh”, decided on February 2, 1998. Section 20 underscores how a legally binding agreement becomes void upon a mistake of fact among both parties. This fact must be crucial and integral to the agreement, which heightens the need for both parties to confirm the facts before agreeing. If the facts and incorrect in any way the contract is null, void, and unenforceable.

FACTS OF THE CASE

When both parties entered the agreement, the petitioner received a sum of Rs. 77,000 as earnest money. Unfortunately, the petitioner was not able to execute the sale deed as per the agreement. Even though the respondent was ready to fulfil their obligation they ultimately decided to file a Specific Performance suit against the petitioner.

On appeal by the Additional District Judge, some modifications were added to the suit, initially decreed by the trial court. It was found that the land area and price per unit (“Bigha” or “Canal”) mentioned within the agreement were misunderstood by both the parties – the petitioner and the respondent. Both seemed to have incorrect notions. In the end, the Lower Appellate Court concluded that the respondent did not have the prerequisites to fulfil their side of the agreement. Subsequently, the grant for the Specific Performance was not decreed. The Rs. 77,000 allocated to the petitioner was supposed to be refunded, and this was a decision confirmed by the High Court.

The respondent amended the plaint amid the appeal process. These amendments included price and land area alterations, mentioning the details of the mortgage, and any instances of a failed registration attempt. The Lower Court noticed that the original and amended plaints had some discrepancies and logical loops between both parties. They pointed out that the contract was rendered void under Section 22 of the Indian Contract since they were both mistaken as to the land area to be sold. Mutual agreement could not be reached regarding how much land was to be sold, as emphasised by the court. Later, The High Court agreed with these conclusions and upheld the previous judgements. Following the judgement, the petitioner was decreed to refund the earnest money with 6% interest per annum from the start of the contract to the refund date.

ISSUES RAISED

Did the involved parties enter into a contract where there was a mistake of fact?
What is the effect of a mistake of fact on a contract?
If the contract between the two parties is void due to a mistake of fact? Consequently, will the petitioner have to refund the earnest money received or can they retain it?

CONTENTIONS OF PETITIONER

The petitioner’s counsel used the lower court’s findings to argue their point. Their goal was to contest the decisions of the Lower Appellate Court and the High Court so they could retain their earnest money. The lower court had determined that the obligations stipulated by the contract failed to be fulfilled by the respondent, as they were unable to tender the leftover sale consideration to the petitioner. According to the petitioner, if the sale agreement’s terms were followed, then the respondent would have to forfeit the earnest money given if they were unable to obtain the sale deed by paying the remaining consideration.
The exact numbers regarding the price and area are not crucial to the agreement and any minor errors regarding the same do not alter the fundamental nature of the agreement. Hence, it does not make sense to hinge the decision of an entire case on their accuracy.
Sections 73 and 74 of the Indian Contract Act of 1872 are inapplicable to this case according to the petitioner’s contentions. The purpose of these is to provide the injured party a remedy for compensation in the event of a breached contract. The amount of this compensation should be agreed upon.

CONTENTIONS OF RESPONDENT

Since the contract was void under Section 20 of the Contract Act due to a mistake of fact, the contract has been rendered void, argued the respondent. Both parties were under a mistake of fact about an essential aspect of the contract and therefore did not share a mutual understanding (ad-idem), heightening the voidness. The provision regarding forfeiture of the earnest money cannot be enforced as outlined in the agreement if the contract is not valid in the first place.
Next, the respondent asserted that the land area was a crucial matter which the agreement pivoted around. The price of the land area was dependent on the exact measurement of the land, so if these numbers provided were incorrect then that would create discrepancies in selling it.
The respondent also brought forth another argument: under a void agreement, if a party gains an advantage then they must restore whatever benefit was gained. This is the doctrine highlighted in Section 65 of the Contract Act. Due to the contract being void, the earnest money received by the petitioner was the benefit that needed to be restored.

JUDGEMENT

The Supreme Court finalised that the petitioner would have to comply with Section 65 of the Act and refund the Rs. 77,000 earned as earnest money back to the respondent as an obligation following the terms of the contract. As a result, the Lower Appellate Court’s previous judgement to have the money refunded after the issuing of a decree was upheld by the Supreme Court. On these grounds, the petitioner lost and the Special Leave Petition was subject to dismissal.

