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Gujarat High Court
Judgename :J.N.Bhatt
THAKORLAL V.PATEL - Appellant
Versus
LT.COL.SYED BADRUDDIN - Respondent
C.A. 658 of 1980
Decided On : 09/07/1992
Time will not be considered to be of the essence unless : -
(a)
the parties, expressly, stipulate that conditions as to time must be strictly complied with, or
(b)
the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or
(c)
a party who has been subjected to unreasonable delay gives notice to the party in default for making time of the essence.
[Para 10]
Mere incorporation in the written agreement of a clause imposing penalty is not the case of the time being the essence of contract. The intention to make time of the essence, if expressed in writing, must be in language which is unmistakable. Simply because a specific date is mentioned in the agreement for completion of contract and a party to that contract commits a mistake to complete the work on the stipulated date, it does not give option to the other party to avoid contract.
[Para 11]
Intention to make the time to be of essence may be gathered if expressed in writing by the language of the agreement. The language of the agreement must show in unmistakable terms that the intention of the parties was to make their rights dependent upon the observation of the time limit. Intention may also be inferred from the nature of the property to be sold and conduct of the parties and the surrounding circumstances at or before the contract. Where the property to be sold is immovable property it would, normally, be presumed that the time was not essence of the contract.
[Para 12]
Contract Act, 1872 - Sec. 55 - Time as essence of contract - Finding of - Trial Court considered stipulation of time of three months in contract and then extension of time and sending of draft of Rs. 10,000 in extended time errorneously as circumstances to indicate that the parties intended to treat time as essence of contract - Finding set aside.
The three circumstances would not indicate that the parties intended to treat time as essence of contract. Fixation of period within which the contract is to be performed does not make stipulation as time of the essence of contract. Mere factum that the plaintiff sought and got time prescribed extended is not indicative of the intention of the parties to treat time as essence of contract. On the contrary, extension of time prescribed in contract would go to show that the parties did not intend to treat time as essence of contract. Likewise, sending of draft of Rs. 10,000 in the extended time by the plaintiff and decline to repudicate the contract after expiry of the extended time on his part would not, ipso facto, go to show that the parties intended to treat time as essence of contract. Intention to make time as the essence of the contract may be evidenced by other express stipulation or by circumstances which are sufficiently strong to displace the normal presumption that in a contract of sale of land stipulation as to time is not the essence of the contract. In the case on hand, there are no circumstances indicating that it was the intention of the parties that the time was intended to be the essence of the contract. On the contrary, some of the clauses in the agreement of sale, at Ex.38, would go to show that the parties did not intend to treat time as essence of the contract.Therefore, considering the circumstances of the case and the terms and conditions of the agreement to sell, at Ex.38, the conduct of the parties would not go to show that the intention of the parties was to make time as essence of contract in respect of the suit land. With due respect, the learned trial Court Judge has committed, serious, error in holding that the time was the essence of contract.
[Para 14]
Contract Act, 1872 - Sec. 74 - Compensation for breach of contract where penalty stipulated for - Forfeiture of earnest money - It is not in the nature of penalty and shall be governed by law governing the earnest money alone unless same is unreasonable exceeding the penalty stipulated for.
The doctrine of forfeiture in the matter of earnest money is based on a principle, totally, different from the consideration that are laid down under Section 74 of the Contract Act. However, if the amount agreed to be forfeited in case of breach of contract is unreasonable, then the provisions of Section 74, as aforesaid, would come into play. Where it is stipulated in agreement that what has been paid in advance towards the contract is nothing but the earnest money as understood in law then the law governing the earnest money alone is applicable and not the principles of restitution, penalty or damage, subject to the amount of earnest money being reasonable in the circumstances of the given case.
[Para 20]
Contract Act, 1872 - Sec. 74 - Forfeiture of earnest money - Validity of - No plea raised and no issue framed that amount was unreasonable - Earnest money is part of purchase price when transaction goes forward - By reason of the fault or failure of vender that transaction falls through - Forfeiture of earnest money as stipulated in agreement not illegal.
No such specific plea was raised in the trial court. Consequently, no any specific issue is framed in this behalf. In absence of any specific plea regarding the unreasonableness of the amount to be forfeited in the event of breach of contract and also in absence of any other evidence on record, there is no reason to interfere with the finding of the trial court that the plaintiff is not entitled to recover the said earnest money of Rs. 10,000 as he committed breach of the contract.
