Kamaladevi v. Jose

Can a contract for sale be rescinded on the ground of a mutual mistake regarding the identity of the property? Is such rescission valid in the absence of an enabling clause in the agreement for sale? This Court is called upon to resolve these questions in this appeal.

2. The defendants 1 to 3 in a suit for specifific performance have come up in the present appeal, aggrieved by the decree passed by the trial court granting specifific performance of an agreement dated 05.03.1994.

3. The brief facts necessary for the disposal of the appeal are as follows:

3.1. The defendants 1 to 3 entered into an agreement for sale dated 05.03.1994, agreeing to transfer to the plaintiffff a total extent of 57 cents falling within Survey Nos.221/4 and 221/5 of Kumaranellur Village covered by G Schedule to Ext.A1 Partition Deed No.352/72 executed in favour of the appellants, who are the fifirst parties to the agreement. The total consideration was fifixed at Rs.4,000/- per cent, of which Rs.45,000/- was given as advance. The plaintiffff issued an undated telegram requiring the defendants to appear before the Sub Registrar's Offffice, Wadakkancherry on 05.09.1994, to perform the agreement by executing the sale deed. On 02.09.1994, the appellants/defendants 1 to 3 issued a lawyers notice to the plaintiffff stating that the execution of the agreement dated 05.03.1994 was vitiated by a mutual mistake inasmuch as the property which is in possession of the appellants are not the property covered in Survey Nos.221/4 and 221/5, whereas the property in possession of the appellants are in Survey No.221/1 and that it belongs to one Gangadhara Menon, who is the 4th defendant in the suit. They further stated that, Gangadhara Menon was entrusted with the property as a caretaker and that there were issues between the appellants and Gangadhara Menon. It was further stated that, in pursuance of the attempt made by both parties to resolve the issues, the appellants were entrusted with the possession of 62.75 cents, which actually belonged to Gangadhara Menon, and therefore, they were contemplating proceedings against Gangadhara Menon for getting back the property and that, unless the same fructifified, they would not be in a position to perform the agreement.

3.2. Accordingly, the appellants rescinded the contract and forwarded to the plaintiffff a demand draft for Rs.47,500/-, representing the advance amount along with compensation. Upon receiving the lawyer’s notice, the plaintiffff returned the demand draft and insisted that the contract be performed. Signifificantly, the plaintiffff did not expressly deny the notice’s statement that there were issues regarding the identity of the property, thereby indicating awareness of those issues. Despite this, the plaintiffff proceeded to fifile a suit for specifific performance of the agreement for sale dated 05.03.1994.

3.3. The property scheduled in the suit was the property described in the agreement for sale. The issues, however, became complicated when the plaintiffff sought an amendment to the plaint through I.A.No.4758/1999, which was allowed on 28.10.1999. By that amendment, the plaintiffff asserted that he sought no relief against Gangadhara Menon, the 4th defendant. Alternatively, he confifined his claim for return of the advance amount to defendants 1 to 3. Later, the plaintiffff had also sought an amendment through I.A.No.1051/1997, which was allowed on 25.08.1998. That amendment changed the description of the plaint schedule and substituted its boundaries with boundaries entirely difffferent from those stated in the agreement for sale. The defendants maintained that rescission of the contract was proper because the parties had made a mutual mistake when entering into it. They further contended that the trial court could not grant the relief sought for as the property covered by the agreement did not belong to defendants 1 to 3, and specifific performance therefore could not be ordered. The plaintiffff marked Exts.A1 to A5 and examined PW1 and PW2. The defendants examined Gangadhara Menon as DW1. On the basis of the parties’ contentions, the trial court framed the following issues for consideration: 1. What is the identity of the property agreed to be sold to the plaintiffff ? 2. Whether defendants 1 to 3 have got title and possession with respect to the property agreed to be sold ? 3. Whether the suit as against 4th defendant is barred by limitation?

4. Whether the 4th defendant is a necessary party to the suit ?

5. Whether 4th defendant is entitled for compensatory cost ?

6. Whether the plaintiffff is entitled for a decree of specifific performance or in the alternative for return of advance money ?

