The main legal point established is that the forfeiture of earnest money and relief against penalty clauses in contracts for sale of goods are governed by the principles of equity and the Contract Act. Additionally, the court clarified the application of the limitation period under Article 97 of the Limitation Act to claims for refund in such contracts.

PANIGRAHI, C. J.

( 1 ) THIS appeal raises an Interesting point of law relating to the principle of equity of relief against forfeiture in a contract for sale of goods. The plaintiff-appellant agreed to purchase, and the defendant agreed to sell 200 garces of paddy at Rs. 225/- per garce, and the delivery was to be made between Bhadra Furnima and margasir Purnima of that year. In pursuance of this agreement the plaintiff paid rs. 2000/- on 29-6-1943 the date of the contract, and later on the 1st July 1943, a further sum of Rs. 10,000/ -. He appears to have felt some difficulty in taking delivery of the stocks from the very beginning, owing to heavy rains and transport difficulties. He failed to complete the contract within the stipulated period. On 1-11-1943 the defendant sent a registered notice, alleging breach on the part of the plaintiff and calling upon him to complete the contract by paying up the balance of the purchase-money of Rs. 33,000/- and taking delivery of the paddy from the defendant's granaries at Saleppo by the end of November, 1943, The plaintiff defaulted in taking delivery even by the end of November 1943, and it is said that he did not even reply to the defendant's registered notice. Three years later the plaintiff sent a Pleader's notice on 29-10-1946 calling upon the defendant to refund the sum of Rs. 12,000/- with interest at 12 per cent per annum. He alleged that the contract became void and unenforceable owing to the coming into force of the Orissa Food-grains Control and Movement Order, 1943. The defendant replied to this notice by Ext. 1 (a) dated 19-11-1946, denying any obligation on his part to refund the advance and also claiming damages for the loss sustained by him in reselling the paddy.

( 2 ) AT the trial, the plaintiff did not press his contention based on the provisions of the Orissa Foodgrains Control and Movement Order. Nor did he put in the written contract said to have been executed between him and the defendant. He filed, instead, another contract which was impugned as a forged document, and the matter was not pursued at the trial court. There was no oral evidence adduced, and the only documentary evidence is the registered correspondence that passed between the parties.

( 3 ) THE trial court held that the plaintiff was entitled to a refund of the sum of Rs. 12,000/- as the only right that the defendant had was to sue for damages and not to forfeit the amount paid as advance. He, however, dismissed the plaintiff's claim as it was barred by limitation. In the opinion of the learned Subordinate Judge, article 97, Limitation Act governed the case.

( 4 ) SEVERAL arguments were developed before us by Mr. Rao, learned counsel for the appellant. His main contentions were

(i) That a clause in a contract for forfeiture of earnest money applies only to sale of real property and not to sale of goods; (ii) That such a clause is in the nature of a penalty clause and should be relieved against by Courts of Equity; and (iii) That the only remedy of the defendant is by way of a set-off for the amount of damage sustained by him on account of the re-sale of the contracted paddy, and not by way of forfeiture of the amount deposited.

Learned counsel relied, in particular, on Sections 64 and 74, Contract Act, and contended that the defendant is bound to restore to the plaintiff the benefit that he had received under the contract and refund the amount received as advance.

( 5 ) IT must be observed at the very outset that: there is a difference between the giving of an earnest money with a view to fulfil the contract, and a part-payment made towards the discharge of the contract, though there is nothing to prevent the same payment being both earnest and part-payment. It depends on the intention of the parties as to whether the sum paid was intended to be the one or the other or a combination of both. The deposit serves two purposes. Primarily its purpose is to guarantee that the purchaser means business.