S.B Sinha, C.J:— Questioning the correctness of a Division Bench decision of this Court in Captain S.M Ansari… (Plaintiff); v. Dr. Vejendla Subba Rao… (Defendant). (1975) 2 APLJ (HC) 136 a Division Bench presided over by one of us (Bilal Nazki, J.) referred this letters patent appeal to the Full Bench.
2. The fact of the matter lies in a very narrow compass. The defendant is the appellant. On 17-9-1974 the parties entered into an agreement in terms whereof the plaintiff respondent agreed to purchase two rolling machines from the defendant for a sum of Rs. 53,000/-. Prior thereto the plaintiff had inspected the said two rolling machines and paid a sum of Rs. 10,000/- each on 17-9-1974 and 28-9-1974, the defendant was required to deliver the machines upon the receipt of the balance amount of Rs. 33,000/-. The plaintiff made an allegation to the effect that after a month he found that the machines which were inferior and worn out, were sought to be sold in place of machines which were agreed to be sold. He made his protest and asked for refund of Rs. 20,000/-. A notice dated 8-6-1977 marked as Ex. A.2 was issued by the plaintiff wherein the said sum of refund was claimed with interest at 12% per annum. The defendant sent a reply dated 20-6-1977 disputing the allegations made therein and he expressed that he is ready and willing to deliver the mahcines against the pyment of balance of purchase price of Rs. 33,000/- together with interest from the expiry of one month from the date of contract and that the contract cannot be unilaterally cancelled or rescinded by the plaintiff.
3. The plaintiff respondent filed a suit on 20-9-1977 for refund of the said amount of Rs. 20,000/- together with interest. The learned trial Judge framed inter alia the following issue which is relevant for the purpose of answering the reference.
Whether the plaintiff is entitled for refund of the advance paid?
4. The learned Trial Judge after going through the material evidence on record held:
The evidence of D.W 2, P.W 2, Ex. A.1, very clearly show that both parties agreed that this Rs. 20,000/- shall be part of the said consideration and they never intend to treat it as earnest money. If the amount paid already is not part of sale consideration than the balance would not be Rs. 33,000/- as the total price is admittedly Rs. 53,000/-. So I have no hesitation to come to the conclusion that this amount of Rs. 20,000/- is part of the sale consideration and is paid in advance and the parties never forfeit it on the happening or non-happening of ah event. There is no clause in Ex. A.1 or in the oral agreement of P.W 1 and D.W 2 that the amount can be forfeited. So in view of the rulings relied by the plaintiff even though the breach is on the part of the plaintiff he would be entitled to refund of the amount, or it is part of sale consideration and was paid in advance.
5. Despite the aforementioned finding, the suit was decreed directing the defendant to refund the said sum of Rs. 20,000/- together with interest at the rate of 12% per annum. On appeal the learned single Judge affirmed the judgment, but modified the decree by reducing the rate interest to 6%.
6. In the letters patent appeal before the Division Bench, the decision of Privy Council in Chiranjit Singh v. Har Swarup, AIR 1926 PC 1, was referred for the proposition that as the defendant had all along been ready and willing to perform his part of contract, he has not committed any breach therein and that no decree could have been passed.
7. The counsel appearing for the plaintiff-respondent relied on the decision in Captan S.M Ansari (supra). Having regard to the divergence of judicial opinion as noticed hereinbefore, the matter has been referred to this Bench.
8. The relief for specific performance of contract is based on equity. Only because, the suit can be decreed, the same by itself may not entitle the plaintiff to obtain a decree. In the instant case, a finding of fact has been arrived at to the effect that allegation that the defendant had changed the rolling machines was not correct. A further finding of fact has been arrived at that the plaintiff himself had committed breach of contract.