7. Whether the plaintiffff is authorised to pay defendant's share or brokerage. If so what is the amount paid by him ? 4. On appreciation of the oral and documentary evidence, the trial court decreed the suit and granted specifific performance of the contract for sale. Thus, the defendants 1 to 3 are before this Court in this appeal. 5. Heard, Sri.Madhu Radhakrishnan, the learned counsel appearing for the appellants; Smt.Binta Therese Jimmy, learned counsel representing Sri.Millu Dandapani, for the 1strespondent/plaintiffff; and Sri.G.Sreekumar (Chelur), the learned counsel appearing for respondents 3 to 5. 6. Sri.Madhu Radhakrishnan, learned counsel for the appellants, submitted that, where a contract is vitiated by mutual mistake, the plaintiffff is entitled to rescind it under Section 20 of the Indian Contract Act, 1872. He further submitted that, because the property described in Ext.A2 agreement for sale diffffers entirely from the property described in the plaint schedule, the trial court could not have decreed specifific performance. In support of his contention, he relied on the Supreme Court’s decisions in Tarsem Singh v. Sukhminder Singh [AIR 1998 SC 1400] and Nahar Singh v. Harnak Singh and Others [(1996) 6 SCC 699], as well as the Kerala High Court’s decision in Prasad and Others v. Grave Chekkakkari Nadankari Padasekhara Committee and Others [2018 (5) KHC 560]. He further pointed out that the plaintiffff did not deny the averments in the Ext.A4 lawyer’s notice at the fifirst available opportunity. Instead, the reply notice contained only a vague and evasive denial, and the plaintiffff disputed the contents of Ext.A4 only after instituting the suit. The plaintiffff's oral testimony shows that he knew of the property’s misdescription in the agreement for sale and was aware of the disputes between defendants 1 to 3 and the 4th defendant, Gangadhara Menon. Referring to the trial court's fifindings, learned counsel pointed out that the court could not have decreed the suit after concluding that the dispute between defendants 1 to 3 and the 4th defendant had to be resolved before ordering specifific performance. 7. Per contra, Smt.Binta Therese Jimmy, learned counsel representing Sri.Millu Dandapani, for the 1st respondent/plaintiffff, vehemently opposed the appellants’ submissions. She contended that unilateral rescission of the contract is impermissible. Since the contract contains no provision permitting the appellants to terminate it, she submitted that it is immaterial whether the plaintiffff sought declaratory relief concerning the rescission. In support, she relied on the Supreme Court’s decision in Annamalai v. Vasanthi and others [AIR 2025 SC 5285]. Referring to the plaintiffff’s oral testimony, she noted that the plaintiffff denied the contents of Ext.A4. She also drew the Court’s attention to the plaint, in which the plaintiffff specififically denied the defendants 1 to 3’s assertion that the agreement for sale had been executed under a mutual mistake. She submitted that Section 20 of the Indian Contract Act, 1872, applies only where the parties have made a mutual mistake. Finally, she pointed out that, pursuant to the decree, the plaintiffff had deposited Rs.1,77,300/-, representing the balance sale consideration, as far back as on 14.09.2001. In her submission, after 25 years, the trial court could not properly decline to grant specifific performance in the plaintiffff’s favour.

8. I have considered the rival submissions raised across the Bar and have perused the judgment rendered by the trial court and also the records of the case.

9. Based on the rival submissions raised across the Bar, this Court fifinds that it must resolve the following issues:

a. Whether Ext.A2 agreement for sale is vitiated by mistake?

b. If so, can the appellants rescind the contract for sale in the absence of an express clause in the agreement enabling them to do so?

c. Whether, in the facts of the present case, a case for specifific performance has been made out?

10. The plaintiffff’s entitlement to specifific performance will depend on the fifinding of this Court on the question as to whether the parties were mutually mistaken about the contents of the Ext.A2 agreement. The appellants can resist the claim for non-performance only by establishing that, when the agreement was executed, both parties were mistaken about its terms and conditions and the nature of the property to be sold.

11. The effffect of an agreement where both parties are under mistake is governed by Section 20 of the Indian Contract Act, 1872. Section 20 reads as under:

Section 20- 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.

12. A mistake invalidates a contract when the parties’ true intention was to make their agreement conditional on the existence of a particular state of facts, but that state of facts did not exist when they entered into the agreement. This principle is particularly evident where the contract relates to the sale of an object that does not exist, or no longer exists in the manner described in the contract, as, in effffect, there is nothing to buy or sell. Even if, as in this case, the mistake is unilateral and was made by the appellants, the contract remains void if the other party knew, or is presumed to have known, of the mistake. Although some commentators argue that the doctrine of mistake should invalidate contracts only in narrowly defifined circumstances, that view must yield where enforcing the contract would cause such extreme injustice to one party that it outweighs the general principle of enforcing apparent agreements (see Pollock & Mulla, *Indian Contract and Specifific Relief Act*, 12th ed., vol. 1, p. 575).

13. Bell v. Lever Bros Ltd. [[1931] All ER Rep 1 at 31], establishes that a mistake would nullify the contract if some term can be implied in the offffer and acceptance which prevents the contract from coming into operation. Sir John Simon, in the course of his arguments, formulated the following proposition for the assistance of the House: “Whenever it is to be inferred from the terms of the contract or its surrounding circumstances that the consensus has been reached upon the basis of a particular contractual assumption, and that assumption is not true the contract is avoided i.e., it is void ab initio if the assumption is of present fact and it ceases to bind if the assumption is of future fact.” This was accepted by the House, with an additional rider that the assumption must have been fundamental to the continued validity of the contract or a foundation essential to its existence.

