R.M.K. Venkataperumal Naidu vs The Thiruppuvanam Panchayat Board, Thiruppuvanam

Govinda Menon, J.—It is a misnomer to call the amount of Rs. 500, deposited by the plaintiff for the due performance of the contract as

earnest money. There is no question of any vendor or purchaser in the case. What the plaintiff agreed with the defendant was that he would

construct a bus stand on a land belonging to him and after doing so lease out the building to the Panchayat Board on a rent of Rs. 200 per year.

After some procrastination it was found that the plaintiff did not perform the original contract. Later on he wrote to the Panchayat Board stating

that for the due performance of the contract he would deposit a sum of Rs. 500. Even in the correspondence which followed this agreement, there

is nothing to show that in case the plaintiff did not build the bus stand within the time allowed to him the amount of Rs. 500 paid by him would be

forfeited.

In -- ''Chiranjit Sing v. Har Swamp AIR 1926 PC 1 (A), Lord Shaw lays down,

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."" From this it is clear that the appositeness of the term ""earnest money"" is applicable only where there is a contract of

purchase and sale. In --''Rattamma v. Krishna murthi AIR 1928 Mad 329 (B), a Bench of this Court consisting of Devadoss and Jackson JJ. have

laid down,

A sum of money paid as advance by the purchaser to the vendor in respect of the sale of goods can be recovered by the purchaser, even though

the transaction of sale fell through owing to the purchaser''s default, unless the vendor proves a contract express or implied that the money paid as

advance should be treated as security for the purchaser''s fulfilment of the bargain and as such liable to be forfeited on his default.

From this decision it is clear that there should be an agreement of forfeiture in default, and, such a thing cannot be implied from the fact of mere

failure to perform the contract. It is clear from the correspondence that there is no clause of forfeiture in case of failure to perform the contract.

Certainly if so advised the defendant is at liberty to fife a suit for damages against the plaintiff for the non-performance of the contract. But the fact

that they have a remedy of filing a suit for specific performance or damages would not entitle them to keep in hand the money paid as advance

without a clause of forfeiture. In these circumstances the lower Court''s view that the sum of Rs. 500 need not he returned to the plaintiff cannot be

justified in law.

So far as Rs. 280 is concerned, Mr. Ramaswami Aiyangar is not able to justify his client''s claim on any legal basis. That has to be disallowed.

I therefore set aside the decision of the lower Court dismissing the suit and pass a decree in favour of the plaintiff for a sum of Rs. 500 without

any interest or costs. The civil revision petition is allowed to this extent.

As regards the right of the defendant to sue the plaintiff for damages for failure of the contract I do not express any opinion in this matter. Each,

party, will bear his costs throughout.