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Nawab Khaja Habibullah and ors. Vs. Arman Dewan - Court Judgment

LegalCrystal Citation
CourtKolkata
Decided On
Judge
Reported in53Ind.Cas.875
AppellantNawab Khaja Habibullah and ors.
RespondentArman Dewan
Cases ReferredNatesa Aiyar v. Appavu Padayachi
Excerpt:
contract - deposit, whether part payment or earnest money--forfeiture of deposit--intention of parties. - .....82 w. r. 802; 48 j. p. 773. 'the terms most naturally to be implied appear to me, in the case of money paid on the signing of a contract, to be that in the event of the contract being performed, it shall be, brought into account, but if the contract is not performed by the payer, it shall remain the property of the payer. it if not merely a part payment, but is then also an earnest to hind the bargain so entered into, and creates by the fear pf its forfeiture a motive in the payer to perform the rest of the contract.' to the same effect is the observation of cotton, l. j., that the deposit is a guarantee that the contract shall be performed, and the remark of bowen, l. j., that the deposit, if nothing more is said about it, is, according to the ordinary interpretation of businessmen, a.....
Judgment:

1. This is an appeal by the defendants in a suit for possession of land upon specific performance of an agreement to lease, and, in the alternative, for refund of earnest money. The defendants are proprietors of a newly formed chur which they desired to lease out on the best terms available. The property was accordingly pat up to auction and the plaintiff offered the highest bids for rent and premium, namely, Rs. 10 and Rs. 131 gar kani respectively. This was accepted by the agent of the defendants on the 20th December 1911, and the following is the material portion of the agreement which was executed by the plaintiff in favour of the defendants on that date:

Out of whatever amount would be fixed as selami according to the quantity of the land, we do deposit today Rs. 200 as earnest money, and within seven days from this date, we shall deposit with the agent at Barisal the balance of one fourth of the total amount of selami; if we fail to do so, the said sum of Rs. 200 paid as earnest money shall be forfeited to the Sarkar of the Nawab Bahadur without any objection on oar part. We shall pay the balance of the selami money to the agent at the time of the execution of the document. We shall pay rent at the said rate of Rs. 10 par kani for whatever land the agent shall, after personal inspection, ascertain as fit for cultivation, and the said agent shall at that inspection settle what rent would be payable for the ract of, the land till the same become fit for cultivation. Be it also expressed that for whatever land would be reformed in future, we shall pay selami for the same at the said full rate of Rs. 131 per kani and shall pay rent at the said fall rate of Rs. 10 per kani

2. It will be observed that two important elements of the proposed lease were left undetermined: (a) the area of the land to be demised, and (b) the rate of rent for land not yet fit for cultivation.

3. On the 28th December 1911 the son of the plaintiff appeared before the agent and prayed that he terms previously fixed might be varied by the assessment of a progressive rent, the maximum to be less than Rs. 6 par kani, and also by reduction of the rate of selami. The agent refused to alter the terms, recorded an order to that effect on the petition and added:

Your father must fulfil the contract, Pay Rs. 1,000 yon say you have brought as part of the selami and bring the balance at once.' Rs. 1000 was paid down, but the plaintiff did not otherwise carry out this order and, on the 28th March 1912, the Pleader for the defendants served a notice upon him demanding completion of, the contract. The notice added that if the contract was not carried out in a week, the plaintiff would not get a refund of the sum deposited which, according to the written condition, had been forfeited. The notice further contained a threat that the defendants would, if the plaintiff made further default, lease out the land and realise from him any lost that they might thereby suffer. The plaintiff replied to this notice on the 5th April 1912, urged that the default was on the part of the defendants and claimed a refund of the sum of Rs. 1,200 deposited together with compensation for the loss he bad sustained. Nothing further happened till the 21st December 1914, when the plaintiff instituted the present suit for specific, performance of the contract, on, in the alternative, for refund of the deposit with interest. The defendants repudiated the suggestion that they ware in default and pleaded that the plaintiff was not entitled either to specifics performance or to refund of the deposit. The Subordinate Judge has refused to decree specific performance on two grounds: (1889) 14 App. Cas. 429 at p. 415; 59 L. J. Ch. 214; 61 L. T. 702; 38 W. R. 449 the contract was incomplete, as all the material terms had not been determined, and (1839) 9 A. & E. 508; 1 P. & D. 379; 8 L. J. Q. B. 179; 48 R. R. 568; 112 E. R. 1304. the plaintiff was in default. As regards the alternative claim for refund of the deposit, the Subordinate Judge has held that the first sum of Rs. 200 has been forfeited but that the second sum of Rs. 1,000 can be recovered. He has made a decree accordingly in favour of the plaintiff. On the present appeal by the defendants, it has been argued that the Subordinate Judge should have hell that the second sum of Rs. 1,000 also had been forfeited. Stress has further been laid on the damage alleged to have been suffered by the defendants as the result of the breach of contract, by the plaintiff. This circumstance, however, is not material, as the defendants did not set up a counter claim for damages, nor did they institute a separate suit for recovery of damages for breach of contrast. The only question in controversy, consequently, is whether, in the events which have happened, the second sum of Rs. 1,000 has been forfeited like the first sum of Rs. 200.

