1. These are two cross-appeals, which arise out of a suit on the basis of a contract for the sale of land, measuring 230 bighas 12 biswas and 10 biswansis, situate in village Badhwan Kasurla, ilaqa Bahl, Tehsil Sadar, district Mandi. On 21-5-1949, (corresponding to 8th Jeth, 2006) Sudarshan, defendant, executed an agreement, Ex. P. A, whereby he undertook to sell the land mentioned above to the plaintiff, Mian Chuha Singh, and one Hem Prabh in equal shares for a total consideration of Rs. 22,000/-.
In the body of the agreement, Sudarshan admitted receipt of half the sale consideration, namely, Rs. 11,000/-. The balance was to be paid, when the sale-deed was registered. In the event of any default on the part of the defendant, he was to make good to the plaintiff, not only the sum of Rs. 11,000/- already received, but a further sum of Rs. 11,000/- by way of damages.
The plaintiff's case was that the defendant failed to perform his part of the contract and mortgaged the land in question with possession with a third party, thereby causing loss to the plaintiff. Therefore, the plaintiff sought a refund of the sum of Rs. 11,000/- paid by him to the defendant at the time of the contract. He gave up his claim to recover the further sum of Rs. 11,000/-by way of damages.
2. The defendant, while admitting the execution of the agreement, Ex. P. A, pointed out that on the same day, the plaintiff executed a similar agreement in, his (defendant's) favour, Ex. D. D, whereby in the event of any default either on his (plaintiff's) part or on the part of Hem Prabh, the amount of Rs. 11,000/- paid by him (the plaintiff) to Sudarshan (defendant) would stand forfeited. Sudarshan further contended that the actual sale consideration was only Rs. 17,000/- and that it had been wrongly shown as Rs. 22,000/- in the two documents, Exs. P. A and D. D.
As regaxds the alleged payment of part of the consideration, Sudarshan's case was that the plaintiff paid him only a sum of Rs. 700/- or Rs. 800/- by way of earnest money, which stood forfeited because the plaintiff refused to perform his part of the contract. He, therefore, urged that the plaintiff should be non-suited.
3. The following three issues were framed by the learned District Judge:
(1) Whether there has been a partial failure of consideration in respect of the agreement, Ex. P. A? If so, to what extent?. Onus on defendant.
(2) Whether the plaintiff was prepared to purchase the land in accordance with the terms of the agreement and there has been a failure on the part of the defendant to fulfil his part of the contract? Onus on plaintiff.
(3) If issue No. 2 be decided against the plaintiff, whether the defendant in that case is entitled to forfeit the entire amount of earnest money by way of damages? Onus on defendant.
After recording the evidence of the parties, the Court below came to the conclusion on issue No. 1 that Sudarshan did receive a sum of Rs. 11,000/-, as part of the sale consideration, as alleged by the plaintiff. Therefore, there was no question of partial failure of consideration and issue No. 1 was decided, against the defendant. On issue No. 2, the learned District Judge found that it was the plaintiff who, failed to perform his part of the contract.
Coming to issue No. 3, the Court below held that the sum of Rs. 11,000/- paid by the plaintiff to the defendant was a part of the purchase price and not earns money, i.e. not security for the performance of the contract. In view of that finding, he held that it was not open to the defendant to forfeit the sum of Rs. 11,000/- in its entirety. At the same time, defendant could retain a reasonable sum as compensation on account of the breach of contract on the part of the plaintiff.
The learned Judge felt that a sum of Rs. 1500/-, representing interest on the sum of Rs. 11,000/-, would meet the ends of justice. In theresult, the learned Judge granted the plaintiff a decree for Rs. 9,500/- with proportionate costs against the defendant.
4. Against this decree, both parties have come up in appeal.
Regular First Appeal No. 1 of 1953 has been filed by Sudarshan, defendant, and the prayer made therein is that the decree of the learned District Judge be set aside and the suit be dismissed in toto.
In Regular First Appeal No. 7 of 1953 filed by Chuha Singh, plaintiff, on the other hand, the prayer is that the decree of the District Judge be modified to this extent that the plaintiff be granted a decree for the entire sum sued for, namely, Rs. 11,000/- i.e. without deducting Rs. 1,500/- adjudged as due to the defendant, by way of compensation.
5. Arguments in these appeals were heard at great length at Mandi during the recent circuit. For reasons to be stated shortly, I am of the opinion that the decision of the learned District Judge is right and there is no force in these appeals.
