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Letitia Castelino Vs. Jerome D'silva (24.02.1971 - KARHC) - Court Judgment

LegalCrystal Citation
SubjectContract;Property
CourtKarnataka High Court
Decided On
Case NumberSecond Appeal No. 228 of 1966
Judge
Reported inAIR1972Kant28; AIR1972Mys28; (1971)2MysLJ157
ActsCode of Civil Procedure (CPC) , 1908 - Sections 100; Transfer of Property Act, 1882 - Sections 54
AppellantLetitia Castelino
RespondentJerome D'silva
Appellant AdvocateU.L. Narayana Rao, Adv.
Respondent AdvocateB.P. Holla, Adv.
DispositionAppeal dismissed
Excerpt:
.....transaction falls through, by reason of the fault or failure of the vendee. what has really to be ascertained in a case like this is as to whether the amount was paid as security for the performance of the contract, in which event on the failure of the party who has given such security for performance of the agreement, the amount would be forfeited. 2,000/- was paid on the date of the agreement, which amount was to be taken into account as a part of the purchase price when the transaction goes forward and to be forfeited when the transaction falls through by reason of fault or the failure on the part of the vendee clearly shows that the sum of rs. in the circumstances of the case, the parties are directed to bear their respective costs in this court as well as in the two courts below......committed default in performing her part of the contract, he was entitled to forfeit the earnest money paid by the plaintiff. he, therefore, contended that the plaintiff is not entitled to recover from the defendant the earnest money of rs. 2.000/- paid by her on the date of exhibit a-1. 2. the trial court, after considering the evidence on record, came to the conclusion that it is the plaintiff that has committed the breach of the agreement. it further came to the conclusion that the defendant has suffered damage only to 'the extent of rs. 200/- by the breach of the agreement by the plaintiff. consequently, the trial court made a decree in favour of the plaintiff only for sum of rs. 1800/- deducting an amount of rs. 200a to which the defendant was entitled by way of damages. 3. the.....
Judgment:

1. This is a plaintiff's Second appeal against the decree passed by the Civil Judge, Mangalore in Appeal Suit No. 212 of 1964, reversing the decree passed by the Munsiff, Mangalore in O. S. No. 472 of 1962. The plaintiff and the defendant entered into an agreement on the 11th of January 1962, which has been produced in this case as Exhibit A-1, under which the plaintiff agreed to purchase certain immoveable properties which belonged to the defendant for an agreed price of Rs. 20,000/-. Out of the agreed price of Rs. 20,000/- a sum of Rs. 2,000/- was paid by the plaintiff to the defendant on the date of the agreement. The balance of consideration of Rs. 18,000/- was agreed to be paid at the time of registration of the sale deed.

Under the agreement, the possession of the property was to be delivered on the date of registration of the sale deed. The sale deed was agreed to be drawn within 15 days from the date of Exhibit A-1. The vendor, on being informed, was to execute and get the document registered without any objection or delay. If the purchaser committed a default, she was not entitled to ask for the repayment of Rs. 2,000/- paid on the date of the agreement. If however, the vendor failed to abide by the terms of the agreement, the purchaser was entitled to enforce the agreement through court of law and at the cost of the defendant. According to the plaintiff, the defendant committed default in performing his part of the contract. The plaintiff, therefore, filed a suit on the 6th of December. 1962, to recover the amount of Rs. 2,000/- paid to the defendant on the date of the agreement Exhibit A-l.

The defendant resisted the suit and contended that the amount of Rs. 2,000/-was paid by the plaintiff as earnest money on the date of the agreement. He further contended that as the plaintiff committed default in performing her part of the contract, he was entitled to forfeit the earnest money paid by the plaintiff. He, therefore, contended that the plaintiff is not entitled to recover from the defendant the earnest money of Rs. 2.000/- paid by her on the date of Exhibit A-1.

2. The trial Court, after considering the evidence on record, came to the conclusion that it is the plaintiff that has committed the breach of the agreement. It further came to the conclusion that the defendant has suffered damage only to 'the extent of Rs. 200/- by the breach of the agreement by the plaintiff. Consequently, the trial Court made a decree in favour of the plaintiff only for sum of Rs. 1800/- deducting an amount of Rs. 200A to which the defendant was entitled by way of damages.

3. The decree passed by the trial court was challenged by the defendant in the court of the Civil Judge, Manga-lore, in appeal Suit No. 212 of 1964. The learned Civil Judge allowed the appeal of the defendant and dismissed the plaintiff's suit. The learned Civil Judge concurred with the finding of the trial court and held that it is the plaintiff that has committed the breach of the agreement. He further held that the amount of Rs. 2.000/- paid under Exhibit A-1 was earnest money which the defendant was entitled to forfeit for breach of the agreement by the plaintiff. Hence this second appeal by the plaintiff.

4. Sri U. L. Narayana Rao. learned counsel for the appellant, contended that the learned Civil Judge committed an error of law in holding that the amount of Rs. 2,000/- paid under Exhibit A-1 was earnest money, Sri Narayana Rao contended that the amount of Rs. 2000/- paid under Exhibit A-l was by way of part payment of the consideration and not by way of earnest money. The concurrent finding of the courts below to the effect that it is the plaintiff that has committed breach of the agreement was not challenged.

Besides, it is a finding of fact, arrived at by the courts below after proper appreciation of the evidence on record. The finding to the effect that the plaintiff has committed breach of the agreement in this case does not call for interference in second appeal.