4. The general principle applicable to cases, of this character is well settled. The deposit, unless paid on any special terms, is not merely part payment but is an earnest: so that, on the one hand, if the contrast be performed, it is brought into account as part payment: on the other hand, if the purchaser make default, it may be retained by the vendor. The deposit is, from this point of view, a security for the performance of the purchaser's part of the contract; or, as Lord Macnaghten observed in Soper v. Arnold (1889) 14 App. Cas. 429 at p. 415; 59 L. J. Ch. 214; 61 L. T. 702; 38 W. R. 449, the deposit serves two, purposes---if the purchase is carried out it goes against the purchase-money---but its primary purpose is this, it is a guarantee that the purchaser means business.' The test in each case, thus, is, did the parties mutually agree, expressly or by implication, that the sum paid was to be treated, not merely as part payment, but as a guarantee for due performance of the contract.

5. But as Lord Danman, C. J. put it in Palmer v. Temple (1839) 9 A. & E. 508; 1 P. & D. 379; 8 L. J. Q. B. 179; 48 R. R. 568; 112 E. R. 1304., 'In the absence of any specific provision, the question whether the deposit is forfeited, depends on the intent of the parties to be collected from the whole instrument.' The nature and incidents of such a deposit are accurately discussed in the case of Hows v. Smith (1881) 27 Ch. D. 89 at p 101; 53 L. J. Ch, 1055; 50 L. T. 573; 82 W. R. 802; 48 J. P. 773., which was approved by the Judicial Committee in Sprague v. Booth (1909) A. C. 576; 78 L. J. P. C. 164; 101 L. T. 211 , where the rule was affirmed that if the payment is a deposit, it is forfeited in the event of default by the purchaser. A similar view is supported by the decisions in Depree v. Badborough (1863) 4 Giff. 479; 13 N. R. 187; 33 L. J. Ch. 134; 9 Jur. (N. S.) 1317; 9 L. T. 532; 12 W. R. 191; 66 E. R. 795; 141 R. R. 289., Collins v. Stimson (1883) 11 Q. B. D. 142: 52 L. J. Q. B. 410; 48 L. T. 828; 31 W. R. 90; 47 J. P. 439., Levy v. Stogdon. (1898) 1 Ch. 478; 67 L. J. Ch. 313; 78 L. T. 185 affirmed (1899) 1 Ch. 5; 68 L. J. Ch. 19; 79. L. T. 364. , and Hall v. Burnett (1911) 2 Ch. 551; 105 L. T. 409; 55 S. J. 737. The decision in Depree v. Bedborough (1863) 4 Giff. 479; 13 N. R. 187; 33 L. J. Ch. 134; 9 Jur. (N. S.) 1317; 9 L. T. 532; 12 W. R. 191; 66 E. R. 795; 141 R. R. 289. indicates that where the purchaser makes default, no express, stipulation is necessary to entitle the vendor to the deposit, and the decision in Hall v. Burnett (1911) 2 Ch. 551; 105 L. T. 409; 55 S. J. 737. shows that the principle Inapplicable in the absence of any express-stipulation to the contrary in the contract. This is confirmed by the statement of Fry, L. J., in Howe v. Smith (1881) 27 Ch. D. 89 at p 101; 53 L. J. Ch, 1055; 50 L. T. 573; 82 W. R. 802; 48 J. P. 773. 'The terms most naturally to be implied appear to me, in the case of money paid on the signing of a contract, to be that in the event of the contract being performed, it shall be, brought into account, but if the contract is not performed by the payer, it shall remain the property of the payer. It if not merely a part payment, but is then also an earnest to hind the bargain so entered into, and creates by the fear pf its forfeiture a motive in the payer to perform the rest of the contract.' To the same effect is the observation of Cotton, L. J., that the deposit is a guarantee that the contract shall be performed, and the remark of Bowen, L. J., that the deposit, if nothing more is said about it, is, according to the ordinary interpretation of businessmen, a security for the completion of the purchase. This is in conformity to the earlier decision in Barrett, Ex parte; Parnell In re (1875) 10 Ch App. 512; 44 L. J. Bk. 138; 33 L. T. 115; 23 W.R. 846.