6. The first point to be considered here is: whether the Court below has erred in holding that it was the plaintiff, who had failed to perform his part of the contract. This forms the subject-matter of issue No. 2. Learned counsel for the plaintiff argued that time was not the essence of the contract. In this connection, he pointed out that according to the terms of the agreement, Ex. P. A., no time limit had been fixed for the performance of1 the contract.
My attention was also invited to the provisions of Section 55, Contract Act, whereby, where a party to a contract fails to do a certain thing by a specified time, the contract becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract. Learned counsel cited--'Amba Lal Umrao Singhji v. Harish Chander', 1955 Punj 189 (AIR V 42) (A), where a Division Bench of the Punjab High Court, following--'Madan Mohan v. Jwala Parshad', 1950 E. P. 278 (AIR V37), (B), remarked thac:
'Ordinarily, in all contracts for sale of immovable property, time is not of the essence of contract, unless circumstances show otherwise.'
Learned counsel for Sudarshan, on the other hand, pointed out that under the terms of the agreement. Ex. P. A, the sale-deed was to be registered soon after the Sub-Registrar started functioning. Although, no particular date had been specified in the agreement, yet Section 46, Contract Act provides that in such a case, the contract must be performed within a reasonable time.
The explanation to Section 46- further lays down that the question 'what is a reasonable time' is, in each particular case, a question of fact. I may point out that although the agreement is of the date 21-5-1949, nothing apparently was done by the plaintiff until 20-10-1949, when notice, Ex. P. C. was issued by the defendant to the plaintiff.
In that notice, Sudarshan stated that inspite of the fact that the Sub-Registrar had. started, functioning 'since long' and he (the plaintiff) had been requested several times to perform his part of the contract, he was adapting evasive and dilatory tactics. The plaintiff was required, by means, of this notice, to take necessary steps within one week of the notice. Failing that, Sudarshan made it clear that he would not regard himself as bound by the agreement any further.
The above notice also contained a distinct warning that the sum of Rs. 11,0007- already paid to him (the defendant) would stand forfeited unless the notice was complied with. On 11-11-1949, the plaintiff sent a reply, Ex. D. C. to the defendant. Therein, he stated that since Hem Prabh was unwilling to purchase half the land in suit and since he (the plaintiff) was short of money, he stood in need of six months' time, at the end of which, he would purchase the entire land.
The plaintiff also took exception to the defendant's threat to forfeit the sum of Rs. 11,000/-already paid on the ground that the agreement, Ex. P. A, contained no such stipulation. As the learned District Judge has rightly pointed out, this allegation was against the clear language of Ex. P. A. After receipt of Ex. D. O from the plaintiff, Sudarshan appears to have waited for some time more.
On 3-1-1951, Chuha Singh sent yet another notice, Ex. D. A, (same as P. B) to Sudarshan, whereby the latter was called upon to sell the land in suit jointly in favour of the plaintiff and one Pt. Beas Dev the latter, taking the place of Hem Prabh as one of the vendees. The learned District Judge has rightly pointed out that Sudarshan was under no obligation to sell the land to Beas Dev under the terms of the agreements, Exs. P. A and D. D. Beas Dev was produced as a witness by the plaintiff in an attempt to prove that Sudarshan had agreed to sell the entire land in suit in his favour for Rs. 17,000/-.'
Later on, it is alleged, Sudarshan backed out. It is significant that, according to Beas Dev, Sudarshan did not undertake to sell the land jointly in favour of the plaintiff and Beas Dev for an aggregate sum of Rs. 22,000/-. Admittedly, nothing was reduced to writing and no receipt was taken from Sudarshan for the advance of Rs. 560/- and5 maunds of maize, alleged to have been made to him.
It is admitted by Pt. Beas Dev that relations between him and Sudarshan had been strained since long and he had lodged reports against Sudarshan with the police on several occasions. Consequently, it is not possible to rely upon the statement of Beas Dev. I am in agreement with the finding of the learned District Judge that, the plaintiff was unable to purchase the land as agreed by him, i.e. it was he who committed6 breach of the contract.
I am unable to accept the argument of the learned counsel for Chuha Singh that it was incumbent on Sudarshan to give one more notice repudiating the contract. In his reply, Ex. D. B. dated 13-2-1951 to the plaintiffs notice, Ex. P. B, dated 3-1-1951, Sudarshan clearly pointed out that he had waited for six months as requested in his (plaintiff's) previous notice, Ex. D. C dated 11-11-1949, but no steps had been taken by him (the plaintiff). Consequently, he (Sudarshan) had to adopt other means to obtain 'money in order to satisfy a decrees passed against him. Sudarshan went on to say:
'Consequently, the advance made by you in accordance with the agreement settled between us has become liable far confiscation by me, to which you are now, no more entitled to refund. Therefore, your notice is wholly meaningless. Great loss has been caused to me owing to the breach of the contract, yet, apart from confiscating the advance, I am not entitled anything else by the agreement.'
