Madan Mohan v. Jawala Parshad

Kapur, J.:— This is a plaintiff's appeal against the judgment and a decree of a learned Subordinate Judge 1st class Delhi, dismissing the plaintiff's suit for damages for breach of a contract of sale of immovable property. On 23rd September, 1944, Jawala Parshad defendant agreed to sell to Madan Mohan a building consisting of a house with two shops bearing Nos. 10087-10093 for a sum of Rs. 34,000. A receipt was executed which evidence the payment of Rs. 99 by the plaintiff to the defendant as earnest money. It is recited in the receipt “I have received in cash Rs. 99 … in advance from the said vendee in token of confirmation of the transaction and executed this receipt for the money so that it may serve as an authority”. On 17th November, 1944, the plaintiff paid another sum of Rs. 2,901 and described it as cash out of sale price fixed and on the same day a registered agreement was entered into by which the defendant agreed to give vacant possession of that property which was in his possession and to get the tenants in other portion of the property to attorn to the plaintiff and this was to be done within three months and the sale deed was then to be executed and in default the plaintiff was entitled to damages of Rs. 6,000. By an agreement dated 14th February, 1945, the time was extended by another three months so that the possession to be given in May 1945 and the other conditions remained the same. It may be mentioned here that by the previous agreement the plaintiff agreed to bear the expenses for the stamp and for execution of the deed as also for its registration.

2. On or about the 11th May, 1945, the plaintiff paid Rs. 510 as costs of the stamp to the defendant and a stamp paper was purchased. The sale deed was written by Aral Behari, D.W 2 in favour of Shrimati Bhagwati, wife of the plaintiff. It is in dispute whether this was done at the instance of the plaintiff or the defendant—the defendant claiming that it was at the former's instance. On about the same day stamp-papers were purchased for the purpose of having rent deeds executed by the tenants in favour of the plaintiff. The stamp papers were written upon by Atal Behari purporting to be on behalf of the tenants and one of them was even signed by one of the tenants. Another stamp paper of the value of Rs. 1 was purchased for the purpose of writing an agreement between the plaintiff and defendant. The purchase of these stamp papers or any knowledge thereof is denied by the plaintiff. On 23rd May, 1945, the plaintiff gave notice to the defendant demanding damages for breach of the contract by the defendant. This notice is not on the record, but the reply of the defendant dated 26th May, 1945, Exhibit P. 5, has been produced. In this the defendant set up the plea that the plaintiff had agreed to give another period of three months to the defendant to give vacant possession and as a consequence he, the plaintiff, was entitled to keen Rs. 2,000 out of the sale price which was to be raid to the defendant after the possession was given. He also claimed that he had purchased the stamp paper for executing the rent deed which I have mentioned above and the agreement between the plaintiff and the defendant and he accused him, the plaintiff of breach of the contract. He also denied the claim of the plaintiff to any damages or even to get back Rs. 3,000.

3. On 5th June, 1945, the plaintiff brought a suit for recovery of Rs. 6,000 as damages for breach of the contract of sale alleging that an agreement to sell had been entered into for Rs. 34,000 and he had paid Rs. 99 as earnest money. He then recited the various agreements which I have mentioned above and in paragraph 5 he alleged that as the defendant had not given vacant possession even within the extended period and had committed a breach of the contract of sale, the plaintiff was entitled to Rs. 6,000 as damages from the defendant. He also claimed return of Rs. 500 which he (the plaintiff) had paid for the stamp-parer and be also alleged that there was a defect in defendant's title.

4. On 4th July, 1945, the plaintiff made an application for restraining the defendant from alienating the property by way of sale or mortgage. In this application he stated that the property was under mortgage and the court ordered the issuing of an injunction on 2th July, 1945.

5. On 24th July, 1945, the defendant filed a written statement denying the allegations of the plaintiff. He pleaded that the plaintiff had given a further period of three months and in lieu thereof there was an agreement that the defendant would execute a rent deed in favour of the plaintiff and also allow him to retain Rs. 2,000 out of the sale price which would be paid when the agreement of vacant possession was fulfilled. He further pleaded that the plaintiff was not ready and willing to perform his part of the contract is he had not the means to pay the balance of the purchase price and that because the value of the property had decreased the plaintiff was not prepared to complete the contract and for that reason also he was not entitled to any damages. On the same day the following issues were framed:—

1. Was the plaintiff willing and ready to perform his part of the contract?

2. Did the plaintiff suffer any damages? If so, to what amount?

3. If issue No. 2 stands not proved, is the plaintiff entitled to the return of Rs. 3,000 as earnest money, to a further sum of Rs. 3,000 as liquidated damages and to a sum of Rs. 10 the price of the stamp paper that had been paid, by the plaintiff for getting the sale deed executed?