14. Moreover, the doctrine of mutual mistake turns on the proper construction of the contract. The effffect of mutual mistake in contract law depends on how the contract allocates the risk that the facts may diffffer from the parties’ assumptions. Ordinarily, each party bears the risk of the uncertainties inherent in entering into a contract. The contract is void only where its terms show that the parties did not intend it to apply to the circumstances existing at the time, and the risk of mistake was not allocated to either party.

15. Having summarised the law above, this Court must now determine the extent to which it applies to the facts of this case. The appellants’ title to 57 cents is undisputed. Indeed, even on the plaint’s own averments, the appellants derive their right, title, and interest in the property from Partition Deed No. 352/72, under which the G Schedule property was allotted to them. That property comprises of 55 cents in Survey No. 221/5 and 2 cents in Survey No. 221/4 of Kumaranellur Village. Although the agreement for sale correctly states the property’s extent and source of title, its boundary description diffffers entirely from that in the partition deed. Notably, the plaintiffff does not even allege that the property described in the agreement for sale shares the boundaries of the property covered by the prior title deed of defendants 1 to 3. The plaintiffff’s application to amend the plaint, which the trial court allowed on 25.08.1998 in I.A.No.1051/1997, only strengthens this conclusion. By seeking to substitute an entirely difffferent property description, the plaintiffff’s own amendment undermines the claim that the property identifified in the agreement for sale was the subject matter of the suit.

16. In Tarsem Singh v. Sukhminder Singh [AIR 1998 SC 1400], the Supreme Court considered the question whether an agreement for sale is void if there is a mutual mistake regarding the extent of area and price for which the property must be sold. Paragraph Nos.28 and 29 of the judgment are extracted hereunder.

28. 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 suffffering 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.

29. Since, in the instance case, it has been found as a fact by the courts below that the agreement in question was void from its inception as the parties suffffered 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, also be 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 specifific performance by the respondent.

17. Applying the principles set out above to this case, this Court fifinds that the description of the property in the agreement for sale is not the same as in the Partition Deed No.352/1972. This is crucial in so far as the plaintiffff is concerned. In Nahar Singh v. Harnak Singh and Others [(1996) 6 SCC 699], the Supreme Court considered the effffect of an improper description of the property in a suit for specifific performance. Paragraph 5 of the judgment is extracted for reference:

“The learned counsel for the appellant vehemently argued that the parties having entered into an agreement whereunder the respondent agreed to execute the sale deed in respect of the property in question and the Courts below not having found the agreement to be invalid, committed error in denying the relief of specifific performance and, therefore, this Court should interfere with the judgment and decree of the Lower Appellate Court as confifirmed by the High Court in Second Appeal, so far as it relates to the suit for specifific performance. The learned counsel for the respondents, on the other hand contended, that the fifinding of the Lower Appellate Court that the agreement in question was vague and the property for which the agreement had been entered into cannot be identififiable remain unassailable and as such the Lower Appellate Court was wholly justifified in dismissing the said suit. According to the learned counsel for the respondents no court would pass a decree which ultimately become unenforceable and, therefore, there is no infifirmity with the judgment of the Lower Appellate Court which has been confifirmed by the High Court in the Second Appeal. In view of the rival submissions at the Bar the only question that arises for consideration is whether the Lower Appellate Court and the High Court were right in refusing the grant of specifific performance on the fifinding that the property for which the agreement is said to have been entered into is vague and unidentififiable. It is seen that the Trial Judge while decreeing the suit for specifific performance never applied his mind to the identififiability of the property in question and on the basis of a fifinding that the parties had entered into an agreement and the respondents failed to perform their part, granted the relief sought for in the suit. The Lower Appellate Court, however, examined the materials on record and came to the positive conclusion that the agreement Exhibit D1 neither contains the exact area of the land to be sold to Nahar Singh, nor the boundaries thereof. He further found that no length or breadth of the land has been given and it does not pin point the place from where it was to be measured and though Nahar Singh had claimed right from Khasra Nos.435 and 436 but the said Khasra nos. had not been given in the agreement Exhibit D1. The Lower Appellate Court also found that the parties entered into an agreement to save stamp duty and registration fee and the said agreement is thus opposed to the public policy and relief of specifific performance cannot be claimed.”

18. In the present case, the descriptions of the property in the document of title and the agreement for sale are irreconcilably contradictory. Although the plaintiffff attempted to reconcile the discrepancy, that effffort only deepened the inconsistency as the description now sought, granted, and incorporated into the plaint schedule depicts a property entirely difffferent from the one described in the agreement for sale.