This leaves no room for doubt that Sudarshan repudiated the contract on the ground of the plaintiff's default. I cannot see what further notice from Sudarshan was necessary to repudiate the contract.--'Kailasanada Sarma v. President Dist. Board, Tanjore, 1928 Mad 211(1) (AIR V 15) (C), relied upon by the learned counsel for the plaintiff, does not help his case, because the decision) there only was:
'When a party to a contract is entitled to cancel it by reason of the breach by the other, notice of cancellation should be given to the other party. If no, notice is given, it must be deemed that the breach has been condoned and that the contract is allowed to continue.'
As already shown, here, Sudarshan had informed Chuha Singh through Ex. D. B aforesaid, in unambiguous terms, that the contract was repudiated.
7. In view off all that has been said above, I hold that issue No. 2 was rightly decided against the plaintiff by the Court below.
8. That brings us to the question of partial failure of consideration, forming the subject-matter of issue No. 1. At the risk of repetition, I may point out that according to the agreement, Ex. P. A. the land in suit was to be sold for a total I consideration of Rs. 22,000/-, out of which half, namely, Rs. 11,000/-, was acknowledged as having been received at the time of the agreement and 1 the remaining half was to be paid at the time of ' registration.
The defendant's contention regarding the consideration was twofold: (a) In the first place, according to him, the total consideration was really only Rs. 17,000/- and not Rs. 22,000/-. (b) In point of fact, he received only Rs. 700/- or Rs. 800/- at the time of the agreement, by way of earnest money. The sum of Rs. 11,000/- referred to in Ex. P. A as having been received was fictitious.
The Court below held that the onus lay on the defendant to prove affirmatively these two contentions, since the execution of the agreement, Ex. P. A, had been admitted by him. Learned counsel for, Sudarshan argued vehemently that the Court below has erred in placing the onus of proof on his client. He pointed out that, while, according to the agreement, Ex. P. A, the sum of Rs. 5,860/-was paid to Sudarshan in cash, i.e. in the form of G. C. notes, nevertheless, in his statement under Order 10 the plaintiff admitted that the above sum was paid partly in cash and partly in the shape of gold.
Further, in his statement at the trial, Chuha Singh, plaintiff, gave more details as to how this; payment was made. According to him, 16 or 17 tolas Of gold were given to the defendant and the rest, amounting to Rs. 3,400/- or Rs. 3,500/-, was paid in cash. My attention was also invited to the admission of Nota Bam (P. W. 4), in cross-examination, to the effect that the sum of Bs. 5,860/- was not actully paid to Sudarshan in his presence.
Sudarshan merely told Nota Ram that he had received the amount------while according to the note made by Nota Bam at the foot of the Ex. P. A, the sum of Rs. 5,860/- was paid in his presence to Sudarshan. Reliance was also placed by Mr. 'Hira Lal on the following rulings (a)--'Zohra Jan v. Rajan Bibi', 1915 Lah 86(2) (AIB V 2) (D). There, a Division Bench of the Lahore High Court indicated that:
'Where the consideration of a promissory note is stated to be the sum of Rs. 30,000/- borrowed in cash by the defendant executant and in thecourse of the pleadings the plaintiff is constrained to admit that the consideration as stated in the promissory note did not pass, the initial presumption is rebutted and the onus is shifted on the plaintiff to prove affirmatively that the pronote was executed by the defendant for full consideration.'
9. Learned counsel for the plaintiff pointed out that the facts of the present case are somewhat different. In the Lahore case, referred to above, the promote stated that Mt. Zohra Jan had borrowed Rs. 30,000/- in cash from Nabi Bakhsh without interest. The defendant denied, however, that any part of consideration had been paid to her in cash. Thereupon, the plaintiff was forced to admit that the consideration for the pronote was not a sum of money, but certain proprietary rights in immovable property.
In the present case, the only discrepancy that we find is that the sum of Rs. 5,860/- was not paid entirely in cash, as stated in the agreement, but partly in cash and partly in gold. The defendant, in the course of his statement at the trial, admitted that some gold was given to him, although he put it as 4 tolas and not 16 or 17 tolas, as alleged by the plaintiff. Thus, it is common ground that part of the sum was paid in the form of gold. Therefore, this ruling, in my opinion, does not help the defendant.
