1. This appeal arises out of a suit for refund of Rs. 700 paid by the plaintiff to the defendant as earnest-money for the purchase of certain land.
2. It appears that under a bainapatra, dated November 1914, the defendant agreed to sell to the plaintiff, 1 bigha, 4 cottas of land together with permanent structures thereon for Rs. 4,400. Out of the purchase money so settled, Rs. 700 was paid by the plaintiffs to the defendant as earnest-money and it was agreed that on receipt of the purchase-money within three months, the kobala would be executed. There was an express provision in the agreement that in case the plaintiff failed to pay the balance of the purchase-money within the time fixed he would forfeit the earnest-money and would have no right to claim a refund of the same.
3. The defendant pleaded that the transaction fell through owing to the failure of the plaintiff to pay the balance of the purchase-money. It is found that the plaintiff was not in a position to pay the balance of the purchase-money, namely, Rs. 3,700 within the time fixed, and the plaintiff never offered to pay the balance of the purchase money to the defendant.
4. The Court of first instance dismissed the suit but on appeal the learned Subordinate Judge was of opinion that, as time was not of the essence of the contract in the present case, the plaintiff was entitled in equity to obtain a refund of the earnest-money although he failed to pay the balance of the purchase-money within the time fixed.
5. The learned Subordinate Judge relied upon the case of Jamshed Khodaram v. Burjorri Dhunjibhai 32 Ind. Cas. 246 : 40 B. 289 : 30 M.L.J. 186 : 3 L.W. 239 : 19 M.L.T. 84 : 14 A.L.J. 225 : (916) 1 M.W.N. 229 : 18 Bom L.R. 163 : 23 C.L.J. 358 : 20 C.W.N. 744 : 43 I.A. 26 (P.P.). But we do not think that that case has anything to do with the present. There, in a suit for specific performance of a contract for sale of certain property, the Judicial Committee held that time was not of the essence of the contract and the plaintiff was entitled to specific performance. Here it is found that not only was the plaintiff not in a position to pay the money but that be never offered to pay, either within the time fixed or at any time afterwards, the balance of the purchase money and to complete the contract.
6. The question, therefore, is whether, under these circumstances, the plaintiff is entitled to a refund of the purchase-money.
7. As pointed out by Lord Macnaghten in Soper v. Arnold (1889) 14 App. Cas. 429 at p. 435 : 69 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 purchase means business.' The law on the point is thus stated in Fry on Specific Performance, 5th Edition, paragraph 1478: 'The deposit unless paid on special terms is not merely part payment but is an earnest: so that if the contract is performed, it is brought into account as part-payment: On the other hand, if the purchaser makes default, it may be retained by the vendor. The deposit is, therefore, a security for the performance of the purchaser's part of the contract. The authorities have not been uniform on this question but the weight of authority is in favour of the statement above made.' It is pointed out in the case of Habibullah v. Arman Dewan 53 Ind. Cas. 875 : 30 C.L.J. 113 : 24 C.W.N. 40 'The test in each case...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.'
8. It was contended that the amount paid (Rs. 700) was a large sum of money and is more than what is usually advanced as earnest-money, that, therefore, the Court should treat it as a case of penalty, and that the defendant is not entitled to get anything unless it is found that he has suffered any loss.
9. No hard and fast rule, however, can be laid down as to what constitutes 'earnest-money.' In the present case, it is about one sixth of the amount agreed upon to be paid. We have also to consider the fact that the defendant had not a title to the whole of 1 bigha, 4 cottas which he agreed to convey to the plaintiff and had to purchase 1 cotta of land from his brother to whom it belonged.
10. In these circumstances, we are unable to hold that there was any equitable consideration in favour of the plaintiff and we are of opinion that the plaintiff is not entitled to recover the earnest-money, the result being that the decree of the lower Appellate Court is set aside and that of the Court of first instance restored.
11. Each party to bear his own costs throughout.