9. The learned counsel for the respondent however has placed reliance upon large number of judgments to the effect that as the defendant had accepted the repudiation of the agreement and he has not filed any suit for damages which remedy was available to him and in that situation, the defendant cannot be permitted to retain the part of consideration paid to him by the plaintiff. Reliance has been placed on the decisions in De-Smet (India) Private Ltd.… v. B.P Industrial Corporation (P.) Ltd.…. AIR 1980 All 253 and State v. M.K Patel & Co. AIR 1985 Gujarat 179.
10. In Chiranjit Singh (AIR 1926 PC 1) (supra). Lord Shah in almost in a similar situation observed:
In the opinion of the Board, as mentioned, the original, contract of sale was not superseded. It was carried forward with the modifications alluded to, and in particular there is nothing to suggest that the owner of the estate agreed to sacrifice the stipulated earnest.
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.
The application of this principle to the contract in question settles the case.
11. In Harihara Iyer v. Mathew George, AIR 1965 Kerala 187, a learned single Judge of Kerala High Court referring to the provisions of S. 39 and 64 of the Indian Contract Act, held that the respondent's claim for refund of the consideration can arise only on rescission of the contract by the appellant.
12. The aforementioned decision was considered by a Division Bench of this Court in Capatan S.M Ansari (1975 (2) APLJ (HC) 136) (supra) wherein the issues framed were as follows:
1. Whether the suit contract is vitiated by fraud and misrepresentation as alleged in the plaint.
2. Whether the plaintiff is entitled to rescind or repudiate the suit contract.
3. Whether the suit as framed is not maintainable?
4. Whether the plaintiff is estopped from filing the suit?
5. Whether the suit is barred by time?
6. Whether the plaintiff isentitled to any of the reliefs prayed for?
13. The suit was dismissed by the trial Court on the ground that the party who committed breach of contact could not claim to be repaid part of the sale consideration which he had paid to the other party unless and until the other party rescinded the contract. The Division Bench upon relying various decisions came to the conclusion that even in a case where the purchaser himself is in default, he would be entitled to recover the purchase price. It was observed that finding of fact so arrived at to the effect that the unequivocal conduct on the part of the defendant gives life to his case that he was ever ready and willing to perform his part of the contract as deposed to by him. The ratio of the decision in Harihara Iyer (AIR 1965 Kerala 187) (supra) was not dissented to, but the same was distinguished on facts holding:
In that case, the question that arose before the learned single Judge was whether the respondent in the appeal who had committed breach of the contract was entitled to recover from the appellant who not only was ready and willing to perform his part of the contract, but also insisted upon the respondent doing likewise. The learned Judge opined that the respondent before him was a defaulter and was not entitled to recover what he had paid under the contract to the appellant, who still held on to the contract and was ready and willing to perform his part. The decision was based upon the fact that the appellant was throughout ready and willing to perform his part of the contract. The decision, therefore, turned upon the particular facts of that case. It cannot be of any assistance to the defendant respondent in this case for the reason that it cannot be said on the facts that he was ready and willing to perform his part of the contract as he has put himself in a position not to be able to perform it. He put a third party in possession of the property. That apart in the instant case, as pointed out earlier by us the defendant after the suit was filed had neither alleged nor proved any damage to himself either putting forward a plea of set off against the plaintiff for damages which he should have done. He did not also institute a separate suit in this behalf. We had expressed earlier our conclusion that he had accepted the repudiation by the plaintiff. In such circumstances, we fail to see how the decision of the Kerala High Court, helps the defendant as it has no analogy to the facts of the present case.
14. We therefore do not see any conflict in the opinion of the Kerala High Court and this Court in the aforementioned decisions. Both the decisions proceeded on the basis that the plaintiff would be entitled to a decree for refund of amount, in the event, the defendant has accepted the repudiation of the contract by the plaintiff.