10. (b) 'Sundar Singh v. Khushi Bam,' 192T Lah 864 (AIB V14) (E). There, the story first put forward was that Khad received Rs. 450/- in cash from J, and executed a pronote in his favour. Later on, the ground was shifted and a new story was put forward that a stamped ruqqa had been obtained from K, when the amount was paid in. cash and in lieu of this ruqqa the pronote in suit was executed the same day in the evening.
Under those circumstances, Tek Chand J., held that the onus shifted to the plaintiff to prove consideration. The facts of the present case, as already shown, are different, and, therefore, this ruling is not applicable.
11. (c) 'Uttarn Chand Ishar Das v. Hakim Mohammad Sharif, 1932 Lah 417 (AIB V19) (P). There, the facts were that the signature of the defendant below the entry in the plaintiff's bahi was proved. The plaintiff, for reasons best known to himself, produced two witnesses, whose evidence before the Court as regards the payment of consideration was directly in conflict with the entries they had made in the plaintiff's account-book.
Under those circumstances, their Lordships of the Lahore High Court held that the onus shifted from the defendant to the plaintiff. In the present case, in addition to the mode of payment, already referred to, there are other ciroumstances in favour of the plaintiff which have been pointed out by the District Judge and to which, I shall, in due course, refer. This ruling, therefore, would have no application.
12. (d) 'Shambhu Dayal v. Lallu Mal', 1924 All 256 (AIB V11) (G). There, in a suit on a promissory note, which contained a recital that consideration was paid in cash, the plaintiff abandoned the recital and undertook to prove that the consideration consisted partly of cash and partly of reduction of defendant's liability to a certain firm, which was, in turn, indebted to the plaintiff. Plaintiff failed to prove the latter part of the case.
Under those circumstances, a Division Bench of the Allahabad High Court held that in respect of the latter part, a decree could not be passedin the plaintiff's favour, merely on the strength of defendant's signature. Their Lordships, however, added that if the plaintiff had offered no evidence at all and had relied on the recital, he could have got a decree for the entire amount. In the present case, as I shall show subsequently, the acknowledgment contained in Ex. P. A is corroborated by other evidence.
13. Under these circumstances, I am unable to hold that the learned District Judge has erred in placing the onus on the defendant to prove partial failure of consideration.
14. Let us see how far the defendant has discharged this onus. Doom Ram (P. W. 1) stated that in his presence, a bargain was struck between the parties and thereby defendant agreed to sell the land in suit to the plaintiff for Rs. 17,000/-. Admittedly, nothing was reduced into writing in his presence. It is noteworthy that Doom Ram is not a marginal witness of the agreement, Ex. P. A. This is rather surprising, since Doom Ram claims that the defendant was known to him since long and generally puts up with him whenever he goes to Mandi.
Further, he had worked as general attorney of the defendant. It is significant that while according to Sudarshan, the sale consideration was shown as Rs. 22,000/-, i.e. Rs. 5,000/- more than the real consideration in order to put off pre-emptors, such a statement was not made by Doom Ram. I concur with the District Judge that Doom Ram's testimony does not inspire confidence.
15. Agreement, Ex. D. D., executed by Chuha Singh in favour of Sudarshan on 21-5-1949, i.e. the same day as Ex. P. A, also states that the land was to be sold far Rs. 22,000/-. Ex. P. C., notice sent by the defendant to the plaintiff on 20-10-1949 also fixes the sale consideration at Rs. 22,000/-. That notice also contained a recital that the sum of Rs. 11,000/- had been paid by the plaintiff and unless the sale-deed was registered within a week, that sum of Rs. 11,000/-would stand forfeited.
16. The sum of Rs. 11,000/- acknowledged as having been received by the defendant in Ex. P. A was made up of two items: (a) a sum of Rs. 5,140/- stated to be due to the plaintiff on account of a lorry purchased from him by the defendant on 18-2-1949. (b) Rs. 5,860/- received on 21-5-1949. In his written-statement, the defendant, no doubt, alleged that only a sum of Rs. 700/- or Rs. 800/- was received by him at the time of agreement; but he did not specifically deny the lorry transaction.
It is pointed out that, in his statement under Order 10 recorded on 13-3-1952, Sudarshan, while admitting that a sum of Rs. 5,140/-, representing price of the lorry was included in the agreement,, nevertheless, maintained that the amount was not really received by him as the registration of the lorry was not transferred to the name of his son. Learned counsel for Sudarshan cited, in this connection, Section 21, Sale of Goods Act, Which provides that:
'Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof'.
