LAW OF CONTRACT-I

Continuous Internal Assessment-II

Case Analysis: “Tarsem Singh V. Sukhminder Singh”

Submitted By Submitted To
Arzoo Kedia Mr. Amitesh Deshmukh
Roll no. 84 Assistant Professor
Semester-I, Section-C Law of contracts
B.A. LL.B (Hons.)
Facts
The petitioner owned “48 kanals 11 marlas” of land and entered into an
agreement for its sale to the respondent who paid Rs. 77000 as earnest money
for the property.

The plaintiff wanted to buy the land in terms of "bighas," whereas the
defendant wanted to sell it in terms of "kanals." They are both different units
of measurement and therefore denote different area of land. So, the matter
regarding which the parties were under mistake was the area of the land and
the total price which will be determined by the area. As these are subject
matter to the contract, they are matters essential to the contract.

The respondent brought a complaint for specific performance after the

petitioner failed to execute the sale document, and the trial court granted it.
Later, the ruling was modified by an additional district judge, and the
petitioner was ordered to pay back Rs. 77,000. The high court upheld this.

The contract included a provision stipulating that the earnest money would be
non-refundable if the respondent failed to fulfill the remaining payment
obligation.

Issues

 Whether there was “consensus ad idem” between the parties?

 What influence does a factual error have on the agreement?
 Whether the agreement between the parties was void?
 Can the earnest money received by petitioner be forfeited to him?

Contentions

Petitioner’s

1. the passing of the decree of return of money was in error as there was a
term in the contract that if the plaintiff did not pay the remaining amount, then
the amount in advance would stand forfeited.
 2. mistake of fact regarding “price” and “area” is not a subject matter essential
to the contract.

3. under section 73, petitioner is entitled to receive compensation as he is the

party sustaining a loss.

Respondent’s

1. Pleaded “section 65” which is based on “equitable doctrine” and stated

that “any person who has received benefit under a contract which is
discovered to be void or becomes void, has to provide for restitution of
such benefit.”

2. Area of land is a much essential to contract.

Judgment

Court held that there was a mistake of fact regarding the land and it was an
essential to agreement. The provision concerning the forfeiture of money
becomes invalid because the agreement itself was void due to a lack of mutual
consent, as outlined in section 20. Consequently, all of its clauses are rendered
void as well. Additionally, section 74 of the Indian Contract Act cannot be
applied in this case, as it requires a valid and enforceable agreement to be in
place for its applicability. In the situation described, one party gained a benefit
from a contract that was later determined to be void due to “section 20 of the
act.” The court ruled that according to “section 65” of the Act, the Rs. 77,000
received by the petitioner as earnest money must be returned. Consequently,
the judgment given by the lower appellate court was correct.
Ratio Decidendi

1. When both parties are initially mistaken about a crucial fact that is
essential to the agreement, and they only become aware of this mistake
at a later stage, it does indeed lead to the agreement being considered
as having been discovered to be void.
2. The “mistake of fact has to be bilateral”. As for an agreement to be
void both the parties must be under a mistake of fact of as to a matter
essential to contract.
3. If an agreement is declared void than all its clauses will also be void.

Case Analysis

Both the parties were in error regarding the unit of measurement of the land.
The unit of measurement would decide how much or the area of the land to be
sold which in turn would decide the price of the land, which is a crucial
component of contract between the parties. According to section 20 of the
Indian Contract Act, “when both the parties are under a mistake to a matter of
fact essential to the agreement the agreement is void.”

Of course, the argument of the appellant that the respondent was not willing to
pay the balance amount was correct, but that does not mean that the clause of
forfeiture would be valid as it was void from inception due to the effect of the
contract being void. As the judgement said “a void agreement cannot be split
up.”1

According to section 20 both parties must be under mistake and according to

section 22 of the act, “a contract will not be voidable merely because one party
was under a mistake of fact”. In this case both the parties were under the
mistake as to unit of measurement and therefore the agreement is void.

1
(1998) 3 SCC 471
Court found section 73 and 74 are not applicable in the case which was a
rightful decision because for them to be applied it again demands the
agreement to be valid and enforceable by law.

Section 65, which establishes the doctrine of restitution, was applied in the
legal case in question. The argument made by the petitioner that this section
should not be applied because the contract was void from the outset (void ab
initio) and not "discovered to be void" was rejected by the court. As a result,
the petitioner was instructed to refund the earnest money amount.