Nirmala Sundari Saha vs Naba Kumar Banerjee

P.N. Mookerjee, J.—This appeal arises out of a suit for refund of earnest money. The suit has been decreed by the learned subordinate Judge and the vendor Defendant has come up on appeal.

The Appellant contends that, in the facts and circumstances of this case, the Plaintiffs were guilty of laches and wrongful acts and breach of contract which entitled her to forfeit the earnest money and, she having done so according to law, no question of refund arises. Alternatively, the Appellant urges that even if a decree for refund is here permissible under the law notwithstanding default on the Plaintiff''s part in the matter of performance of the contract it must be made subject to the payment of damages or compensation for the loss suffered by her on account of the default or wrongful acts of the Plaintiffs.

The finding of the learned subordinate Judge was that it was the Defendant who was guilty of laches and wrongful acts and breach of contract and the correctness of this finding is seriously disputed before us by Mr. Sanyal who appears for the Appellant and who has placed before us all relevant materials on the point, appearing on the record. Mr. Mukherjee, appearing for the Respondents, has sought to support the finding of the learned subordinate Judge and he has further contended that, even apart from the said finding, the Defendant''s claim to forfeit the earnest money is unsustainable in law, having regard particularly to the terms of the agreement for sale in the present case. Mr. Mukherjee has also contested the Defendant''s alternative claim before this Court for damages for loss, alleged to have been suffered by her.

The merits of the respective contentions, as set out above, have to be considered for a proper decision of this appeal and for that purpose it is just necessary to state a few facts which we shall presently do.

On August 3, 1945, the Defendant agreed to sell and the Plaintiffs agreed to purchase the Defendant''s premises No. 33, Hindusthan Road, for a sum of Rs. 1,05,000. Out of the stipulated price, a sum of Rs. 5,001 was paid by the Plaintiffs to the Defendant on account of earnest money on the date of the Baina (Ex. 1), namely, August 3, 1945, the balance being payable within the month of September, 1945, and, upon such payment, the kobala was to be executed by the vendor. The agreement (Ex. 1) also provided inter alia for production of documents for the purpose of investigation of title as follows:

(i) documents, lying with the vendor, to be delivered to the purchasers'' lawyer within fourteen days from the date of the Baina or agreement for sale (Ex. 1), that is, within fourteen days from August 3, 1945, and

(ii) inspection to be arranged of the remaining documents within the same period copies thereof to be delivered to the purchasers'' lawyer within three weeks from the said date of the agreement for sale (Ex. 1);

and for approval of title the time was limited to four weeks from the said date, viz., from August 3, 1945, the parties intending to complete the sale transaction, as already indicated, within the month of September, 1945. It was also stipulated in the agreement (Ex. 1) that in case the sale transaction failed to materialise, the earnest money (Rs. 5,001) paid and received thereunder, would be refundable and would have to be returned under certain specified circumstances and forfeitable under certain others.

It transpires in evidence that the disputed premises were at the relevant time mortgaged with the Central Bank of India, Ltd., Bhowanipore Branch, and, naturally, therefore, the principal documents of title were with the said mortgagee. The inspection to be arranged under the agreement for sale (Ex. 1) referred chiefly to these documents, lying with the mortgage Bank, and the main controversy between the parties, so far as. facts are concerned, centres round this inspection. Shorn of details, the Plaintiffs'' complaint is that the Defendant having neglected and/or failed to arrange inspection of these title deeds, admittedly lying with the Bank, and the Plaintiffs, not having, in consequence, been able to obtain such inspection in spite of their best endeavours, the sale transaction could not be completed and, in the circumstances, they were at least entitled to a refund of the earnest money (Rs. 5,001), paid for the intended sale transaction, and to re-imbursement by way of damages, in respect of the out-of-pocket expenses (Rs. 175) incurred by them in connection therewith. The evidence in support of the Plaintiffs'' above allegation has been accepted by the learned subordinate Judge and their claim for refund and damages has been allowed by him on that footing.