4. Which of the party was responsible for the breach of the contract?

5. Relief.

6. On the same day the learned Judge recorded an order in which it is stated that when the plaintiff was asked if, he was still willing to purchase the property, the plaintiff expressed his unwillingness on the ground that the title of the defendant was bad. The trial Court dismissed the suit holding the plaintiff was not ready and willing to purchase the property because he had not the means to pay the purchase price and because the price of the property had fallen down by Rs. 5,000 and also found in favour of the agreement set up by the defendant that the plaintiff agreed to give another three months to the defendant in which to give vacant possession. On the question of title he found in favour of the defendant and held that no defect had been proved and on these findings he came to the conclusion that the plaintiff had refused to perform his part of the contract and because the plaintiff was guilty of breach of the contract he was not entitled to Rs. 3,000 which had been paid in advance to the defendant and also he was not entitled to any liquidated damages. Against this decree the plaintiff has come up in appeal to this Court.

7. The learned Advocate for the plaintiff submit ted that the plaintiff was not guilty of the breach of the contract and that it was wrong that he was unable to pay the balance of me purchase price. The learned trial Judge has, in my opinion, rightly held that the breach of the contract was by the plaintiff. All that the plaintiff in the witness box had stated as to the various amounts of money which were in deposit with different persons was his unsupported oral statement, he did not produce his own account books or the account books of those persons with whom these alleged deposits has been made nor has he produced the pass book of any bank with which he was banking. The plaintiff himself has admitted that the price of the property had fallen and in spite of the fact that Rs. 510 were paid by him for the writing of the sale deed, I am not convinced that on or about the due date, which in this case was 16th May, 1945, the plaintiff himself was willing to purchase the property. The learned trial Judge has remarked that at about this time the news of the defeat of Germany had been received and the price of property had begun to fall. That may be a good reason for his holding that the plaintiff had changed his mind with regard to the purchase of properly even if he was in a position to pay the purchase price. It may also be remarked that six days after 16th May, 1945, which according to the plaintiff was the due date, he gave notice for recovery of damages and not for specific performance. If he had been willing to perform his part of the contract he would have given notice to the defendant to specifically perform the contract.

8. The contract being one for sale of immovable property, time was not of the essence of the contract and in spite of the argument of learned counsel for the appellant I am unable to hold that merely because on 16th May, 1945 the defendant did not give possession or did not execute the document, a breach had occurred as in my opinion time was not of the Page: 205essence of the contract. No circumstances have been proved from which I could infer that the ordinary rule which applies to sale of immovable property was in this case inapplicable. The learned Advocate relied on the following circumstances:—

(1) the house was required for the personal residence of the plaintiff and so he wanted vacant possession,

(2) a period was specified and

(3) liquidated damages had been settled upon in case of default and that he had given on one previous occasion at least one extension.

9. These circumstances are, in my opinion, not sufficient to make time as the essence of contract. We have to see the contract as it was entered into in September 1944 and the subsequent conduct of the parties is, in my opinion, not relevant to find out whether the time was of the essence of the contract. In Jamshed Khodaram Irani v. Burjorji Dhunjibhai1 it was observed by their Lordships:

“But in such a case the intention must appear from what has passed prior to the contract, the construction of which cannot be affected in the contemplation of equity by what takes place after it has once been entered into”.

10. Applying these principles to the agreement before me there is nothing in this language or in the subject matter to displace the presumption that in the case of contracts for sale of immoveble property time is not of the essence of the contract.

11. The learned Advocate then submitted that he was not bound to purchase the property as there was defect in the title of the property. The defect which was placed before the trial court was pressed only in a lukewarm manner before us. The learned Advocate next submitted that there was encumbrance on the property and he was, therefore, justified in refusing to purchase and he relied for this purpose on section 55(1)(a) of the Transfer of Property Act to show that this was a material defect, the non-disclosure of which defect justified the plaintiff's conduct and he also submitted that an incumbrance is a defect covered by the section. I am unable to agree with these contentions. The relevant clause of this section runs as follows:—

“The seller is bound—

(a) to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is and the buyer is not, aware and which the buyer could not with ordinary care discover.”

