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Sri Tarsem Singh vs Sri Sukhminder Singh on 2 February, 1998

Supreme Court of India
Sri Tarsem Singh vs Sri Sukhminder Singh on 2 February, 1998
Author: S S Ahmad.
Bench: S. Saghir Ahmad, M. Jagannadha Rao
           PETITIONER:
SRI TARSEM SINGH

	Vs.

RESPONDENT:
SRI SUKHMINDER SINGH

DATE OF JUDGMENT:	02/02/1998

BENCH:
S. SAGHIR AHMAD, M. JAGANNADHA RAO




ACT:



HEADNOTE:



JUDGMENT:

J U D G M E N T
S. SAGHIR AHMAD. J.

Delay condoned.

The defendant is the petitioner in this Special Leave
Petition before us.

The petitioner, who owned 48 kanals 11 marlas of
agricultural land in village Panjetha, Tehsil and District
Patiala, entered into a contract for sale of that land with
the respondent on 20.5.1988 @ Rs. 24,000/- per acre. At the
time of the execution of the agreement, an amount of Rs.
77,000/- was paid to the petitioner as earnest money. Since
the petitioner in terms of the agreement although the
respondent was ready and willing to perform his part of the
contract, the latter, namely, the respondent filed the suit
for Specific Performance against the petitioner which was
decreed by the trial court. The decree was modified in
appeal by the Additional District Judge who was of the
opinion that the parties to the agreement, namely, the
petitioner and respondent both suffered from a mistake of
fact as to the area of the land which was proposed to be
sold as also the price (sale-consideration) whether it was
to be paid at the rate of per “Bigha” or per “Kanal”. The
Lower Appellate Court also found that the respondent was not
ready and willing to perform his part of the contract.
Consequently, the decree for Specific Performance was not
passed but a decree for refund of the earnest money of Rs.
77,000/- was passed against the petitioner. This was upheld
by the High Court.

Learned counsel for the petitioner has contended that
since the Lower Appellate Court was recorded a finding that
the respondent was not ready and willing to perform his part
of the contract inasmuch as the balance of the sale
consideration was not offered by him to the petitioner, the
Lower. Appellate Court as also the High Court, which upheld
the judgment of the Lower Appellate Court, were in error in
passing a decree for return of the amount of earnest money
particularly as the parties had expressly stipulated in the
agreement for sale that if the sale was not obtained by the
respondent on payment of the balance amount of sale
consideration, the amount of earnest money, advanced by the
respondent, shall stand forfeited.

In order to decide this question, we have to proceed on
certain admitted facts which are to the effect that there
was an agreement for sale between the parties concerning
agricultural land measuring 48 kanals 11 marlas which was
proposed to be sold at the rate of Rs. 24,000/- per bigha or
kanal and that an amount of Rs. 77,000/- was paid as earnest
money. The sale deed was to be obtained on or before
15.10.1988 by offering the balance of the sale consideration
to the petitioner before the sub-Registrar, Patiala. There
was a stipulation in the agreement that if the respondent
failed to pay the balance amount of sale consideration, the
earnest money shall stand forfeited.

During the pendency of the appeal before the Additional
District Judge, respondent made certain amendments in the
plaint which have been set out in the judgment of the Lower
Appellate Court as under:-

“(a) He corrected the area of the
suit land as 48 bighas 11 biswas,
instead of 48 kanals 11 biswas.

(b) In para 3 of the plaint, he
corrected the figure of Rs.
1,56,150/- to Rs. 2,35,750/-.

(c) He also added following para 3A
to the amended plaint:-

“The land is mortgaged with Canara
Bank by the defendent for Rs.
20,000/-. The defendant be directed
to deposit the due amount to the
Canara Ban or the plaintiff be
authorised to retain the mortgage
money.”

(d) He also added the following
lines to para 9 of the plaint:-
“The plaintiff met Tarsem Singh in
the month of September, 1988 and
offered him the money with request
to get the sale deed registered in
his favour but he refused to do
so.”

(e) He also added the following
lines to para 19 of the plaint:-

“The value of the suit for the
purpose of court fee and
jurisdiction is Rs. 2,40,000/- on
which a court fee stamps of Rs.
4,686/- is fixed.”

The Lower Appellate Court also recorded additional
evidence. Thereafter, the Lower Appellate Court proceeded to
record the findings as under:-

“24. It is rightly submitted by the
learned counsel for the appellant
that the case of the appellant is
hoisted twice over with his patard.
If the total price of as per
amended plaint, them from the
original plaint and evidence of the
respondent in the trial court, it
is clear that he was never of Rs.
2,35,750/- to the appellant for the
land in contract, and that what he
was ready and willing to pay at all
material points of time before he
filed application for amendment of
the plaint in this court, was only
Rs. 1,56,150/-.