[Para 23]
The amount of Rs.10,000 paid by the vendee/plaintiff to the vendor/defendant is, admittedly, an amount of earnest money and earnest money is nothing but a part of 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. This proposition is very well settled.
[Para 22]
Based on the provided legal document, the key facts relevant to the case are as follows:
In summary, the facts revolve around a land sale agreement, the breach by the plaintiff in failing to pay the remaining purchase amount within the extended period, and the legal implications of whether time was of the essence, and whether the forfeiture of earnest money was justified.
( 1 ) A few vital and significant points have surfaced in this First appeal, arising out of contractual relationship between the parties and alleged breach of the contract, and, therefore, submissions are made and heard at a Marathon length.
( 2 ) IN this Civil Appeal under Sec. 96 of the Code of Civil Procedure ("code" for short), the original plaintiff-appellant has assailed the judgment and decree passed in Special Civil Suit No. 46 of 1974 by the Civil Judge (Senior Division), Baroda, on 28/11/1979.
( 3 ) A short resume of the facts leading to the rise of the present appeal, may be stated, at the out set so as to appreciate the merits of the appeal and the cross-objections and challenge against them.
( 4 ) THE present appellant is the original plaintiff and the present respondent is the original defendant, who are hereinafter referred to as the plaintiff and the defendant for convenience sake.
( 5 ) THE plaintiff instituted the above suit for the recovery of an amount of Rs. 24,000. 00 with running interest at the rate of 9% per annum from the date of the suit till the date of payment, alongwith cost. The plaintiff entered into an agreement of sale, dated 20-10-1971, with the defendant to purchase land situated, at Nagarvada, Baroda, admeasuring about 10,000 sq ft. , being a part of the City Survey No. 2-3, 26, 75 and 135 of Tikka No. B 10/48 and 10/5 of Baroda District, at Baroda (hereinafter referred to as "the suit land" for brevity sake ). The plaintiff paid to the defendant an amount of rs. 10,000 by way of earnest money. According to the terms of the agreement to sell, the defendant was to pass a sale deed, after making his title clear and marketable. The plaintiff, inter alia alleged that the defendant could not make his title clear and marketable in respect of the suit land and was unable to produce a certificate under Sec. 230-A of the Income-tax Act, 1961. As per one of the terms of the agreement to sell, the sale was to be completed within three months time from the date of execution of agreement. The said agreement to sell, dated 28-10-1971, was produced at Ex. 38. The period of three months was to expire on 28-1-1972. The parties met, at Bombay, on 20-1-1972 and negotiated. Pursuant to the discussions and negotiations, the parties agreed for the extension of the date of final payment, by another three months, from the date of the first agreed date. In other words, final payment was now to be made by the purchaser within six months of the signing of the agreement to sell. However, the said extension of period for final payment, was subject to following two conditions : (i) that the purchaser (plaintiff) shall pay Rs. 10,000. 00 by 29-1-1972 and that he shall further pay an amount of Rs. 10,000 by the end of february, 1972; and (ii) that the amounts had to be adjusted towards the sale price of the suit land agreed between the parties. This is very evident in the letter, Ex. 88, dated 21/01/1972, written by the seller (defendant) to the purchaser (plaintiff ).
( 6 ) THERE is no dispute about the fact that an amount of Rs. 10,000 was paid by the purchaser to the seller before the stipulated date of 29- 1-1972, as per the agreement for extension. It is also an admitted fact that the remaining amount of Rs. 10,000 was to be paid by the buyer to the seller on or before 28-1-1972, as per the agreement for extension but the same has not been paid so far. There was exchange of correspondence between the parties and each one tried to throw the blame on the other for breach of the contract. Later on, the purchaser-plaintiff communicated to the sellerdefendant, by writing a letter dated 2-5-1972, produced at Ex. 73, that since the title in respect of the suit land was not clear and marketable, he (plaintiff) was not interested to buy the suit land. It was also requested by the purchaser, in the same letter, to return the deposited amount of Rs, 20,000 (Rs. 10,000 + Rs. 10,000) with interest. Subsequently, there wa
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