Mr. Hira Lal contended that the plaintiff wag bound to put the lorry into a deliverable state and the same could not be done, unless the registration certificate was transferred. Under Section, 31 of Motor Vehicles Act, it is the duty of the transferee, within 30 days of the transfer of ownership of a vehicle to notify the registering authority of the fact of transfer and request him to effect the transfer in his favour. The certificate of registration has to be submitted to the registering authority along with the prescribed fee, etc.
Learned counsel for Sudarshan was unable to, tell me whether any such application was made to the registering authority and if so, with what result. I fail to see how, under these circumstances, the plaintiff can be blamed if the registration was not transferred in favour of Sudarshan's son. On 20-12-1952, an application purporting to be under Order 13, Rule 2 was put in before the learned District Judge by Sudarshan, seeking permission to produce the relevant certificate of registration.
The application was rejected by the order of the District Judge dated 27-12-1952 on the grounds, firstly, that it had presented at a very late stage of the case after parties had closed their evidence and secondly, no reason had been shown by Sudarshan for not producing the certificate of registration at an earlier stage. Mr. Hira Lal argued that the Court below has erred in not permitting the production of the registration certificate. No application under Order 41, Rule 27, Civil P. C., had been made to this Court.
In paragraph 13 of his grounds of appeal to this Court, however, Sudarshan has indirectly made an analogous request. Since, however, no proper application under Order 41, Rule 27 has been made, I am unable to treat paragraph 13 of the grounds of appeal as an application to permit the production of additional evidence here. Even if such an application had been made, it is extremely doubtful if it would have been granted.
I say this for two reasons: Firstly, I. do not consider that the Court below has erred in refusing to admit the registration certificate in evidence at a very late stage. Secondly, the production of the registration certificate in this Court is not, in my opinion, essential for the decision of this appeal, because, as already shown, it was for the defendant to apply to the registering authority for transfer in his son's favour.
I am unable to accept Mr. Hira Lal's contention that the sale was not complete, unless the registration was transferred: The legal position is just the reverse under Section 31, Motor Vehicles Act. The registration can be transferred only after the ownership of the vehicle has been transferred.
17. Through sale-deed, Ex. P. W. 1/B, dated 18-2-1949, Chuha Singh sold his half share in lorry No. Him-483 to Suraj Singh son of Sudarshan for a sum of Rs. 5,140/-.' Although Ex. PW1/B contains a recital that Chuha Singh had received the sum of Rs. 5,140-, nevertheless, it has to be read along with document, Ex. P. W1/A (proved by Ram Singh P. W. 1), whereby Sudarshan admitted having borrowed the sum of Rs. 5,140/- from Chuha Singh for the purpose of the lorry. Ex. PW 1/C, partnership deed dated 4-11-1948, shows that the lorry in question was owned by Chuha Singh and Ganga Ram in equal shares.
In the course of his statement at the trial, Sudarshan admitted that the plaintiff had sold his half share in the lorry to his minor son, Suraj Singh, and in lieu thereof, he paid Rs. 5,140/- in cash to the plaintiff. As already shown, Sudarshan had to borrow money from Chuha Singh in order to pay for the lorry. In other words, no cash actually changed hands and Sudarshan merely acknowledged 'that he was indebted to the plaintiff to the tune of Rs. 5,140/-, as the price of the lorry. It has not been alleged by Sudarshan that the debt has been repaid.
On the other hand, the agreement, Ex. P. A, shows that on 21-5-1949 that debt still remained outstanding. That was why it was adjusted towards the sale price of the land, Sudarshan had cited Ganga Ram--the other shareholder in the lorry--as his witness but closed his evidence without actually producing him. Under these circumstances, I concur with the view of the Court below that the sum of Rs. 5,140/- was due from Sudarshan to Chuha Singh on account of the lorry and the same was adjusted towards the sale price of the land in suit.
18. Coming to the sum of Rs. 5,860/-, alleged to have been paid to Sudarshan on 21-5-1949, the plaintiff's case, as stated earlier, was that he gave Sudarshan 16 or 17 tolas of gold and Rs. 3,400/- or Rs. 3,500/- in cash. The defendant's contention, on the other hand, was that he received only about 4 tolas of gold and a sum of Rs. 400/- had been paid to him some time previously. The defendant's contention, however, remained in the air.
It is significant that Nota Ram (P. W. 4), who is a marginal witness of the Ex. P. A, while conceding that the sum of Rs. 5,880/- was not paid in his presence, clearly stated that on his inquiry, Sudarshan told him that he had received the sum in question.