It was also not disputed by the learned counsel for the appellant that it the amount of Rs. 2000/- paid under Exhibit A-1 was earnest money, the same was liable to be forfeited by the defendant, as the plaintiff has committed breach of the agreement. A Division Bench of our High Court in K. C. N. Gowda and Bros. v. Molakram Tekchand and Sons, reported in AIR 1958 Mys 10, has laid down that earnest money paid can be forfeited if the party who had paid the same was in default. In view of this legal postition. Sri Narayana Rao concentrated his attack on the finding recorded by the learned Civil Judge to the effect that the amount of Rs. 2,000/- paid under Exhibit A-1 is earnest money.

5. Sri B. P. Holla, learned counsel for the respondent firstly contended that the finding recorded by the learned Civil Judge on a consideration of the evidence on record that the amount of Rs. 2,000/- paid under Exhibit A-1 is earnest money is a finding of fact which is not liable for interference in second appeal. He further submitted that the finding recorded by the learned Civil Judge in this behalf is correct and does not call for interference.

6. Sri Narayana Rao submitted that in the aforesaid decision of this Court, it has been explained that there is a fundamental distinction between 'earnest money' and 'part payment' of the price and that the rule of forfeiture has no application to money received as part payment of the price.

The essential characteristic of earnest money is that it is an amount which is held by way of security for the due performance of the contract. As explained in Chiranjit Singh v. Har Swarup reported in AIR 1926 PC 1, earnest money is part of the purchase price when the transaction goes forward: It is forfeited when the transaction falls through, by reason of the fault or failure of the vendee. The nomenclature employed in the agreement whether as 'earnest' or 'advance' is not a matter of significance, as explained by the judgment of this Court referred to above. What has really to be ascertained in a case like this is as to whether the amount was paid as security for the performance of the contract, in which event on the failure of the party who has given such security for performance of the agreement, the amount would be forfeited.

The learned Civil Judge has, after bearing in mind these principles, come to the conclusion that the amount of Rs. 2,000/- deposited under Exhibit A-1 was by way of guarantee for the due performance of the agreement. Consequently, he held that the defendant was entitled to forfeit the said amount, as the same was really earnest money. Sri Narayana Rao however submits that the document Exhibit A-1, being in English, one should have expected the amount of Rs. 2,000/- paid under Exhibit A-1 to have been described as earnest money if that was its real character.

It is, no doubt, true that in Exhibit A-1, the amount of Rs. 2,000/- has not been described as earnest money. In the first part of the agreement it is recited as follows:--

'That, out of the agreed sale price of Rs. 20,000/- for the said properties, a sum of Rs. 2,000/- (two thousand) has been received by the vendor as advance from the purchaser, this day.

That the balance consideration money of Rs. 18,000/- (Rupees Eighteen Thousand) shall be paid by the purchaser to the vendors at the time of the registration of the required transfer deed in the presence of the registering officer.'

There is a further stipulation disentitling the purchaser who commits default from asking for repayment of the amount of Rs. 2,000/- which reads as follows:--

'If the purchaser defaults, she shall have no right to ask for the repayment of the advance of Rs. 2,000/- paid by her this day to the vendor.'

Sri Narayana Rao emphasised the use of the expression 'advance' employed in the document for describing the amount of Rs. 2,000/- at both the places. Sri Narayana Rao contended that if the amount of Rs. 2,000/- was to be treated as an amount of security for the due performance of the contract, the same would have been either stated in so many words or the parties would have employed the expression 'earnest money'. As that has not been done. Sri Narayana Rao submits that the amount of Rs. 2000/- paid under Exhibit A-1 was really a part of the consideration and that the said amount was not paid as security for the due performance of the contract.

Sri Narayana Rao also submitted that the fact there is a clause analogous to the forfeiture clause is not a conclusive circumstance to indicate that the amount of Rs. 2,000/- deposited under Exhibit A-1 was by way of earnest money. On a careful reading of the entire document Exhibit A-1, I find myself unable to agree with the contention of Sri Narayana Rao. As already mentioned, this Court has explained in AIR 1958 Mys 10 that the nomenclature employed, whether 'earnest' or 'advance' is not really the crux of the matter. The expressions 'advance' 'deposit' and 'earnest', are many a time employed in such document to convey the same idea. Merely because the parties have chosen to describe the amount of RS. 2,000/- in this case as 'advance' the same does not necessarily indicate that the amount was paid as part of the consideration only and not by way of security. Though the clause providing for forfeiture of the amount in the event of default by the purchaser is not by itself a conclusive circumstance the said circumstance has to be taken into consideration along with the other circumstances in this case to ascertain the real character of the amount of Rs. 2,000/- paid under Exhibit A-l.

As the amount of Rs. 2,000/- was paid on the date of the agreement Exhibit. A-1, there is an initial presumption that the said amount was paid as a security for the performance of the agreement. This is the view expressed by Justice Mookerjee in judgment reported in : AIR1952Cal93 . This judgment of the Calcutta High Court has been followed by our High Court in AIR 1958 Mys 10. There are no other circumstances in the ease to rebut this presumption. The only circumstance relied upon by Sri Narayana Rao that the amount has been described as advance and not as earnest money, is, in my opinion, not a sufficient circumstance to rebut this presumption. The circumstance that the sum of Rs. 2,000/- was paid on the date of the agreement, which amount was to be taken into account as a part of the purchase price when the transaction goes forward and to be forfeited when the transaction falls through by reason of fault or the failure on the part of the vendee clearly shows that the sum of Rs. 2000/- was paid as earnest money.

The finding recorded by the learned Civil Judge that the amount of Rs. 2,000/- being earnest money, was liable to be forfeited by the defendant as it is the plaintiff that has committed the breach of the contract, does not, therefore, call for interference in this second appeal.

7. For the reasons stated above, this appeal fails and the same is dismissed. In the circumstances of the case, the parties are directed to bear their respective costs in this court as well as in the two courts below.


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