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

Seema and Tushar agree to trade a consignment of cloth lying in a godown at Surat. Unknown to both, the cloth had been destroyed in a fire the previous night. Which statement is correct under the Indian Contract Act, 1872?

The agreement is void. Both Seema and Tushar were mistaken about the existence of the cloth, which is a fact essential to the agreement. A bilateral mistake as to such a fact makes the agreement void, so neither can enforce it or claim damages.

  1. AThe agreement is voidable at Seema's option
  2. BThe agreement is valid and Seema must supply similar cloth
  3. CThe agreement is valid but Tushar may claim damages for non-delivery
  4. DThe agreement is void because both parties were under a mistake as to a matter of fact essential to the agreementCorrect

Explanation

The existence of the subject matter is essential to the agreement. When both parties are mistaken about a fact essential to the agreement, the agreement is void. Because the goods had already perished, neither party can enforce it. It is not voidable and no damages arise.

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