6. It does not follow, however, that, every payment made by the purchaser to the vendor is in the nature of a deposit and is liable to be forfeited, if, the purchaser violates his contract: Cornwall v. Henson (1900) 2 Ch. 298, 69. L. J. Ch. 581; 82 L. T. 735 49 W. R. 42; 16 T. L. R. 422. where Webster, M. R., doubted whether the doctrine of Howe v. Smith (1881) 27 Ch. D. 89 at p 101; 53 L. J. Ch, 1055; 50 L. T. 573; 82 W. R. 802; 48 J. P. 773. would apply to a case where the purchase-money was payable in installments and all but the last installment had been paid; in such a case, the question might well arise whether the rights of the parties must not be adjusted upon the footing of a restitution ad integrum. See also Gee v. Pearse (1848) 2 De G. & Sm. 325; 79 R. R. 223; 64 E. B. 146. These rules have been repeatedly applied in this country as based on principles of justice, equity and good conscience: Raghu Nath Sahai V. Chandra Protap Singh 15 Ind. Cas. 268; 17 C. W. N. 100., Bishan Chand v. Radha Kishan Das 19 A. 489; A. W. N. (1897) 123., Balvanta v. Bira 23 B. 56., Roshan Lal v. Delhi Cloth and General Mills Co. Ltd. 7 Ind. Cas. 794; 33 A. 166; 7 A. L. J. 1019. and Natesa Iyer v. Appavu Padayachi 3 Ind. Cas. 941; 33 M. 375; 6 M. L. T. 334; 20 M. L. J. 230. We may add that though all the decisions in the books may not be easy to reconcile, there is no substantial difference as to the principle, though there may be room for divergence of opinion as to the true nature of the payment in a particular case and the mutual intention of the parties with regard thereto. This is well illustrated by Natesa Aiyar v. Appavu Padayachi 19 Ind. Cas. 462; 38 M. 178; 24 M. L. J. 488; 13 M. L. T. 391; (1913) M. W. N. 341., and what is insumbent upon the Court in each case is to ascertain the real intention of the parties from all the terms of the contract: Dagenham Thames Dock Co., In re, Hulse Ex parte (1873) S Ch. App. 1022; 43 L. J. Ch. 261; 21 W. R. 898.

7. Let us test the case before us, in the light of these principles. The terms of the contract were reduced to writing on the 20th December 1911 and Rs. 200 was paid by the intending lessee to the agent of the lessors as earnest money. He agreed to pay the balance of one-fourth within seven days and the condition was annexed that if the balance was not so paid, the sum of Rs. 200 paid as earnest money would be forfeited. The balance was not paid as agreed and the result followed automatically that the deposit of Rs. 200 was forfeited. But it is argued on behalf of the defendants that the same fate should be imposed upon the sum of Rs. 1,000 paid after the Rs. 200 had been forfeited. The obvious answer is that the parties, if they had so chosen, might have made a provision to that effect; the forfeiture Clause was made applicable in terms only to the sum which had been paid at the date of the contract and there is nothing to indicate that the parties intended to give it a wider operation. The agent of the defendants may have thought when he received Rs. 1,000 that if further payment was not made, the sum should be forfeited, but dearly there was no mutual intention, expressed or implied that the second payment was to be deemed a guarantee deposit. The contract gives the lessors an express right of forfeiture on non performance of the contract or non-observance of its conditions, and there is no reason why this express right should be enlarged in its operation by an appeal to the general rule that where the contract goes off by default of the purchaser, the vendor is entitled to retain the deposit. The position is different where there is no express Clause of forfeiture, but simply a payment by way of deposit which implies a liability to forfeiture. We are of opinion that the defendants are not entitled to retain the sum of Rs. 1,000.

8. The result is that the appeal is dismissed with costs. We assess the hearing fee at three gold mohurs.


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