In decreeing the Plaintiffs'' suit upon the finding that the Defendant was guilty of laches and breach of contract, the learned subordinate Judge has relied, mainly at least, on the evidence of the Plaintiffs'' witness No. 3 Sri Jnanendra Nath Ghosh, a practising lawyer of the Alipore Court. "If the "evidence of Mr. Ghose is accepted," so says the learned Judge, "Plaintiffs'' case on this point would be satisfactorily proved." To this observation and expression of opinion no serious objection can possibly be taken but the question is whether the evidence of this lawyer-witness (P.W. 3) can or ought to be accepted in the circumstances of this case and in the face of the other admitted materials on record. August 3, 1945, was the date of the Baina (Ex. 1). Under it documents, lying with the vendor, were to be made over to the Plaintiffs'' lawyer within fourteen days and inspection of the documents which were at the Bank was to be arranged within the same period; in default, copies were to be supplied within three weeks. On the 8th following, the vendor''s documents were duly made over to the purchasers'' pleader and, on the same day, viz., the 8th, the Defendant''s lawyer wrote to the Bank to allow inspection of the title-deeds. The Bank replied on the 10th, assuring inspection "any day at any time "during the banking hours" and on the 13th a copy of the Bank''s letter (Ex. C13) was sent to the Plaintiffs'' advocate, Sri Haripada Roy Chowdhury, by the Defendant''s lawyer, Sri H.N. Bhattacharjee, under a forwarding letter which is Ex. C11 in the case, and which reads as follows:

Haripada Roy Chowdhury, Esqr.,

Advocate, Alipore.

13.8.1945

Dear Sir,

Re: Inspection of title deeds of 33, Hindusthan Road, at the Central Bank of India, Bhowanipore.

The accompanying is the copy of the letter received from the Central Bank of India, Bhowanipore Branch. You may, therefore, inspect the title deeds any day, as you please, during Banking hours. If you want, my client''s man may accompany you on your informing me about the date and hour when he may see you in this connection.

Yours faithfully,

H.N. Bhattacharyya, Advocate.

Nothing further appears on the correspondence between the parties until September 5, 1945, when the Defendant''s lawyer sought to impress upon the Plaintiffs that time was or would be the essence of the contract (Ex. 1). The stipulated time for approval of title, namely, August 31, 1945, had already passed but no communication had been received from the Plaintiffs'' side on the subject or in reply to the Defendant''s letter (Ex. C11), dated August 13, 1945, quoted above. On September 11, 1945, the Defendant''s lawyer wrote to the Plaintiffs putting on record the fact that they, the Plaintiffs, had, on their request, been given inspection of the premises in question and stressing again that the sale transaction was to be completed by the end of September, 1945. On September 12, 1945, the Plaintiffs'' lawyer addressed a letter to the Defendant''s advocate enclosing certain requisitions on title with a request to "furnish the necessary answer at a very early "date in order that the draft may be prepared and the transaction "completed within September, 1945". In this letter it was further written that "the vendee should be delivered vacant "possession of portion of the premises in the occupation of the "vendor before the transaction is completed", but there was nothing said that no inspection of the documents at the Bank had been or could be obtained by the Plaintiffs'' lawyers or that such inspection had been sought for in pursuance of the Defendant''s letter of August 13, 1945 (Ex. C11), but refused by the Bank; nor was any complaint made that the Defendant had neglected and/or failed to arrange inspection at the Bank in spite of due intimation of the Bank''s said refusal. The requisitions were answered under protest on September 19, and attention was drawn to the stipulated time (which had already expired) for approval or disapproval of title and then, for the first time, a complaint was made by the Plaintiffs in their advocate''s letter (Ex. C6) of September 24, 1945, that they, the Plaintiffs, had not been given inspection of the documents at the Bank on the authority of the Defendant''s letter, dated August 13, 1946 (Ex. C11). To this letter (Ex. C6) the Defendant replied on the 26th accusing the Plaintiffs of laches and negligence and denying in effect the Plaintiffs'' story of refusal of inspection by the Bank (vide Ex. C5). Then followed certain acrimonious correspondence, the sale transaction was not completed, the Plaintiff''s wanted back the earnest money and threatened to recover costs and damages, the Defendant asserted that the Plaintiffs were guilty of laches and negligence and breach of contract and the earnest money had been forfeited and, eventually, the property was advertised for fresh sale on October 15, 1945, and it was actually sold to a third party by the Defendant in May, 1946, on a fresh agreement for sale, entered into in or about March, 1946. The Plaintiffs commenced the present action on March 6, 1946.