25. Of course, with the advantage
of hind sight and as a clever but
clumsy after though Sukhminder
Singh respondent PW1 stated in this
court on 30.4.1993 that when he
attended the offence of the Sub
Registrar for execution of the sale
deed on 30.4.1993 he was having Rs.
one lac in his possession. However
performance because for the reasons
already stated, it is abundantly
clear that till before filing the
application for amendment of the
plaint, in this court, the
respondent was only willing to pay
the total sale price Rs. 1,56,150/-

to the appellant, and not the full
sale consideration of Rs.
2,35,750/-. Therefore in the
peculiar facts and circumstances of
the case, it would be difficult to
hold that he had throughout been
ready and willing to perform his
part of the contract.

26. An other forensic cross which
the respondent must bear is that
even from his original pleadings,
and the amended pleadings, it is
clear that both the parties were
under a mistake of fact in so far
as the area of land agreed to be
sold was concerned. As luck would
have it, none of them was sure
whether it was 48 kanals 11 marlas,
or 48 bighas 11 biswas. Therefore,
the contract Act. Besides this
where the description, area and
other particulars of the property
are not absolutely definite,
precise, certain and exact, no
decree for specific performance of
sale can be passed.”

The Lower Appellate Court further
proceeded to say as under:-
“On the analysis presented above it
is absolutely clear that the
parties were never ad-idem as to
the exact area of the land agreed
to be sold.”

It was on account of the above findings that the decree
for return of the earnest money of Rs. 77,000/- paid to the
petitioner was passed particularly as the petitioner was
found to be under a legal obligation to return that amount
together with interest at the rate of 6% per annum from the
date of contract till the date of acutal refund.

The findings that the parties were suffering from a
mistake of fact as to the area and the rate at which the
property was agreed to be sold has been upheld by the High
Court which summarily dismissed the Second Appeal filed by
the petitioner questioning the finding of the courts below.

What is the effect and impact of “Mistake of Fact” on
the agreement in question may now be examined.

`Contract’ is a bilateral transaction between two or
more than two parties. Every contract has to pass through
several stages beginning with the stage of negotiation
during which the parties discuss and negotiate proposals and
counter-proposals as also the consideration resulting
finally in the acceptance of the proposal. The proposal when
accepted gives rise to an agreement. It is at this stage
that the agreement is reduced into writing and a formal
document is executed on which parties affix their signatures
or thumb impression so as to be bound by the terms of the
agreement set out in that document. Such an agreement has to
be lawful as the definition of contract, as set out in
Section 2(h) provides that “an agreement enforceable by law
is a contract”. Section 2(9) sets out that “an agreement not
enforceable by law is said to be void”.

Before we proceed to consider what are lawful
agreements or what are voidable or void contracts, we may
point out that it is not necessary under law that every
contract must be in writing. There can be an equally binding
contract between the parties on the basis of oral agreement
unless there is a law which requires the agreement to be in
writing.

Section 10 of the Contract Act provides as under:-

“10. What agreements are
contracts.- All agreements are
contracts if they are made by the
free consent of parties competent
to contract, for a lawful
consideration and with a lawful
object, and are not hereby
expressly declared to be void.

Nothing herein contained shall
affect any law in force in India
and not hereby expressly repealed,
by which any contract is required
to be made in writing or in the
presence of witnesses, or any law
relating to the registration of
documents.”

The essentials of contract set out in Section 10 above
are:-

(1) Free consent of the parties
(2) Competence of parties to contract
(3) Lawful consideration
(4) Lawful object
Competence to contract is set out in Section 11 which
provides that every person is competent to contract who is
of the age of majority and who is of sound mind and is not
disqualified from contracting by any law to which he is
subject. Section 12 provides that a person will be treated
to be of sound mind if, at the time when he makes the
contract, he is capable of understanding it and forming a
rational judgment as to its effect upon his interests.

“Consent” and “Free Consent”, with which we are really
concerned in this appeal, are defined in Section 13 and 14
of the Act as under:-

“13. Two or more persons are said
to consent when they agree upon the
same thing in the same sense.”
“14. Consent is said to be free
when it is not caused by-
(1) coercion, as defined in section
15, or
(2) undue influence, as defined in
section 16, or
(3) fraud, as defined in section
17, or
(4) misrepresentation, as defined
in section 18, or
(5) mistake subject to the
provisions of sections 20, 21 and

22.
Consent is said to be so caused
when it would not have been given
but for the existence of such
coercion, undue influence, fraud,
misrepresentation or mistake.”

Section 15, 16, 17 and 18 define “Coercion”, “undue
Influence”, “Fraud” and “Misrepresentation”.

Section 19 provides that when consent to an agreement
is caused by coercion, fraud or misrepresentation, such
agreement is voidable at the option of the party whose
consent was so caused. So also is the agreement to which
consent of a party was obtained by undue influence.