In this judgement, the Court deliberated extensively on what constituted a contract and the prerequisites for the same. They highlighted the definition of a contract under Section 2(h) as an agreement that was enforceable by law. On the contrary, if an agreement is not enforceable by law – legally binding – then it is termed void under Section 2(g). Here, the Court cleared up that contracts need not necessarily be written on paper. Agreement to a legally binding contract can be expressed through oral word of mouth unless it is specified in the Contract Act that the contract has to be in writing. Moreover, other aspects essential to the formation of a contract were also discussed at length: free and mutual consent, capacity of both parties to contract, lawful object and lawful consideration.

ANALYSIS

The fundamental conclusion in the case of “Tarsem Singh v. Sukhminder Singh” was the mistake of fact regarding the specific area of land being sold among both parties. The case was decided in the Supreme Court in 1998, and the bench consisted of Judges S. Saghir Ahmad and M. Jagannadha Rao. The judgement was in alignment with the stipulation put forward by Section 20 of the Indian Contract Act of 1872: “Where both parties in an agreement are mistaken regarding a crucial fact essential to the agreement, the agreement becomes void.” The court deemed the contract to be null and void since the parties could not come to a consensus as to whether the land was being sold by 38 kanal 11 marla or 48 bighas 11 biswas.

The respondent signified validity in an aspect of the contract by making a consideration payment. The petitioner, however, did not provide any consideration. Consequently, in this instance, a contract could not have been formed. The intention to form a contract could be proved by citing the forfeiture clause within the contract, which stated that in case of a lack of response by the respondent, the earnest money would be refunded. Simultaneously, the respondent declared to the court that they intended to finalise the property for sale, hence why they approached the petitioner. All this extra information was considered useless by the court since the contract was anyways declared void due to a mutual mistake of fact by the parties. The terms of the contracts could not be enforced. No other argument held weightage.

To prove why the contract was void ab initio, the Court cited Section 20 of the Indian Contract Act. The section illustrated that a mistake of fact by both parties in the process of entering into a contract renders the contract null and void, especially if the mistake is pivotal to the terms of the contract. The respondent believed they would be selling in “canals” while the petitioner believed they would purchase in “bighas”. The Lower Appellate correctly found the loops in the contract – the parties could not come to an agreement on the unit of measure for the property, which was crucial as it would affect the price at which it would be sold. There were also misunderstandings about the land area being agreed upon. The contract could never be implemented if the numbers weren’t right.

The legal maxim, “ignorantia facti excusat” forms the backbone of Section 20 of the Indian Contract Act of 1872, which states that the ignorance of a fact serves as an excuse. In the event of a mistake of fact, both parties are mistaken as to the terms of a contract, hence it cannot be enforced. A mistake can be defined as a misunderstanding between one or both of the parties stemming from innocent and erroneous beliefs. The occurrence of a mistake of fact is commonplace where parties contracting to an agreement are not completely aware of the terms and conditions. They might not be interpreting the nature of the contract in the same way. There are two types of mistake of fact: bilateral and unilateral. This case concerns the former since both parties were mistaken. For this section to apply there must be three fulfilled requirements:

The mistake must be due to the fault of both parties – it must be mutual.
It must be related to a factual aspect of the contract.
The fact being cited must be crucial to the existence of the contract. Minor erroneous assessments regarding the subject matter do not qualify as a mistake of fact.

If these requirements are fulfilled, the mistake of fact can be used to void the terms of the contract since there was no mutual agreement for the same (consensus ad idem). In the aforementioned case, the mistake concerned was related to the quantity of the subject matter. However, generally in contract law, a mistake of fact can also be related to the existence, quality or title of the subject matter.

CONCLUSION

The provisions of the Indian Contract Act were central to this case. Some of the sections referenced by the Court included Sections 10-20, alongside Sections 73 and 74. A mistake of fact was the caveat to the formation of the agreement. Since both parties committed a mistake of fact regarding crucial aspects of the contract, the agreement was void ab initio or void from the beginning. Repeatedly emphasised by the Court, this meant that the contract could not proceed further on any other grounds. Section 65 was specifically cited. It underscores that the benefits gained by a person in a void agreement should be obligatorily returned to the individual from whom it was received. When we examine the case, it is clear that both parties had several mistaken beliefs about the measurement of the land area which the contract hinged around. Their contract cannot be enforced. We can conclude that the decision by the Supreme Court to uphold the Appellate Court’s decree was necessary for this case. The law was aptly applied and interpreted here; the Special Leave Petition should have been dismissed.

REFERENCES

This Article is written by Eshal Zahur student of National Law University, Odisha; Intern at Legal Vidhiya.

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