Tarsem Singh vs Sukhminder Singh Case Summary (1998 SC)

Tarsem Singh vs Sukhminder Singh Case dealt Section 20 of the Indian Contract Act agreement states that agreement or contract will be declared as void if both the parties under a mistake as to matter of fact which is essential of the agreement, means before entering into an agreement both the parties must verify the facts, if one of the fact is wrong then the agreement will be declared null and void.

BENCH

Honorable Justice M. Jagannadha Rao, Honorable Justice S. Saghir Ahmad

RELEVANT PROVISIONS

Indian Contract Act:

• Section 20 of the Indian Contract Act, 1872, which states that agreement will be declared as void where both the parties are under mistake as to matter of fact
• Section 21 of the Indian Contract Act, 1872, which states effect of mistake as to law
• Section 23 of the Indian Contract Act, 1872, which provides “consideration and objects are lawful, and what not”
• Section 24 of the Indian Contract Act, 1872, which states that agreement will be declared as void if consideration and objects are unlawful
• Section 65 of the Indian Contract Act, 1872 which provides an obligation of a person who received advantage under void agreement or contract
• Section 73 of the Indian Contract Act, 1872, which provides compensation for loss or damage caused by a breach of contract
• Section 74 of the Indian Contract Act, 1872 provides compensation for breach of contract

FACTS

1. Tarsem Singh owns 48 kanals 11 marlas of land, entered the contract for the sale of land to Sukhminder Singh who had already made partly payment in the form of earnest money for the property
2. Tarsem forgets to execute the deed due to which the plaintiff sues for the specific performance.
3. High Court refused to pass decree for specific performance but a decree for refund of the earnest money is passed.
4. There was a condition in the agreement that if the purchases can’t able to make the balance payment of the money than the earnest money will not be refundable.

ISSUE

• Whether there was a mistake of facts between the parties?
• What is the effect and impact of mistake of fact on the agreement?

RATIO DECIDENDI

• The mistake of fact has to be bilateral and in order that an agreement be treated as void, both the parties must be shown to be suffering from mistake of fact.
• Earnest money (byana) or any kind of other deposit cannot be forfeited if the underlying contract is void.
• The forfeiture of earnest money (byana) is permissible only when a concluded contract has come into being and not prior thereto.

DECISION

Court held that there was a mistake of fact regarding the land and since the clause regarding the refund of earnest money was in the agreement which was void therefore the all the clause in the agreement will be declared as void and therefore section 74 of the Indian Contract Act will not be applicable as to make section 74 applicable agreement should be valid and legally binding which was not here. Hence,Supreme Court upheld the judgement of the Lower Appellate Court.

CASES REFERRED:

1. Ram Chandra Misra and Others v. Ganesh Chandra Gangopadhyay and others.
2. Thakurain Harnath Kaur v. Thakur Indar Bahadur Singh

CONCLUSION:

As per section 20 of the Indian Contract Act agreement will be void if both the parties under a mistake as to a matter of fact which is essential of the agreement.

BEST BOOK FOR CONTRACT LAW: Contract Law by RK Bangia (Latest Edition)

INDIAN CONTRACT ACT, 1872 (Bare Act) (Latest Edition)