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Thota Sambayya Vs. Devabhaktuni Ramanada Dutt - Court Judgment

LegalCrystal Citation
SubjectContract
CourtAndhra Pradesh High Court
Decided On
Case NumberSecond Appeal No. 793 of 1956
Judge
Reported inAIR1960AP515
ActsContract Act, 1872 - Sections 74
AppellantThota Sambayya
RespondentDevabhaktuni Ramanada Dutt
Appellant AdvocateG. Chandrasekhara Sastry, Adv.
Respondent AdvocateN.V. Ramana Reddy and ;P. Babulu Reddy, Advs.
DispositionAppeal dismissed
Excerpt:
.....- agreement contained forfeiture clause - appellant committed breach and defaulted in payment of money - vehicle used for five months before it was taken back - appellant sued for recovery of advance amount - plaintiff not entitled to recovery of advance amount - held, forfeiture not penalty but clause in agreement. - all india services act, 1951.sections 8 & 11 & a.p. buildings (lease, rent and eviction) control rules, 1961, rule 5: [v.v.s. rao, g. yethirajulu & g. bhavani prasad, jj] refusal by landlord to receive rent - deposit of rent in court - held, a tenant has the option to take recourse to section 8 in case of refusal or evasion by landlord to receive rent and if landlord were to not name a bank or refuse even the money order of rent, the tenant can deposit the rent in..........in ex. a-1, having regard to the largeness of the amount, the court has to consider whether the stipulation for forfeiture was by way of penalty, and if so, what would be reasonable compensation for the breach.3. this point was not taken in either of the courts below and it is taken for the first time here. even so, i have no hesitation in holding that in the circumstances of this case, the term as to forfeiture cannot be regarded as 'a stipulation by way of penalty' so as to disentitle the respondent to forfeit the deposit; in, other words, it cannot be said that the forfeiture provision is so unreasonable as to justify the court in granting relief to the buyer. the burden of showing a ground for relief against forfeiture is on the appellant in view of the fact that there is an.....
Judgment:

Basi Reddy, J.

1. On a consideration of the facts and circumstances of the case, both the Courts below have found that it was the plaintiff-appellant who had committed breach of the contract entered into between him and the respondent, the terms of which were embodied in Ex. A-1. They have further, found that not only had the appellant defaulted in paying the balance of the purchase money of Rs. 3,100/ widiin the stipulated time of three months and failed to surrender the vehicle to the respondent, but he had had the use of the lorry for five months and had more than compensated himself for the sum of Rs. 2,000/, which he had paid as advance. In that view both the Courts have held that the appellant was not entitled to recover the advance money of Rs. 2000/ or a similar, sum as damages.

2. Mr. Chandrasekhara Sastri for the appellant however contends that assuming that the appellant had broken the contract, the Courts below had nevertheless to consider the applicability of Section 74 of the Contract Act, and as they have not addressed themselves to that question, a finding maybe called for by this Court on that issue. In other words, his contention is that notwithstanding ihe forfeiture clause contained in Ex. A-1, having regard to the largeness of the amount, the Court has to consider whether the stipulation for forfeiture was by way of penalty, and if so, what would be reasonable compensation for the breach.

3. This point was not taken in either of the Courts below and it is taken for the first time here. Even so, I have no hesitation in holding that in the circumstances of this case, the term as to forfeiture cannot be regarded as 'a stipulation by way of penalty' so as to disentitle the respondent to forfeit the deposit; in, other words, it cannot be said that the forfeiture provision is so unreasonable as to justify the Court in granting relief to the buyer. The burden of showing a ground for relief against forfeiture is on the appellant in view of the fact that there is an express term in that behalf in the contract Ex. A-1, and that burden he has failed to discharge. On the contrary all the indications are that since the appellant had had the benefit of plying the lorry for five months, he must have reimbursed himself to the extent of the advance paid by him or at any rate a substantial part of it; and looking at it from the point of view of the seller, the latter had been deprived of the use of the vehicle for that period.

4. As pointed out by Mookerjee J. in Naresh Chandra v. Ram Chandra, : AIR1952Cal93 , the deposit made or earnest money paid by the purchaser to the vendor has two characteristics; (a) it is an earnest or security and (b) it is also a part payment of the price. In the words of Lord Mac-Naughten in the case of Soper v. Arnold, (1889) 14 AC 429 at p. 435:

'The deposit serves two purposes: if the purchase is carried out, it goes against the purchase-money but its primary purpose is that it is a guarantee that the purchaser means business.'

To the same effect is the decision of the Judicial Committee in the case of Chiranjit Singh v. Har Swarup, AIR 1926 PC 1, where their Lordships observed at p. 2:

'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.'

In ultimate analysis, whether in a given case a stipulation to forfeit the amount deposited is so unreasonable as to amount to a punishment for the non-performance of the contract is a question of fact. In Venkoba Char v. Sanjeevappa, 46 Mad LW 839: (AIR 1937 Mad 681), which is relied on by the learned advocate for the appellant, Venkataramana Rao, J., held, on a construction of the contract in that case, that having regard to the excessively high proportion which the amount paid as advance bore to the total sale consideration as well as to the other indications in the agreement, the forfeiture clause was in the nature of a penalty from which the party was entitled to be relieved.

5. In the present case, however, I am clearly of opinion that the condition as to forfeiture in Ex. A-1, is not a stipulation by way of penalty. On the other hand, the amount deposited by the purchaser, represented a true measure or an approximately true measure of the profit which would be derived by the purchaser by the use of the vehicle for three months and the consequential loss that would be suffered by the seller by parting with the vehicle. Moreover the vehicle was in the possession of the purchaser for two months more than the agreed period. Taking all the circumstances into consideration I hold that the appellant is not entitled to the return of any portion of the amount of Rs. 2000/.

6. In the result this second appeal fails and is dismissed with costs.


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