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IN THE HIGH COURT OF JAMMU AND KASHMIR AT JAMMU
A.M. Mir, J.
Jai Ram Vaid - Appellant
Versus
Anant Singh (Major General (Rtd.)) - Respondent
CSA No. 51/1982
Decided On : 23 April, 1992
CONTRACT ACT - SECTION 74 - EARNEST MONEY - FORFEITURE - Whether the amount advanced by the plaintiff to the defendant was earnest money or advance - Whether the defendant was entitled to forfeit the amount - Applicability of Section 74 of the Contract Act.
Fact of the Case:
The plaintiff and defendant entered into an agreement to sell, whereby the plaintiff agreed to purchase two plots from the defendant for a consideration of Rs. 90,500/-. The plaintiff paid Rs. 5000/- as advance Zare-Biana and a cheque of Rs.5000/- at the time of execution of the agreement. The remaining amount of Rs. 80,500/- was to be paid at the time of registration of the document. The plaintiff failed to pay the remaining amount in time, and the agreement fell through. The plaintiff filed a suit for the recovery of the Rs. 5000/- paid as advance, claiming that it was an advance and not earnest money.
Finding of the Court:
The court held that the amount paid by the plaintiff was earnest money and not an advance. The court relied on the definition of earnest money as laid down by the Supreme Court in AIR 1970 S.C. 1986, which states that earnest money is a part of the purchase price when the transaction goes forward, it is forfeited when the transaction falls through by reason of fault or failure of the vendee, and unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest money.
Issues: 1. Whether the amount advanced by the plaintiff was earnest money or advance? 2. Whether the defendant was entitled to forfeit the amount? 3. Applicability of Section 74 of the Contract Act.
Ratio Decidendi: The court held that the amount paid by the plaintiff was earnest money and not an advance, based on the following reasoning: * The agreement to sell contemplated that the amount paid was earnest money, as it was described as "advance Zare-Biana" and was to be forfeited in case of breach by the plaintiff. * The plaintiff failed to establish his plea of insanity, which would have rendered the agreement void. * The plaintiff did not raise any plea or contention that the forfeiture of the amount amounted to a penalty or that the amount forfeited was unreasonable. * The court distinguished the authority cited by the plaintiff, AIR 1970 S.C. 1955, on the ground that it dealt with a security deposit and not earnest money.
Final Decision: The court upheld the judgment and decree of the first appellate court, dismissing the plaintiff's suit. The court held that the plaintiff was not entitled to claim the refund of the Rs. 5000/- paid as earnest money.
2. The pleadings do not throw any light on the nature of money advanced.
3. Facts of the case:
The facts of this case lie in a short compass. By virtue of an agreement to sell dated 28th of Oct. 1970Jai Ram plaintiff respondent agreed to purchase plot Nos. 185 & 186 situate in Gandhi Nagar from Major General Anant Singh the defendant-respondent and an amount of Rs.5000/-in advance was paid as a Zare-e-Biana towards the consideration amount. The agreement, however, fell through and the plaintiff-appellant has brought the suit for the recovery of part consideration advanced at the time of the agreement mainly on two grounds. Firstly, that at the time the agreement was executed, he was incapable of knowing the contents of the agreement as he had lost his mental balance so he was not hound by the conditions of the contract and secondly, the defendant-respondent has not suffered any loss as the value of plot increased and he is not entitled to retain the advance.
4. The defendant-respondent resisted the suit on the ground that it was wholly incorrect that the plaintiff-appellant had lost his mental faculties at the time the transaction with him was struck. The plaintiff was fully competent to understand and appreciate the implications of the agreement to sell and the story about his insanity is completely concocted one. It is further alleged that plots were sold after three months at the same price and since he (defendant) required the money which he did not get from the plaintiff in time and because of the failure of the plaintiff in performing his part of the contract, the defendant suffered some loss which vas not claimed by him from the plaintiff. Since the plaintiff having failed to arrange the payment of Rs. 65,000/- within the time prescribed by the agreement and consequently the sale in his favor not having taken place the defendant was well within his rights to have refused to return the amount of Rs.5000/- received by him. Further it was specifically averred that the plaintiff was not entitled to any relief whatsoever muchless to one in the nature of a decree for Rs.5000/-and the suit being absolutely misconceived deserves dismissal.
5. The parties were put to the following issues:
1. Whether the plaintiff was mentally ill and unfit to understand and enter into any contract at the time of the agreement? OPP.
2. Whether the defendant can forfeit the whole or a part of advance amount of Rs.5000/-? OPD.
3. Relief.
In support of the case, plaintiff-appellant examined Amer Nath, Om Prakash, Surjeet Singh and Dawarika Nath as witnesses. He himself also appeared as his own witness. The defendant-respondent examined Muni Lal as his witness, besides his own statement.
6. I have heard the learned counsel for the parties in extenso and have thoughtfully considered the record and the evidence led and the findings of the two courts below.
ISSUE NO: 1
7. The burden of proof of this issue is on the plaintiff. The courts below returned a concurrent finding on this issue and the same having not been pressed in this appeal assumes the finality.
ISSUE NO: 2
8. The only question which calles for the determination by this court is whether the amount advanced by the plaintiff could be forfeited. On this issue, the trial court after holding the amount to be an advance and not earnest money returned a finding that the same could not be forfeited and accordingly passed a decree in favour of the appellant-plaintif
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