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CA Foundation · Business Laws · The Indian Contract Act, 1872

Kiran, a trader in Jaipur, agrees to sell 100 kg of saffron to Lalit. Unknown to both, the entire stock had been destroyed in a fire the previous night. Under the Indian Contract Act, 1872, what is the status of this agreement?

The agreement is void. Both Kiran and Lalit were mistaken about a fact essential to the agreement, namely that the saffron still existed. Where both parties are under such a mutual mistake of fact, the agreement is void and cannot be enforced by either side.

  1. AValid contract, with Kiran liable for damages for non-delivery
  2. BVoidable contract at the option of Lalit
  3. CVoid agreement, because of a mutual mistake about a fact essential to the agreementCorrect
  4. DUnenforceable contract, because it is not registered

Explanation

Both parties were mistaken about the existence of the subject matter, which is a fact essential to the agreement. Such an agreement is void. Option 0 is wrong because there is no contract to breach, so damages for non-delivery do not arise from it.

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