Tarsem Singh vs. Sukhminder Singh||Case Summary|| 1998 3 SCC 471||Mutual Mistake of Fact

Mutual Mistake of Fact

FACTS

In Tarsem Singh vs. Sukhminder Singh the petitioner was given Rs. 77,000 as earnest money but did not complete the sale deed according to the agreement. Even though the respondent was agreeable to performance, they went on to initiate a Specific Performance suit against the petitioner. In appeal, the Lower Appellate Court amended the original trial court order, holding that both parties had erred in understanding the land area and unit price. This common error under Section 22 of the Indian Contract Act made the contract void since there was no definite agreement on the precise land to be sold. Therefore, the court refused the grant of Specific Performance and held that the petitioner is required to refund Rs. 77,000 to the respondent. On appeal, the respondent filed an amended plaint containing modifications pertaining to price, land area, mortgage particulars, and an attempt at registration. Again, the court discovered inconsistencies between the plaint and the amended plaint, further supporting the judgment that the contract was unenforceable. High Court affirmed the Lower Appellate Court judgment, verifying that the earnest money is to be returned with 6% per annum interest from the date of contract to the date of return.

ISSUES

1. Did the parties enter into a contract in which there was a mistake of fact?

2. What is the impact of a mistake of fact on a contract?

3. If the contract between both parties is void on account of a mistake of fact? In that case, will the petitioner be required to refund the earnest money received or can they keep it?

RELEVANT LAWS

1. Section 20 of the Indian Contract Act: This section addresses contracts void on account of a mutual mistake. Where both parties to a contract are under a misconception regarding a fact material to the contract the contract is void.

2. Specific Relief: Specific performance is a legal remedy in which the court instructs a party to perform the contract as contracted. The respondent initially requested specific performance to make the petitioner complete the sale deed. But with the mutual mistake rendering the contract void, specific performance was found unsuitable and the earnest money was refunded instead.

3. Section 65 of ICA: Where an agreement is void, Section 65 of the Contract Act requires that any benefit or gain accrued under such an agreement to be restored. Here, the earnest money of ₹77,000 deposited by the respondent was refunded to him since the agreement was void on account of mutual mistake.

JUDGEMENT

The Supreme Court made it final that the petitioner would be required to abide by Section 65 of ICA and refund the Rs. 77,000 that was earned as earnest money to the respondent as a liability under the terms of the contract. Therefore, the Lower Appellate Court's earlier ruling to refund the money after the grant of a decree was made firm by the Supreme Court. On these premises, the petitioner lost and the Special Leave Petition was liable to be dismissed. In this ruling, the Court discussed at length what was a contract and the requirements of the same. They emphasized the definition of a contract under Section 2(h) as an agreement which was enforceable by law. Conversely, if the agreement is not legally binding – enforceable in law – then it is called void under Section 2(g). In this case, the Court clarified that contracts do not always have to be in written form on paper. Agreement for a legally binding contract can be communicated by word of mouth unless it is otherwise mentioned in the Contract Act that the contract is to be in writing.

Vinita Pathak