19. Exhibit P. A was executed on 21-5-1849. On 20-10-1949, i. e., about 5 months later, Sudarshan sent a notice, Ex. P. C., to the plaintiff wherein he admitted in two places that the sum of Rs. 11,000/- had been paid to him under the terms of the agreement, Ex. P. A. (This sum of Rs. 11,000/-, it would be remembered, was made up of Rs. 5,140/- an account of the lorry transaction and Rs. 5,860 paid in the shape of gold and cash on 21-5-1949, total Rs. 11,0007-).
There is considerable force in the argument of the learned District Judge that in case Sudarshan had received only Rs. 800/- as he now contends, he would not have admitted the receipt of Rs. 11,000/- and put forward a claim that he was entitled to forfeit it.
20. Under these circumstances, I concur with the finding of the Court below that the defendant failed to discharge the onus, which lay heavily upon him i.e. to show that there had been a partial failure of consideration. Issue No. 1 was, in my opinion, rightly decided against the defendant.
21. That brings us to the last issue to be discussed, namely, issue No. 3. It was, vehemently, argued by Mr. Hira Lal that having held that the contract had been broken by the plaintiff, it was not open to the Court below to grant any relief to him. Relief was granted to the plaintiff under the provisions of Section 74, Contract Act. The learned District Judge was of the opinion that the sum of Rs. 11,000/-, paid to Sudarshan on 21-5-1949, was not by way of earnest-money, i. e. it was not guarantee or security for the performance of the contract.
On the other hand, he was of the view--and in my opinion rightly--that the sum of Rs. 11,000/- was paid as the part of the purchase price. In coming to this conclusion, he has pointed outthat the agreement, Ex. P-A, and its counterpart Ex. D-D do not refer to the sum of Rs. 11,000/- as earnest-money or security. Similarly the two notices, P. O. and D. B., sent by Sudarshan to the plaintiff on 20-10-1949 and 13-2-1951, respectively, do not refer to the sum of Rs. Rs. 11,000/- as earnest or security money, although, both the notices contained a threat that the amount was liable to forfeiture.
It must be borne in mind that according to the terms of the agreement, Ex. P. A, the total sale consideration was Rs. 22,000/- out of which, half, namely Rs. 11,000- was to be paid by Chuha, Singh and the remaining half by Hem Prabh. It is impossible for me to treat the sum of Rs. 11,000/-paid by the plaintiff as earnest-money. In this connection, the following rulings were, cited by learned counsel for Chuha Singh: (a) In--'Natesa Aiyar v. Appayu Padayachi', 1915 Mad 896 (AIR V2) (H), Miller, J., observed:
'There may be cases where the Courts must, find that the amount of the deposit or payment in advance is so great in comparison with the amount payable under the contract, that the parties cannot have intended it as a mere security for performance but rather as a punishment for non-performance of the contract, and in those cases the Court may doubtless refuse to allow the retention of the whole of the deposit; but where' there is no such disproportion and nothing unreasonable in regarding the deposit as a security, then the defaulter will not be allowed to recover back what he has paid on an express stipulation that it shall be forfeited in the event of default'.
In that case, the consideration for the contract was a sum of Rs. 41,000/-, out of which; Rs. 4,000/- were received by the vendor at the time of the agreement. Both Miller, J., and White, C. J., held that the sum of Rs. 4,000/- was not excessive or unreasonable as a security for the performance of the contract, and, therefore, was liable to forfeiture, following breach of the contract.
22. (b) This decision was followed by Findlay J. O., in--'Abas All v. Kodhusao', 1929 Nag 30 (2) (AIR V16) (PB) (I).
23. (c) In 'Naresh Chandra v. Ram Chandra',, 1952 Cal 93 (AIR V 39) (J), P. N. Mookerjee, J., held that a deposit of Rs. 501/- by way of earnest-money in a case, where the sale consideration,' was Rs. 6,000/-, could not be regarded as unreasonable and in the absence of any contrary intention, express or implied, was liable to forfeiture, following the breach of the contract.
24. (d) 'N.V. Jagannadhayya v. Ramanatha Mohapatra', 1955 Orissa 11 ( (S) AIR V42) (K). There, a Division Bench of that High Court indicated as follows:
'There is a difference between the giving of an. earnest-money with a view to fulfil the contract and a part-payment made towards the discharge of the contract, though there is nothing to prevent the same payment being both earnest and part-payment. It depends on the intention of the parties as to whether the sum paid was intended to be the one or the other or a combination of both.
The deposit serves two purposes. Primarily its purpose is to guarantee that the purchase means business. If the purchase is carried out, it goes against the purchase money. If the contract falls through on account of the laches of the vendor, he is bound to return the sum sopaid. If, however, the default is, that of the purchaser the earnest is forfeited.