The lawyer witness Sri Jnanendra Nath Ghosh (P.W. 3) has deposed that in pursuance of the Defendant''s letter (Ex. C11) he made two attempts to have inspection of the documents at the Bank but without success. On the first occasion, the Bank''s officers requested him "to come on another day as they were too "busy on that day" and, on the second, inspection was refused as the letter (copy of which has been marked Ex. 7F and the original, Ex. C13) was not considered sufficient authority for the purpose. Plaintiffs'' witness No. 3 further deposes that this failure to get inspection was duly intimated to the Defendant''s lawyers and they were requested either to arrange inspection or furnish copies but nothing was done by them or by their client and, consequently, the title could not be investigated.

If the evidence of P.W. 3 can be accepted, there is little doubt that the Plaintiffs'' claim must succeed and this appeal must necessarily fail. The learned subordinate Judge has accepted this evidence and has decreed the suit upon the same. As already stated, the Appellant''s main grievance is that the learned subordinate Judge fell into a grievous error in relying upon this evidence of P.W. 3 in view of the clear contrary indications furnished by unimpeachable materials on record in the shape of the admitted correspondence between the parties and the circumstances of the case. The reasonings of the learned subordinate Judge for basing his judgment upon the evidence of P.W. 3 will, therefore, have to be closely examined and for this purpose it is convenient to set out the relevant parts of that judgment, bearing upon this question.

"If the evidence of Mr. Ghose is accepted," so writes the learned Judge, as already quoted above, "Plaintiffs'' case on this "point would be satisfactorily proved". The judgment then proceeds as follows:

And I do not see why his evidence should not be believed. He is a pleader of some standing and it cannot be easily believed that he has come to Court to give perjured evidence merely with the object of seeing his clients win the present suit. The evidence of Mr. Ghose could have been easily rebutted by examining Mr. Bhattacharji, the Defendant''s lawyer, or his junior, but no attempt seems to have been made from the Defendant''s side to examine either of them in Court. Some letters seem to have been passed between Defendant''s lawyer Mr. Bhattacharji and Plaintiffs'' lawyer Mr. Ray Chowdhury, but it seems to have been the habit of Mr. Bhattacharji to do a greater amount of the letter-writing task. Mr. Ray Chowdhury''s letters were very few in the beginning and always in reply to Mr. Bhattacharji''s letters. It does not, therefore, come as a surprise that it was only in Mr. Ray Chowdhury''s letter of September 24, 1945 (Ex. 7B), that a reference has been made to a fruitless attempt at inspection in the Bank. The evidence of Mr. Ghose need not be disbelieved merely because no letter was addressed to Mr. Bhattacharji in August or even in the first part of September or because the name of Mr. Ghose is not specifically mentioned in the letter (Ex. 7B).

At another place the judgment records that:

The crux of the case is the episode of inspection at the Bank and on the evidence of Mr. Ghose I do not think that there is anything to doubt that Defendant''s side did not make any arrangement for the inspection. In the absence of any evidence on the point from the Defendant''s side the evidence of Mr. Ghose should be accepted. To say that Defendant did not make any arrangement for inspection at the Bank is the same thing to hold that the contract could not be carried out due to the laches of the Defendant.