12. In the first place I am not prepared to believe that the plaintiff was unaware of the existence of the mortgage. His application for injunction which was filed on 4th July, 1945 shows clearly that he was so aware. Then this section would apply only if the plaintiff could show that be could not by using ordinary care discover the existence of this mortgage. In Mulla's Transfer of Property Act at page 311, relying on re: Banister Bread v. Munton (1879) 12 Ch. D. 131 it is stated “the following are instances of a defect in the seller's title: an incumbrance……………”. The case referred to was, one in which legacies to certain persons had been made a charge on the property to be sold. That is quite a different thing and I do not think that a mortgage of the type that I am dealing with is one which falls within the definition of ‘incumbrances’ given in that case. I would, therefore, hold that no defect of title has been proved in this case. Be that as it may, this Page: 206objection is nowhere mentioned in the plaint and cannot be allowed to be raised in these proceedings.

13. The learned Advocate severely criticised the evidence of the defendant in support of his plea of extension of time which the plaintiff is alleged to have agreed to. The story is rather an unsual one and I may not be quite prepared to believe this part of the defendant's case, but it would only show that on the date which the plaintiff calls the due date (16th May, 1945) the defendant was unable to give possession of the property and at the most it would show that the defendant was also unable to perform his part of the contract if time was of essence of the contract. But this, in my opinion, is not a very material circumstance to be taken into consideration in this case. I would, therefore, hold that the plaintiff was not ready and willing to purchase the property and time was not of the essence of the contract. The value of the property had fallen and the plaintiff did not suffer any damages and is, therefore, not entitled to recover any damages from the defendant.

14. It was lastly submitted by the learned Advocate for the appellant that even if the breach was by him he was entitled to the return of such portion of Rs. 3,000 which he had paid in advance as part of the purchase price. Relying on Mulla's Transfer of Property Act he submitted that the characteristic of earnest money is that it serves two purposes. It goes in part payment of the purchase money for which it is deposited but primarily it is a security for the performance of the contract and in support of this be relied on Hall v. Burnell (1911) 2 Ch. 551 and Howe v. Smith (1884) 27 Ch. D. 89 at pp. 95-98. I agree that there is a difference between earnest money and money paid in advance as part of the purchase price. In (Kunwar) Chiranjit Singh v. Har Sarup5, Lord Shaw said:

“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.”

15. Therefore if the buyer is in default the seller is entitled to forfeit the earnest money, but if the default is of the seller the buyer is entitled to the refund of the earnest money. On this principle as I have held that the plaintiff was guilty of the breach of the contract, the seller is entitled to retain the earnest money which in this case is Rs. 99 but Rs. 2,901 which was paid as advance out of purchase price the defendant is not entitled to retain.

16. In my opinion part payment of the purchase price cannot be forfeited because it is not a guarantee for the purpose of the contract which alone in the words of Lord Shaw can be forfeited if the transaction falls through.

17. This Rs. 2,901 was not in the nature of earnest money. In Krishna Chandra Rudrapal v. Khan Mamud Bepari A.I.R 1936 Cal. 51, where a plaintiff had brought a suit for the recovery of Rs. 160 which was paid as part payment of the price, it was held by R.C Mitter, J. that the plaintiff was entitled to recover it from the defendant and that inspire of the breach being on his part. In (Kunwar) Chiranjit Singh v. Har Swarup5 a judgment that I have referred to above, the breach was by the purchaser and it was held by Page: 207their Lordships of the Privy Council that in those circumstances the purchaser must lose his earnest money but was entitled to recover that portion which he had paid on account. With great respect I agree with the judgment of R.C Mitter, J. and it is supported by the judgment of their Lordships and must hold that because Rs. 2,901 is not earnest money, but only advance out of the purchase price, the plaintiff in spite of his breach is entitled to recover it and I must repel the contention of the learned counsel for the respondent who in the first place submitted that the whole of Rs. 3,000 was earnest money and then he submitted that as the plaintiff had never claimed this sum as advance he was not entitled to recover it. I have already held that only Rs. 99 was paid as earnest money. This is clear from the allegations in the plaint which are not denied by the defendant and also from the case made out by the plaintiff in his statement before the learned trial court.

18. With regard to the contention that the plaintiff never made out a case for the return of Rs. 2,901 as part payment of purchase price, I am of the opinion that the plaintiff did allege in his plaint that it was an advance as he stated this on oath in witness box also. The defendant in his written statement never denied that Rs. 99 only was the earnest money nor did he deny the other allegations of the plaintiff with regard to the advance. At any rate, this is a question of law which arises in this case and I think I would be justified in giving this decree to the plaintiff on the facts proved in the case. For the reasons given above, the plaintiff's appeal is allowed to the extent of Rs. 2,901. If the money is not paid within 3 months the plaintiff would be entitled to interest at the rate of Rs. 4 per cent, per annum from the date of suit to the date of payment. The parties will bear their own costs throughout.

19. Harnam Singh, J.:— I agree.

20. Appeal allowed.