Section 20 of the Act lays down as
under:-

“20. Agreement void where both
parties are under mistake as to
matter of fact.- 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.

Explanation.- An erroneous opinion
as to the value of the thing which
forms the subject-matter of the
agreement, is not to be deemed a
mistake as to a matter of fact.”

This Section provides that an agreement would be void
if both the parties to the agreement were under a mistake as
to a matter of fact essential to the agreement. The mistake
has to be mutual and in order that the agreement be treated
as void, both the parties must be shown to be suffering from
mistake of fact. Unilateral mistake is outside the scope of
this Section.

The other requirement is that the mistake, apart from
being mutual, should be in respect of a matter which is
essential to the agreement.

Learned counsel for the petitioner contended that a
mistake of fact with regard to the “price” or the “area”
would not be a matter essential to the agreement, at least
in the instant case, as the only dispute between the parties
was with regard to the price of the land, whether the price
to be paid for the area calculated in terms of “bighas” or
“canals”.

“Bigha” and “Kanal” are different units of measurement.
In the Northern part of the country, the land is measured in
some states either in terms of “bighas” or in terms of
“kanals”. Both convey different impressions regarding area
of the land. The finding of the Lower Appellate Court is to
the effect that the parties were not ad-item with respect to
the unit of measurement. While the defendant intended to
sell it in terms of “kanals”, the plaintiff intended to
purchase it in terms of “bighas”, the plaintiff intended to
purchase it in terms of “bighas”. Therefore, the dispute was
not with regard to the unit of measurement only. Since these
units relate to the area of the land. Since these units
relate to the area of the land, it was really a dispute with
regard to the area of the land which was the subject matter
of agreement for sale, or, to put differently, how much area
of the land was agreed to be sold, was in dispute between
the parties and it was with regard to the area of the land
that the parties were suffering from a mutual mistake. The
area of the land was as much essential to the agreement as
the price which, incidentally, was to be calculated on the
basis of the area. The contention of the learned counsel
that the “mistake” with which the parties the suffering, did
not relate to a matter essential to the agreement cannot be
accepted.

Learned counsel for the petitioner has contended that
Lower Appellate Court or the High Court were not justified
in passing a decree for the refund of Rs. 77,000/- which was
paid as earnest money to the petitioner as there was a
specific stipulation in the agreement for sale that if the
respondent did not perform his part of the contract and did
not obtain the sale deed after paying the balance amount of
sale consideration within the time specified in the
agreement, the earnest money would stand forfeited. It is
contended that since the respondent did not offer the
balance amount of sale consideration and did not obtain the
sale deed in terms of the agreement, the amount of earnest
money was rightly forfeited and a decree for its refund
could not have been legally passed.

Learned counsel for the petitioner has invited our
attention to Section 73 and 74 of the Contract Act which, in
our opinion, are of no aid to the petitioner.

Section 73 stipulated a valid and binding contract
between the parties. It deals with one of the remedies
available for the breach of contract. It is provided that
where a party sustains a loss on account of breach of
contract, he is entitled to receive, from the party who has
broken the contract, compensation for such loss or damage.

Under Section 74 of the Act, however, the parties to
the agreement stipulate either a particular amount which is
to be paid in case of breach or an amount may be mentioned
to be paid by way of penalty. The party complaining of the
breach is entitled, whether or not actual damage or loss is
proved to have been caused, to receive from the party who
has committed the breach of contract, compensation not
exceeding the amount mentioned in the agreement or the
penalty stipulated therein. But this Section also
contemplates a valid and binding agreement between the
parties. Since the stipulation for forfeiture of the earnest
money is part of the contract, it is necessary for the
enforcement of that stipulation, that the contract between
the parties is valid. If the forfeiture clause is contained
in an agreement which is void on account of the fact that
the parties were not ad-idem and were suffering from mistake
of fact in respect of a matter which was essential to the
contract, it cannot be enforced as the agreement itself is
void under Section 20 of the Contract Act. A void agreement
cannot be split up. None of the parties to the agreement can
be permitted to seek enforcement of a part only of the
contract through a court of law. If the agreement is void,
all its terms are void and none of the terms, except in
certain known exceptions, specially where the clause is
treated to constitute a separate and independent agreement,
severable from the main agreement can be enforced separately
and independently.

Since, in the instance case, it has been found as a
fact by the below that the agreement in question was void
from its inception as the parties suffered from mutual
mistake with regard to the area and price of the plots of
land agreed to be sold, the forfeiture clause would, for
that reason, be also void and, therefore, the petitioner
could not legally forfeit the amount and seek the
enforcement of forfeiture clause, even by way of defence, in
a suit instituted for Specific Performance by the
respondent.