19. In a suit for specifific performance, the decree can extend only to the property that is the subject of the contract for sale. Where the plaintiffff describes an entirely difffferent property in support of the claim, and the court fifinds that the property described in the suit does not correspond to the property identifified in the sale agreement, any decree granted in the plaintiffff’s favour is necessarily inexecutable. The trial court therefore erred in failing to address this crucial discrepancy.

20. That apart, Paragraph 14 of the trial court’s judgment makes it clear that the court was fully aware of the dispute between defendants 1 to 3 and the 4th defendant, Gangadhara Menon. Indeed, the trial court expressly recognised that the suit for specifific performance could not be proceeded unless those disputes were resolved. Yet, despite acknowledging this fundamental obstacle, the trial court abruptly concluded, without offffering any reasons, that the plaintiffff was entitled to a decree for specifific performance and decreed the suit. This Court is therefore unable to accept the trial court’s fifindings.

21. Another aspect requiring consideration is the plaintiffff’s oral testimony. The plaintiffff was extensively examined in chief and cross-examined by defendants 1 to 3 and the 4th defendant. During cross-examination by the 4th defendant, the plaintiffff admitted the statements contained in Ext.A4, the lawyer's notice, while maintaining that they were baseless. If the plaintiffff regarded those statements as baseless, he could reasonably have been expected to deny them in his reply notice, Ext.A5. Yet, on a careful reading of Ext.A5, this Court fifinds no such denial.

22. That apart, when the plaintiffff fifiled a suit, he consciously incorporated an alternate relief for return of advance amount. The trial court obviously did not take note of the fact that, along with Ext.A4 lawyers’ notice, the defendants 1 to 3 had drawn a demand draft for a sum of Rs.47,500/- and had offffered it to the plaintiffff, who refused to accept the same and returned it when Ext.A5 reply notice was issued.

23. Upon close analysis of the evidence adduced by the parties, the material averments in Ext.A4 lawyers’ notice, the plaintiffff’s failure to specififically deny those averments in the Ext.A5 reply notice, and the trial court’s fifinding that a genuine dispute exists regarding the nature of the property held by the defendants – a dispute that must be resolved between defendants 1 to 3 and the 4th defendant before specifific performance may be granted, this Court is satisfified that, when they entered into the contract for sale, both parties were labouring under a mutual mistake as to the correct identity of the property.

24. Having summarised as above, the next question is whether one party may rescind a contract of sale on the basis of mutual mistake. The learned counsel for the 1st respondent/plaintiffff submits that, unless the agreement expressly grants a party the right to rescind, any purported rescission must be regarded as unilateral. Accordingly, a plaintiffff, while seeking specifific performance of a contract for sale, may disregard the rescission and is not required to seek declaratory relief concerning it. That proposition is not disputed. The real question, however, is whether the Court can compel the seller to perform the contract when the rescission arose from a mistaken understanding of the identity of the property and the seller maintains that performance is impossible.

25. It would be wholly impermissible for the court, while exercising its powers under Section 20 of the Specifific Relief Act, 1963, to grant the equitable remedy of specifific performance and compel the seller to perform his contractual obligations after fifinding that he lacks title to the property. This principle is particularly signifificant given the unimpeachable evidence on record, including the plaintiffff’s deliberate amendment of the property description to confifirm the description in the partition deed.

26. If the court were to accept the plaintiffff’s plea, the resulting decree would be inequitable. It would compel specifific performance in respect of a property the parties never intended to include in their agreement. The plaintiffff’s mistaken understanding of the property’s identity is further borne out by the boundaries used to describe the property for sale, which do not correspond with the description in G Schedule to Partition Deed No.352/72. Once a seller discovers that an agreement was entered into under a mistaken understanding, equity does not require the seller to perform it merely because the agreement contains no express provision for rescission. Moreover, when the agreement itself turns out to be void, there is no need for rescission of the contract and therefore, the decision of the Supreme Court in Annamalai (supra) is distinguishable on the facts.

In light of the foregoing discussion, this Court fifinds that the appellants are entitled to succeed. Accordingly, the appeal is allowed, and the judgment and decree in O.S.No.1354/1994 on the fifile of the Sub Court, Thrissur, are set aside. The trial court’s decree for specifific performance is vacated. Instead, the suit is decreed in favour of the alternative relief for return of the advance amount. As the plaintiffff refused to accept the demand draft for Rs.47,500/-, the plaintiffff is not entitled to interest on that amount from the date of suit until realisation. Accordingly, O.S.No.1354/1994 is decreed as follows:

a. The plaintiffff is granted a decree for realisation of Rs.47,500/-. Interest on the amount is declined.

b. The amount of Rs.1,77,300/- deposited on 14.09.2001 will be released to the plaintiffff, and it will carry interest at the rate provided for a savings account deposit in the treasury.

The parties shall bear their respective costs.