The prepayment of purchase money at the time of the contract for sale must be refunded to the buyer if the sale does not take place, and proof of actual damage is required for entitlement to damages.

M. Madhavan Nair, J.

1. These two cases have arisen out of a contract of sale between Kunchi Amma and her husband Kuttikrishna Menon on the one part and Kannan Menon on the other. The contract for sale is evidenced by a letter, Ext. P. 1, in the case. It is dated December, 1, 1955. It shows that the parties have agreed for a sale and purchase of the suit property for a sum of Rs. 6,500/- and that a sum of Rs. 300/- has been paid and the remainder should be paid on the execution of a conveyance within a week thereof. Admittedly, the sale did not take place either within the stipulated period or "thereafter. On 13-7-1956 the buyer made demand to the vendor for return of the advance paid by him under Ext. P. 1 as also for damages to the extent of Rs. 100/- for the breach of contract for sale. The reply of the vendor dated 19-7-1956 is proved in the case as Ext. P. 2. There the vendor attributed the breach of contract to the buyer and claimed damages to the extent of Rs. 1,000/-. The buyer instituted the suit, O. S. No. 32 of 1957, for return of the advance and for damages to the extent of Rs. 100/- on 9-2-1957; which was soon followed by another suit by the vendor, O. S. No. 54 of 1957 instituted on 26-2-1957, claiming damages to the extent of Rs. 1000/- for the breach of the contract for sale and praying for a decree to recover Rs. 700/- after setting off Rs. 300/- outstanding with him as the advance paid under Ext. P. 1. During trial the buyer withdrew his claim for damages made in O. S. No. 32 of 1957 and confined his prayer to a return of the advance paid by him. The Munsiff decreed return of the advance by the buyer, and dismissed the vendor's suit for damages. On appeal, the District Judge reversed the same dismissing O. S. No. 32 of 1957 and allowing O. S. No. 54 of 1957 to the extent of Rs. 100/- as damages besides making a declaration that the advance paid has been forfeited. The C. R. P. No. 801 of 1958 is by the vendee pressing for a return of the advance paid by him and S. A. No. 799 of 1958 is also by him against the decree allowing forfeiture of the advance and the award of damages against him. A cross objection has also been preferred by the vendor in the Second Appeal claiming Rs. 100/- more as damages from the vendee.

2. Ext. P. 1 does not refer to any deposit or earnest. All that it mentions is that the price of the property having been agreed between the parties at Rs. 6,500/- and Rs. 300/- having been paid the conveyance would be executed and the balance paid within a week of its date. The contention is that this advance paid on the date of Ext. P. 1 was nothing but earnest or a security deposit. I could not find any provision or even an indication in Ext. P. 1 that warrants that inference. A mere prepayment at the time of a contract for sale does not automatically become an earnest or a deposit by way of security for the performance of the contract. Counsel for the vendor relied on Puran Chand v. The Official Liquidator, Simla Banking and Industrial Co. Ltd. (A. I. R. 1960 Punjab 51) which concerned the provisions of a proclamation for sale issued by the Official Liquidator with the express conditions of the sale that on acceptance of a bid the buyer should deposit one-fourth of the purchase money and the remaining three-fourths within 15 days of the intimation of confirmation of the sale by the High Court, in default of payment of which "the earnest money of one-fourth shall be forfeited." The initial deposit of one-fourth of the purchase money was clearly a deposit of earnest which will be given credit to in the purchase money if the sale was completed. To this extent it partakes of the nature of a part payment of the purchase money itself. A payment by way of earnest or deposit is primarily one of security for the performance of the contract, liable to be forfeited on breach thereof, while a mere prepayment of part of the purchase money is liable to be refunded if the sale does not take place. The le