15. In De-Smet (India) Pvt. Ltd. (AIR 1980 All 253) the Court proceeded on the doctrine of unjust enrichment holding:
However, the observation that it is necessary for the plaintiff to show with reasonable degree of certainty that there is such an excess and its amount in order to get the judgment does not mean that it is for the plaintiff to establish by positive evidence a fact which is in the special knowledge of the defendant, namely the precise damage which has been suffered by him. In such cases, the plaintiff discharges the burden by proving the benefit conferred by him on the defendant and stating that to his knowledge the defendant has not suffered any harm. If he does so he succeeds in showing with a reasonable degree of certainty that there is an excess of benefit received over the harm suffered by the defendant and also its extent. However, if the defendant succeds in showing that the extent of the harm suffered by him was more than what had been admitted by the plaintiff he would be able to contest the plaintiffs case for such restitution to the extent it is not in excess of the benefit over the harm suffered by him. It cannot be accepted as a proposition of law that the plaintiff has to prove by positive evidence a fact which cannot be in its knowledge and which is in the special knowledge of the defendant.
It was further observed:
Merely because the defendant manufactured equipment amounting to rupees 1,26,360.30 as claimed by it does not mean that the defendant was entitled to recover that amount as also to retain the equipment. The defendant could on this account only recover the difference between the money spent by it on the manufacturing of those equipments and the price which those equipments would fetch if they were disposed of in the market in the ordinary course. There being nothing on the record to show either that such equipments were not disposable or as to what happened to them, it cannot be said that the defendant has succeeded in proving that it suffered any loss much less a loss to the extent of Rs. 1,26,380/- by manufacturing those equipments.
16. The said decision therefore proceeded on a different factual matrix and the question which was raised herein did not arise therein.
17. In M.K Patel & Co. (AIR 1985 Gujarat 179) whereupon the learned counsel for the respondent had strongly relied upon, the question which falls for our consideration did not arise therein. Therein the case centered round on the right of the defendant as regards the quantum of damages.
18. In R.V Ward Ltd. v. Bignall (1967) 2 All. ER 449 while considering S. 48(3) of the Sale of Goods Act, 1893, it was held by Lord Diplock. J.:
Rescission of a contract discharges both parties from any further liability to perform their respective primary obligations under the contract, that is to say to do thereafter those things which by their contract they had stipulated that they would do. Where rescission occurs as a result of one party's exercising his right to treat a breach by the other party of a stipulation in the contract as a repudiation of the contract, this gives rise to a secondary obligation of the party in breach to compensate the other party for the loss occasioned to him as a consequence of the rescission, and this secondary obligation is enforcecable in an action for damages; but until there is rescission by acceptance of the repudiation the liability of both parties to perform their primary obligations under the contract continues. Thus, under a contract for the sale of goods which has not been rescinded the seller remains liable to transfer the property in the goods to the buyer and to deliver possession of them to him until he has discharged these obligations by performing them, and the buyer remains correspondingly liable to pay for the goods and to accept possession of them.
The election by a party not in default to exercise his right of rescission by treating the contract as repudiated may be evinced by words or by conduct. Any act which puts it out of his power to perform thereafter his primary obligations under the contract, if it is an act which he is entitled to do without notice to the party in default, must amount to an election to rescind the contract. If it is an act which he is not entitled to do, it will amount to a wrongful repudiation of the contract on his part which the other party can in turn elect to treat as rescinding the contract.
19. In Ross T. Smyth & Co. Ltd. v. T.D Bailey, Son & Co. (1940) 3 All ER 60 the House of Lords considered the question of waiver of breach by mere act of sending the amended invoice which was no more than an attempt by the sellers to meet the buyers' objection.
20. Therefore, having regard to the finding of fact arrived at by the learned Trial Court as affirmed by the learned single Judge, there cannot be any doubt whatsoever that the plaintiff cannot claim refund of the amount as the defendant had all along been ready and willing to perform his part of contract. He has not either expressly or by necessary implication accepted the repudiation on the part of the plaintiff. We are therefore of the opinion that the Courts below proceeded on a wrong premise. Hence, the decree passed by the learned trial Judge is set aside. The suit is dismissed and the L.P.A is accordingly, allowed. No costs.
Appeal allowed.