Decided on July 06,1964

SUBRAN Appellant


- (1.) The respondent sued principally for the return of a sum of Rs. 150/- advanced by him under an agreement to buy 5 candies of coir from the appellant first defendant, and the second defendant who is no party to this appeal. It has been found by the Additional District Judge in appeal, negativing the contentions of the appellant and differing from the Munsiff, that the agreement was in fact entered into by the respondent and not by one Avara, Pw. 2, on behalf of an undisclosed principal. This finding is amply supported by the evidence of Pws. 1 and 2, which I see no reason to reject. I also believe, that the appellant accepted payment of Rs. 35/- directly. The case that Avara agreed, that the sum of Rs. 150/- may be appropriated towards damages stands wholly unproved. The concurrent findings of the courts below, that the respondent committed breach of the agreement must of course stand and it is on them, that the respondent's right to recover must be adjudged.
(2.) The contention of learned counsel for the appellant that every payment made under, or in connection with, an agreement for sale is in law a deposit, or earnest money as it is called, is wholly untenable. In 1964 KLT 546 I had occasion to observe, that what distinguishes a deposit or earnest money is the underlying objector intention of the buyer to assure the seller by the deposit he makes, that he is in earnest or is sincere in the deal and that he guarantees due performance of the agreement on his part. The law in England is stated thus in Halsbury's Laws of England, 3rd Edition, volume 34, page 118, S.189: "Part of the price may be payable as a deposit. A part payment is to be distinguished from a depositor earnest." In Dies v. British and International Mining and Finance Corporation Limited, 1939 (1) KB 724 at p. 743, Stable, J. quoted as follows from Benjamin on Sale, 7th edition, page 989: "In ordinary circumstances, unless the contract otherwise provides, the seller, on rescission following the buyer's default, becomes liable to repay the part of the price paid". and observed: "If this passage accurately states the law as, in my judgment, it does, where the language used in a contract is neutral, the general rule is that the law confers on the purchaser the right to recover his money, and that to enable the seller to keep it he must be able to point to some language in the contract from which the inference to be drawn is that the parties intended and agreed that he should". In Chiranjit Singh v. Har Swarup AIR 1926 PC 1 Lord Shaw observed, that "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", and gave a decree in these terms: "The purchaser must, having broken the contract, lose his earnest money of Rs. 20,000, but must be repaid Rs. 1,45,000, the balance of his payment to account". In Varadaraja Perumal Koil v. V. Muniappa Pillai AIR 1929 Mad. 817 a payment by deposit or earnest money, was said to consist of two elements, one a part payment of the price and the other, money staked, the latter serving to create an apprehension in the mind of the buyer, that should he default in the performance of the agreement, he would stand to lose the money staked. P. Paranchukutty v. Dharmashi Madhavji Visram 1957 KLT 950 is a decision by a learned Judge of this court which is in point. These are sufficient, in my opinion, to illustrate the distinction.
(3.) In Desu Battamma v. Kakaranarthi Krishna Murthi AIR 1928 Mad. 326 it was held, that where the vendor neither alleges nor proves that the advance is earnest money it is to be treated as mere purchase money. This decision lays down the rule as to burden of proof in such cases. The following passage from Mayne and Mogregor on Damages, 12th edition, page 236 affords the principle on which the rule is based: "If there is no agreement, whether express or implied, that money paid shall not be returnable on default, then nothing in the nature of agreed-liquidated damages exists in the contract and the defaulter is entitled, if the other party rescinds on the basis of the default and does not keep the contract open and available for performance, to recover the money he has paid over in part performance in an action for money had and received." The appellant did not hold on to the agreement, notwithstanding the breach committed by the respondent and instead accepted the breach as virtually discharging the agreement and resold the goods to another. This amounts to rescission of the agreement with the respondent. If the payment to the appellant was not a deposit or as earnest, he has to return the money received, subject of course to whatever claim he may have for damages against the respondent.;

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