Kemp, A.C.J:— This was a suit by the plaintiff for specific performance of an agreement to sell to him certain immovable property and, in the alternative, for return of his deposit. The learned trial Judge, Fawcett, J., held that the plaintiff, the buyer, had committed breach of the contract, but, whilst treating the amount of deposit as a penalty under Section 74 of the Contract Act he came to the conclusion that the amount of deposit, Rs. 4,300, was not an unreasonable amount of compensation to be awarded to the vendor under that section. He saw no distinction between the case of a deposit or earnest money and the case of a penalty for breach of contract. From that decision the plaintiff prefers the present appeal and he asks us to say that the amount of deposit comes within Section 74 of the Contract Act, and that, under the circumstances of the case and having regard to the severe nature of the conditions of sale, the Court should deal equitably in the matter and allow him to receive back the amount of his deposit, and he points to the fact that on the resale of the property the vendor sustained no damage but on the contrary actually made a small profit.
2. I now turn to the conditions of sale. It is true that these conditions are extremely severe, but, presumably, the plaintiff agreed to them with his eyes open. Condition 4 requires a deposit of twenty-five per cent of the amount of the purchase price and stipulates that it shall be paid as soon as the property is knocked down to the purchaser. No time was fixed for completion, but this, for the purposes of this appeal, is immaterial. Condition 21 then proceeds to state that:
“if the purchaser shall fail to pay the balance of the purchase price in or about the time specified (and in the present case the time was fixed by a notice given by the vendor to the vendee), or in other respect shall fail to observe and perform these conditions or any of them, his deposit money shall be forfeited and the vendor shall be at liberty to resell.”
3. The contract is dated 30th November 1927, and so far as the deposit is concerned it proceeds to state:
“I have paid the sum of Rs. 4,300 by way of deposit and in part payment of the purchase price to the vendors.”
4. Here I may pause to remark that the words in part payment have no effect to bring into operation the application of those authorities which say that where instalments or part of the price are to be forfeited on breach of the contract such a clause is a penalty under Section 74 of the Contract Act, or under the decided cases in England. The words in the contract mean that the sum of Rs. 4,300 is retained as a deposit and a guarantee of performance by the buyer and that once the contract is completed the “earnest” becomes a part of the purchase price. The reason is obvious for, were it not so, the deposit might have to be handed back to the buyer and recovered again as part of the price from the purchaser, whereas if the earnest is made part of the price it can be treated on performance as a part-payment and need not be returned to the buyer. I think the point which is raised before us is too clear for argument and had it not been for the fact that the learned trial Judge made no distinction between a penalty and a deposit or “earnest” probably we would have seen nothing of this appeal. Among the authorities referred to by us are certain Bombay decisions which were not cited before the learned trial Judge. Had they been cited before him, he would, possibly, have taken a different view of the case.
5. The decisions to which I refer are those in Burjorji v. Jamshed (1), which was reversed by the Privy Council note on the question of the return of the deposit but on the question whether in that case time was of the essence of the contract. Similarly, there are the decisions in Ibrahimbhai v. Fletcher (2) and Balvanta v. Bira (3), which are equally binding here as to the law on this point. These are all authorities-which should be followed to decide the point. The trial Judge was bound to follow them: see the observations of Turner, L.J in Peruvian Railways Co. v. Thames and Mersey Marine Insurance Co.: In re, Peruvian Railways Co. (4) and the judgment of our appeal. Court in Mercantile Batik v. Mascarenhas (5). These decisions have established the law relating to such deposits in contracts for the sale of immovable property. It is important that there should be as little uncertainty as possible in contracts relating to the sale and purchase of land and parties who have contracted on the assumption that the law is settled should not be left to discover later that it is not. Probably there are at this moment many contracts outstanding in which such a clause relating to deposit has been inserted on the assumption that the law in this Presidency is settled and these would all be disturbed if a different view of the law were taken by us now. The principle of stare decisis is especially important in the case of contracts relating to land.)
6. But apart from this the law on the; point is clear. In Kunwar Chiranjit Singh v. Har Swarup, A.I.R 1926 P.C 1 their Lordships say (p. 2):
“Earnest money is pact of the purchase price when the transaction goes forward: it is forfeited when the transaction falls throught by reason of the fault or failure of the vendee.”
7. Turning to the law in England we have a series of decisions showing that a deposit by way of earnest in a contract for the sale of land is distinguishable from a penalty for breach of the contract. The cases cited to us by the appellant's counsel are all cases in which either an instalment of the price or a part payment was by the terms of the contract to be forfeited on breach by the purchaser. If any authority be needed to shows what the law in England is, it may be found in the passage in Halsbury, Vol. 25, p. 398, para 681, which was cited to us by respondents' counsel. There it is clearly laid down that there is a distinction between a deposit and a penalty. This distinction was referred to by the majority of the Bench in the case of Bishan Chand v. Radha Kishan Das (6), where it was stated that a deposit is a payment actually made or advanced and therefore Sections 73 and 74 of the Contract Act, have no application in such a case and are not intended to apply to it. These sections show what is the compensation to the seller, who is not responsible for the breach. They contemplate a case in which he is seeking to recover compensation for the breach. They do not contemplate a case in which a sum of money has been paid by way of earnest. Nor is the Contract Act necessarily exhaustive: see P.R & Co. v. Bhagwandas (7).
8. Furthermore, it is to be noted that in this particular contract there was a specific condition of the sale by auction that the deposit was to be forfeited in case of default by the purchaser and we think that such a clause is not unreasonable and must be given effect to. Our own High Court rules regarding the sale by the Sheriff's office (R. 391) specifically allow a deposit to be forfeited and the mere fact that the word “may” is used in that rule cannot be taken to mean that only such sum out of the deposit can be forfeited as the Court may think proper as damages following the failure of the buyer to complete the sale. Under the circumstances, I think the deposit should be forfeited and I would confirm the decision of the trial Judge but not for the same reasons so far as the deposit is concerned and dismiss this appeal with costs.
Murphy, J.:— The only point made in this appeal is that the learned Judge who tried the suit should have relieved the appellant against the forfeiture of twenty-five per cent of the amount of his bid on his failure to complete the transaction within the time stipulated and that he was wrong in finding that the forfeiture of this twenty-five percent was a reasonable compensation to the respondents for breach of the said contract.
9. In the learned trial Judge's view Section 74 of the Contract Act, was applicable as in his opinion the condition in question was in the nature of a penalty. S. 74 does not in terms deal with cases of such payment of earnest money or deposit. The nature of such payments has been stated in numerous cases cited in the course of the argument before us, and there is no doubt that they are in the class of security for the performance of the contract, and part payment, of the purchase price, on completion of the transaction. I think that in the first place it cannot be held that a forfeiture of this amount is unreasonable in the circumstances of the case. Such a forfeiture is provided for in R. 391, High Court Rules, in cases of sales held by the Sheriff under the orders of this Court, and also under O. 21, R. 86 of the CPC. In both these cases the amount of deposit made may be forfeited at the discretion of the Court. Apart from these parallel cases the facts of this one are covered by the cases of Natesa Aiyar v. Appavu Padayachi (8), Ibrahimbhai v. Fletcher , Balvanta v. Bira and Nadiar Chand Guin v. Satish Chandra Sukal (9), and I think that the learned trial Judge's decree is correct, and agree that this appeal must be dismissed with costs.
J.M/R.K
10. Appeal dismissed.