If the vendor re-sells the property and claimsto recover the loss arising on such re-sale, the deposit is to be taken into account in diminishing the deficiency. Where however, a part-payment is made under the contract and the buyer commits default in performance, he can recover the purchase price that he has paid subject to the right of the seller to set off a certain sum for damages against the purchaser. These principles apply both to purchase of immovable property and to sale of goods.
It is doubtless true that Courts have intervened to relieve a party against a forfeiture clauseby way of penalty, but every clause providing for forfeiture is not necessarily penal in character. Unless the seller seeks to exact payment of an extravagant sum for default in payment by the buyer of a nominal sum, a clause providing forfeiture does not become a penalty. The stipulation must appear unconscionable on a consideration of all the circumstances.
The principle is that while this equity is available to a defaulting purchaser the vendor cannot forestall this equity by demanding an extravagant sum as deposit, any more than he canrecover a, penalty by claiming liquidated damages'.
25. (e) 'Badhava Singh v. Charan Singh', 1955 Raj 87 ( (S) AIR V42) (L). A Division Bench, of that High Court, while discussing the determination of character of the amount mentioned in the contract and the duty of the Court in awarding compensation, observed as follows:
'On a review of the authorities, cited above, we are of opinion that the true effect of Section 74 may be summarized somewhat as follows:
(1) Where a sum is named in the agreement as payable on breach thereof, the plaintiff cannot be entitled to the entire sum so named 'simpliciter', that is, merely because such a sum may be mentioned in the agreement to be so payable.
(2) All that the plaintiff would be entitled to is a 'reasonable compensation' subject to the amount named therein being the maximum.
(3) What is 'reasonable compensation' would depend upon and must be determined by the circumstances of each case.
(4) The aforesaid result must hold good regardless of the consideration that the sum named In the agreement is what under the English law is termed as 'liquidated damages' or is in the nature of a 'penalty'. The effect of the Indian law as embodied in Section 74 is to do away with the distinction between 'penalty' and 'unliquidateddamages' under the English law which has beena prolific source of case law and which has sometimes given rise to not a little confusion.
(5) It must be for the plaintiff to prove the damage suffered by him, but such proof may bedirect or circumstantial, and need not possess the quality of arithmetical exactitude.
(6) If the plaintiff succeeds in establishing that the sum named in the agreement is a genuine pre-estimate of damages, or would otherwise be a reasonable compensation for the breach, the Court may grant the entire sum named to the breach as such compensation. If, on the other hand, the Court come to the conclusion that theamount as fixed was 'in terrorem' or unconscionable and extravagant, it would be open to it to award such sum as may appear to be reasonable.
(7) In deciding whether the amount fixed is a genuine pre-estimate or reasonable compensation or not, it would be a factor for consideration whether the sum named in the agreement is not disproportionate to the injury caused and whether the burden evenly and equitably falls on both parties to the contract'.
26. Mr. Hira Lal for Sudarshan, on the other hand, cited, inter alia, the following rulings: (i)--'Bhalchandra Pandurang v. Mahadeo Laxminarayan', 1947 Nagpur 193 (AIR V 34) (M). There, a Division Bench of that High Court held that the deposit in question was earnest money and, therefore, the mere fact that it bore a high ratio to the sum contracted would not alter its nature and it could not be regarded as a penalty. This ruling, in my opinion, will not help Sudarshan, because, as already shown, the payment df Rs. 11,000/- was not by way of earnest money. On the other hand, it was part-payment of the purchase price.
27. (ii) 'Dinanath Damodar Kale v. Malvi Mody Ranchhaddas and Company', 1930 Bom 213 (AIR V17) (N). There, forfeiture of a sum of Rs. 4,300/- was upheld by a Division Bench of that High Court on the strength of a rule (Rule 391), of the High Court Rules providing for such forfeiture and further on the ground that the deposit had been made by way of security for the performance of thg contract. In the present case, as already shown, the nature of the deposit was different. Consequently, this ruling will not help Sudarshan,
28. (iii) 'Mahomed Zafar Ahmad v. Mt. Hamida Khatoon', 1945 All 70 (AIR V32) (O). There, following--'Mahomed Halibullah v. Mohammad Shafi', AIR 1919 All 265 (AIR V6) (P), a Division Bench of that High Court upheld the forfeiture of a sum of Rs. 3,000/- following breach of a contract of sale, on the ground that the deposit had been made by way of guarantee for carrying out the terms of the contract. This ruling again will not help Sudarshan because I have already held that the payment of Rs. 11,000/ was not by way of earnest money or security money. ,
29. (iv) 'W.J. Younie v. Tulsiram Jankiram', 1942 Cal 382 (AIR'V2i9) (Q). There, Gentle, J., held that a sum of Rs. 10,000/- was not an unreasonable sum to demand as security where the consideration of the agreement was Rs. 80,0007-. This sum of Rs. 10,000/- was expressly agreed to be paid as a security deposit. Under those circumstances, His Lordship felt that the provisions of Section 74, Contract Act did not apply and the sum of Rs. 10,000/- was liable to forfeiture. In the present case, as already shown, the sum of Rs. 11,000/- was paid as part of the purchase price and Section 74 does apply.