We have examined the materials before us and we are unable to say that, in the circumstances of this case and on the present state of the records, the evidence of P.W. 3 can be preferred to the contrary indications, afforded by the other materials on record. The learned subordinate Judge evidently found no conflict between the evidence of P.W. 3 and the state of things legitimately inferable from the correspondence, but the explanation which weighed with the learned Judge in that connection is hardly convincing or satisfactory. If P.W. 3 was not suffering from any lapse of memory but was giving the correct version of the relevant events, it is unthinkable that there would be no written intimation sent to the Defendant''s side about the Plaintiffs'' failure to get inspection at the Bank, remembering that under the contract or agreement for sale (Ex. 1) the inspection had to be arranged or, in the alternative, copies had to be furnished within stipulated periods and there was also a time fixed for approval of title which time was fast expiring and remembering further that, at least prima facie, arrangements had been made by the Defendant for inspection of the documents at the Bank (vide Ex. C13). Still more inexplicable would be the omission of any reference to the Plaintiffs'' alleged difficulties if they were real-in the correspondence which admittedly passed between the parties between August 13 and September 24, 1945, which included at least three letters from the Plaintiffs'' side, namely, the one, dated September 7, 1945 (referred to in Exs. 7Q and C8), and two, dated September 12, 1945 (Exs. 7Q and C9). This omission is particularly significant when it appears that the Defendant''s letter, dated September 5, 1945, wherein it was asserted that time was or was being made essence of the relevant contract of sale, had been received before the despatch of either of the Plaintiffs'' said three letters (vide Ex. B1) and when it is remembered further that the parties were not pulling on well at or about the time (vide Exs. 7Q and C8). As already stated, the first reference to the Plaintiffs'' alleged failure to get inspection at the Bank occurs in their advocate''s letter, dated September 24, 1945 (Ex. C6), but there also it is put in the vaguest possible form without any details whatsoever, even though the Defendant had already accused the Plaintiffs'' side of laches and delay (vide Ex. C7). We are not impressed by the reasoning of the learned subordinate Judge that the absence of any written intimation of the Plaintiffs'' alleged difficulties in the matter of inspection of documents at the Bank or the omission of any reference to any such difficulties in the admitted correspondence which passed between the parties between August 13 and September 24, 1945, or the non-mention of any details thereof in the letter of this latter date are not of much significance and need not prevent the acceptance of the evidence of Mr. Ghose and we are not prepared to dismiss the said circumstances telling as they are-as insignificant and prefer the oral evidence of P.W. 3. The conduct of the parties is hardly consistent with the story, put forward on the Plaintiffs'' behalf, and so clear appears the position in this respect that the non-examination of the Defendant''s lawyer appears to us to be of little consequence and may indeed be well justified in view of the materials already on record and, notwithstanding such non-examination, the Plaintiffs'' case on this point, concerning inspection of the title-deeds in the Bank, is bound to fail. We are thus led to the conclusion that the Plaintiffs were guilty of laches and negligence and that they-and not the Defendant-broke the contract. The finding of the learned subordinate Judge that the Defendant was guilty of breach of the contract is, accordingly, reversed and we hold that the contract fell through and could not be carried out on account of laches and negligence on the Plaintiffs'' part and the latter must, therefore, suffer the consequences of the breach.

What then is to happen to the Plaintiffs'' suit? It has been strenuously contended on behalf of the Defendant-Appellant that, once it was found that it was the Plaintiffs-and not the Defendant-who broke the contract, the earnest money must be held to have been rightly forfeited by the vendor and the Plaintiffs'' suit must inevitably fail. Undeniably, there is some force in this contention, but, in the circumstances of this case, forfeiture of the earnest money cannot in law be justified. Any and every default on the purchaser''s part, leading to a breach of the contract, would not necessarily involve a forfeiture of the earnest money under all circumstances. It is true, as has been pointed out in a recent decision of this Court, Naresh Chandra Guha v. Ram Chandra Samanta (1951) 55 C.W.N. 766, that earnest money is by nature forfeitable in that in the absence of a contrary intension, express or implied, in the agreement for sale, such money is liable to be forfeited when the contract fails by reason of default on the purchaser''s part or, in other words, that when the purchaser is found guilty of breach of contract law raises an initial presumption in favour of the vendor clothing him with a right to forfeit the earnest money. But the reservation, above indicated, is significant and cannot be overlooked and, indeed, the case cited proceeded to add in express words that the initial presumption tending to justify forfeiture of the earnest money would be rebuttable and the vendor''s apparent right to the same would be defeasible by proof of a contrary intention, express or implied, in the contract in question. The ultimate test, therefore, is the test of intention and such intention has to be gathered from the contract in question and the relevant surrounding circumstances.

The contract before us, namely, (Ex. 1), in terms enumerates or specifies-and we are inclined to think on the materials before us that such enumeration or specification is exhaustive-the circumstances under which the earnest money would be forfeited; clearly also by the contract (Ex. 1) the earnest money was expressly made refundable in certain contingencies named therein. This latter cataloguing appears to us, on a reading of the contract (Ex. 1) as a whole, in the light of the relevant circumstances, to be merely illustrative. Unless, therefore, the relevant default on the purchasers'' part, on which the Defendant relies, is such as would justify the forfeiture of the earnest money under the express clause or clauses, contained in that behalf in the contract (Ex. 1), that money would be refundable and would have to be returned to the purchasers subject, of course, as will be presently seen below, to a decree for damages in favour of the vendor for the loss suffered by her by reason of the purchasers'' said default.

