Bench:
Judge S. Saghir Ahmad
Issue:
What is the effect and impact of "Mistake of Fact" on the agreement in question?
Facts (The defendant is the petitioner in this Special Leave Petition)
- The petitioner owned 48 Kanals 11 Marals agricultural land, he entered into a contract for sale of that land with respondent at Rs 24,000/- per acre. At the time of execution of agreement, an amount of Rs 77,000/- was paid as earnest money. The petitioner did not execute the sale deed although the respondent was ready and willing to perform his part of the contract.
- 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 said that the parties to the agreement i.e. the petitioner and respondent both suffered from a mistake of fact as to the area of the land, whether it was to be paid at the rate of "Bigha" or"Kanal".
- The lower Appellate Court found that the respondent was not ready and willing to perform his part. 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.
Argument raised by Petitioner:
The petitioner contended that the lower court was in error in passing a decree for return of the amount of earnest money, as the parties had expressly stipulated in the agreement for sale that if the sale deed 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.
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 kanals.
The petitioner also contended under Section 73 of the Indian Contract Act 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.
Argument raised by Respondent:
The respondent contended that the decree of the subordinate courts is valid and the contention raised by the appellant are invalid and that the contract is invalid under the purview of Section 20 of the Indian Contract Act, 1872.
Judgment:
Court stated that '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(g) sets out that "an agreement not enforceable by law is said to be void"
The court held that, 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.
The appeal was dismissed.
