SRI TARSEM SINGH versus SRI SUKHMINDER SINGH

SRI TARSEM SINGH versus SRI SUKHMINDER SINGH

Where both parties to an agreement for sale suffer from mutual mistake as to an essential fact (here, the area and calculation of sale price of land), the agreement is void under Section 20 of the Contract Act, 1872. The forfeiture clause for earnest money, being a term of a void agreement, is also void and unenforceable. Under Section 65, the party who received earnest money must restore it to the other party on discovery of the mistake making the agreement void, even if the mistake is realized at a later stage.

Parties
Petitioner/defendant: Sri Tarsem Singh; Respondent/plaintiff: Sri Sukhminder Singh
Jurisdiction
India
Judgment Date
02 February 1998
Procedural Posture
Special Leave Petition (c) No. 4639 of 1998 / Supreme Court Judgment on SLP From High Court Decision Affirming Lower Appellate Court
Outcome
Special Leave Petition dismissed.
Legal Topics
Mistake in Contract, Void Agreements, Forfeiture of Earnest Money, Specific Performance, Restitution
Contract Law Mistake in Contract Void Agreements Forfeiture of Earnest Money Specific Performance Restitution

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Parties

Sri Tarsem Singh

Petitioner/defendant

Sri Sukhminder Singh

Respondent/plaintiff

Procedural Posture

Special Leave Petition (c) No. 4639 of 1998 / Supreme Court Judgment on SLP From High Court Decision Affirming Lower Appellate Court

Legal Issues

  1. 1 Whether an agreement for sale of land is void under Section 20 of the Contract Act, 1872, where both parties suffer from a mutual mistake of fact regarding the essential terms (area and price of land) to be sold.
  2. 2 Whether the forfeiture of earnest money clause is enforceable when the underlying agreement itself is void for mutual mistake.
  3. 3 Whether Section 65 of the Contract Act, 1872, obliges refund of earnest money received under a void agreement discovered to be void later.

Ratio Decidendi

Where both parties to an agreement for sale suffer from mutual mistake as to an essential fact (here, the area and calculation of sale price of land), the agreement is void under Section 20 of the Contract Act, 1872. The forfeiture clause for earnest money, being a term of a void agreement, is also void and unenforceable. Under Section 65, the party who received earnest money must restore it to the other party on discovery of the mistake making the agreement void, even if the mistake is realized at a later stage.

Court Disposition

Special Leave Petition dismissed.

Orders

  • Decree for refund of earnest money of Rs. 77,000 to the respondent with 6% per annum interest from date of contract till refund, as affirmed by lower courts, stands confirmed.