It is not contended before us that the events which have happened would attract any of the express clauses of forfeiture, contained in the Baina (Ex. 1). The earnest money, therefore, would have to be refunded or returned to the Plaintiffs although upon our finding, made above, that it was they-and not the Defendant-who were guilty of laches and breach of contract, they would not be entitled to recover the further sum of Rs. 175 alleged to have been paid by them to their lawyers in connection with the intended sale transaction and claimed by them in the plaint. As already stated, however, this refund or return of the earnest money to the Plaintiffs would be subject to the Defendant''s claim for damages for the loss suffered by her on account of the Plaintiffs'' default in the performance of the relevant contract of sale (Ex. 1), and the decree of the learned subordinate Judge would have to be modified accordingly.

Such modification of the lower Court''s decree is imperative in the circumstances of this case and it will justly balance the rights of the parties under the law. Upon the materials before us we feel amply justified in adjusting the respective rights of the parties in these proceedings without driving the vendor to a separate suit for the recovery of damages and we feel no hesitation in making the said adjustment. In the view which we have taken it is not necessary to consider or express any opinion on the English Case of Smith v. Hamilton [1950] 2 All E.R. 928, cited on behalf of the Plaintiffs-Respondents. The other cases cited, Arun Prokask Boral v. Tulsi Charan Bose AIR [1949] (Cal.) 510 and Parshotam Das Shankar Das v. Municipal Committee, Batala AIR [1949] (E.P.) 301, 305, also call for no discussion as they do not appear to have any bearing on the problem now before us.

It only remains now to consider what damages the Defendant sustained by reason of the Plaintiffs'' failure to perform their part of the contract. But for the Plaintiffs'' default the sale transaction would have been completed and the Defendant would have been entitled to the balance of the stipulated price and thus to the use of the entire purchase money, viz., Rs. 1,05,000, by the end of September, 1945, at the latest. Out of this, a sum of Rs. 8,000 was payable to the brokers as brokerage so that a net amount of Rs. 97,000 would have been available to the vendor for her full and unrestricted use at least from October 1, 1945. The evidence sufficiently establishes that the fresh sale to the third party was for Rs. 1,00,000, out of which a sum of Rs. 3,000 or thereabout had to be paid to the new brokers as brokerage (vide D.W. 1 and D.W. 2), the net amount actually received by the vendor being thus Rs. 97,000. So far, therefore, as the net price was concerned, the vendor does not appear to have suffered any loss. But it must be remembered that the fresh sale took place only in May, 1946, and the vendor got the net price of Rs. 97,000 only in the 1st week of that month, that is, after about seven months and seven days from the latest day on which it would have been received by her had the Plaintiffs committed no default in the matter of performance of the contract (Ex. 1). Plainly, therefore, the Defendant is entitled to reasonable compensation the measure of which would be reasonable interest upon the sum of Rs. 97,000 for seven months and seven days. We are not in this connection oblivious of the fact that the non-completion of the sale by September, 1945, enabled the Defendant to continue in occupation of a part of the disputed premises and also to rents from the tenants in occupation of the remainder thereof and, taking this fact into consideration, we adjudge the net interest payable by way of compensation at 2 1/2 per cent per annum, on the amount of Rs. 97,000 as set out above. This works out roughly to Rs. 1,465 for the seven months and seven days'' period, above indicated. To this must also be added the sum of Rs. 1,000 admittedly paid by the Defendant to the original brokers out of the settled brokerage of Rs. 8,000 and not received back. As the position now stands, this amount of Rs. 1,000 constitutes out-of-pocket expenses of the Defendant vendor, rendered useless by the Plaintiffs'' default, and, in our opinion, the Defendant is entitled to recover the same from the Plaintiffs by way of damages. As, however, this amount was paid from or out of the earnest money, received from the Plaintiffs, no question of any further compensation or interest upon the same arises. The Plaintiffs, therefore, would be entitled to a refund of the earnest money (Rs. 5,001) less the damages (Rs. 1,465 and Rs. l,000=Rs. 2,465), now found payable to the Defendant, that is, to the net amount of Rs. 2,536 and the suit will be decreed only to that extent and the rest of the Plaintiffs'' claim will stand dismissed.

The result, therefore, is that this appeal is allowed in part, the judgment and decree of the learned subordinate Judge are modified and the Plaintiffs'' suit is decreed only to the extent of Rs. 2,536 out of their claim of Rs. 5,176, the rest of the said claim being dismissed. Having regard to their divided success, the parties will bear their own costs in this Court and also in the Court below.

Das, J.

I agree.