30. (v) 'P. Seethanna v. T. Yasikalappa' 1926 Madras 117 (AIR V13) (R). This ruling, if anything, goes in favour of the other side. There, the facts were that the plaintiff had contracted to purchase 1501 bags of rice from the defendant and paid a sum of Rs. 6,000/- in advance. The contract was broken. The lower appellate Court held that the plaintiff was entitled to the return of Rs. 6,000/- less certain suma which the defendant was entitled to retain. Defendant went up in second appeal and contended that she was entitled to retain the whole of Rs. 6,000/- on the ground that it was paid as a deposit. Phillips, J., quoted the following passage from 'Habibullah v. Arman Dewan', 1920 Cal 673 (AIR V7) (S):
'The deposit, if nothing more is said about it, is according to the ordinary interpretation of businessman, a security for the completion of the purchase so that in the event of the contract being performed, it must be brought into account and if the contract is not performed by the payer, it is forfeited to the payee: but every payment made by the purchaser to the vendor is not in the nature of a deposit liable to be forfeited if the purchaser violates his contract. It is incumbent on the Court in each case to ascertain the real intention of the parties from all the terms of the contract'
His Lordship then went on to observe:
'This with all respect, appears to me to be the correct interpretation of the law on the subject whether an advance is given as security for performance of the intention of the parties. It may well be that in a certain contract, the purchaser may, to oblige the vendor, pay some of the purchase-money in advance. Can it be said in that case that he paid that money as a security for performance of the contract? If he did not pay it as security, there is no reason why the vendor should retain such money unless he has himself suffered damage to in equivalent or greater sum owing to the purchaser's breach'.
In the absence of evidence to show that the money was paid by way of security, the appeal was rejected.
31. In view of the facts set out above and the authorities quoted, I am of the opinion that the learned District Judge was right in refusing to permit Sudarshan to forfeit the entire sum of Rs. 11,000/-. The recital in Exs. P. A. and D. D providing for the forfeiture of Rs. 11,000/- for default on either side is clearly a penal clause. Ag pointed out in 1955 Orissa 11 ( (S) AIR V42) (K), Courts can relieve a party against such a penali clause and allow only a reasonable sum, by way of compensation. The stipulation is, prima facie, unconscionable and extravagant. Since, however, the contract had been broken by the plaintiff, the defendant was entitled to reasonable compensation under the provisions of Section 74, Contract Act.
In the circumstances, of this case, the Court below thought it proper to assess the compensation due to the defendant at Rs. 1,500/- i. e. representing interest on the sum of Rs. 11,000/- from the date (20-10-1949) he sent notice, Ex. P.C., to the plaintiff, calling upon him to perform his part of the contract within one week upto the date of the suit (18-12-1951). This works out to about 6 1/3 per cent, which cannot be regarded as, unreasonable.
32. In appeal No. 7/53, it was contended by learned counsel for Chuha Singh, firstly that there was no breach on the part of his client and, secondly, no damages have been proved by Sudarshan. As regards the first contention, I have, while discussing issue No. 2, held that it was the plaintiff who broke the contract.
As regards the second contention, although no evidence as to damage had been produced by Sudarshan, nevertheless, under the terms of Section 74, Contract Act, Sudarshan was entitled to reasonable compensation whether or not actual damage or loss was proved to have been caused due to the breach of the contract.
I have already expressed my view that the sum of Rs. 1,500-, assessed by the learned District Judge, was not unreasonable, under the circumstances. Consequently, the defendant cannotbe deprived of this sum. Only the sum of Rs. 9,500/- (i. e. Rs. 11,000/- less Rs. 1,500-) as decreed by the Court below is due to plaintiff.
33. Thus, both the appeals must fall.
I dismiss both the appeals with costs. Thedecree of the learned District Judge is affirmed.This order will be read in both the appeals.