We may also refer to Section 65 of the Contract Act
with, mirus the illustrations, is as follows:-

“65. Obligation of person who has
received advantage under void
agreement or contract that becomes
void.- When an agreement is
discovered to be void, or when a
contract becomes void, any person
who has received any advantage
under such agreement or contract is
bound to restore it, or to make
compensation for it, to the person
from whom he received it.”

This Section, which is based on equitable doctrine,
provides for the restitution of any benefit received under a
void agreement or contract and, therefore, mandates that any
“person” which obviously would include a party to the
agreement, who has received any advantage under an agreement
which is discovered to be void or under a contract which
becomes void, has to restore such advantage or to pay
compensation for it, to the person from whom he received
that advantage or benefit.

Learned counsel for the appellant has contended that
Section 65 would apply to a situation where the
agreement is “discovered to be void” or where the contract
“becomes void” and not to an agreement which is void from
its inception. This argument cannot be allowed to prevail.

Mutual consent, which should also be a free consent, as
defined in Section 13 and 14 of the Act, is the sine qua non
of a valid agreement. One of the essential elements which go
to constitute a free consent is that a thing is understood
in the same sense by a party as is understood by the other
party. It may often be that the parties may realise, after
having entered into the agreement or after having signed the
contract, that one of the matters which was essential to the
agreement, was not understood by them in the same sense and
that both of them were carrying totally different
impressions of that matter at the time of entering into the
agreement or executing the document. Such realisation would
have the effect of invalidating the agreement under Section
20 of the Act. On such realisation, it can be legitimately
said that the agreement was “discovered to be void”. The
words “discovered to be void”, therefore, comprehend a
situation in which the parties were suffering from a mistake
of fact from the very beginning but had not realised, at the
time of entering into the agreement or signing of the
document, that they were suffering from any such mistake and
had, therefore, acted bona fide on such agreement. The
agreement in such a case would be void from its inception,
though discovered to be so at a much later stage.

The Privy Council in Thakurain Harnath Kuar vs. Thakur
Indar Bahadur Singh, AIR 1922 PC 403 = ILR (1922) 45 All.
179 = 27 CWN 949 = 44 MLJ 489, while considering the
provisions of Section 65 held that:-

“The section deals with (a)
agreements and (b) contracts. The
dinstinction between them is
apparent from section 2. By clause

(e) every promise and every set of
promises forming the consideration
for each other is an agreement, law
is a contract. Section 65,
therefore, deals with (a)
agreements enforceable by law and

(b) with agreements not so
enforceable. By clause (g) an
agreement not enforceable by law is
said to be void.

An agreement, therefore, discovered
to br void is one discovered to be
not enforceable by law, and, on the
language of the section would
include an agreement that was void
in that sense from its inception as
distinct from a contract that
becomes void.”

This case before the Privy Council also related to sale
of certain villages for which some money had been paid in
advance. The sale was found to be inoperative as there was a
misapprehension as to the rights of the transferor in the
villages which he purported to sell and that the true nature
of those rights was discovered much later. In this
background, the Privy Council held the agreement to have
been “discovered to be void”. The Privy Council, therefore,
passed a decree for compensation in favour of the vendee and
in assessing that compensation, the sum of money, which was
advanced, was included in the amount of compensation decreed
with 6% interest payable from the date of suit.

To the same effect is an old decision of the Calcutta
High Court in Ram Chandra Misra and others vs. Ganesh
Chandra Gangopadhya and others. AIR 1917 Calcutta 786, in
which it was held that an agreement entered into under a
mistake and misapprehension as to the relative and
respective rights of the parties thereto is liable to be set
aside as having proceeded upon a common mistake. In this
case, there was an agreement for lease of the mogoli
brahmatter rights of the defendants in certain plots of
land. Both the parties were under the impression that the
brahmatter rights carried with them the mineral rights. It
was subsequently discovered that brahmatter rights did not
carry mineral rights. The High Court held that the agreement
became void under Section 20 of the Contract Act as soon as
the mistake was discovered and, therefore, the plaintiffs
were entitled to refund of money advanced under a contract
which was subsequently discovered to be void.

We may point out that there are many facets of this
question, as for example (and there are many more examples),
the agreement being void for any of the reasons set out in
Section 23 and 24, in which case even the refund of the
amount already paid under that agreement may not be ordered.
But, as pointed out above, we are dealing only with a matter
in which one party had received an advantage under an
agreement which was “discovered to be void” on account of
Section 20 of the Act. It is to this limited extent that we
say that, on the principle contained in Section 65 of the
Act, the petitioner having received Rs. 77,000/- as earnest
money from the respondent in pursuance of that agreement, is
bound to refund the said amount to the respondent. A decree
for refund of this amount was, therefore, rightly passed by
the Lower Appellate Court.

For the reasons stated above, we see no force in this
Special Leave Petition which is dismissed.

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