The High Court allowed the regular second appeal and set aside the lower courts' decrees. The court held that the forfeited sum was earnest money, governed by the agreement's specific terms, and not compensation or penalty under the Contract Act.
Judgments and decrees passed by courts below set aside; suit stands dismissed; regular second appeal allowed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.HARILAL
WEDNESDAY, THE 18TH DAY OF JANUARY 2017/28TH POUSHA 1938
RSA.No. 1316 of 2004 (F)
AGAINST THE JUDGMENT & DECREE DATED 21-08-2004 IN AS.5/2001 of ADDL.DISTRICT AND SESSIONS COURT (SPL. COURT), KOTTAYAM
AGAINST THE JUDGMENT & DECREE IN OS.380/1997 of MUNSIFF COURT, ETTUMANOOR DATED 21-08-2000
APPELLANT/APPELLANT/DEFENDANT::
JOMON PUTHENPURAKAL, S/O. KURIAKOSE, AGED 36 YEARS, RESIDING AT PUTHENPURAKAL HOUSE NEENDOOR KARA, ONAMTHURUTH VILLAGE, KOTTAYAM DISTRICT.
BY ADV. SRI.GEORGE CHERIAN (THIRUVALLA)
RESPONDENT/RESPONDENT/PLAINTIFF::
P.M.LUKOSE @ LUKOSE MATHEW, S/O. MATHAI, PRALAYIL HOUSE, KURUKULLOOR KARA KOLLAMPARABHAGOM, KANAKKARI VILLAGE, MEENACHIL TALUK KOTTAYAM DISTRICT.
BY ADVS. SRI.MATHEW JOHN
SRI.SUJESH MENON V.B.
THIS REGULAR SECOND APPEAL HAVING BEEN FINALLY HEARD ON 18-01-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
OKB
K.HARILAL, J.
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R.S.A. No.1316 of 2004
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Dated this the 18th day of January, 2017
JUDGMENT
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The appellant is the defendant in O.S.No.380/1997 of the Munsiff's Court, Ettumanoor. This Regular Second Appeal is filed against the judgment of the Additional District Court, Kottayam passed in A.S.No.5/2001 affirming the judgment and decree passed in O.S.No.380/1997 of the Munsiff's Court, Ettumanoor. The aforesaid Suit was filed for realisation of a sum of 25,000/-, the amount paid as advance for purchase of land belonging to the appellant and 15,000/- as compensation for damages. According to the plaintiff, he entered into an agreement for sale on 25.7.1997 with the defendant to purchase plaint schedule property for a consideration of 30,835/- per cent. As per the agreement, an amount of 25,000/- was paid as advance and that if within the stipulated time, on account of the
RSA.1316/04-F :2:
default of the vendee, the amount would be forfeited and the agreement would be automatically cancelled. The plaintiff further contended that he was ready and willing to get the sale deed executed after paying the balance amount within the stipulated time; i.e., before 25.9.1997. But, the defendant failed to perform his part of the contract and thereby committed breach of contract. Hence the suit was filed for realising an amount of `40,000/- from the defendant as advance and damages.
RSA.1316/04-F :3:
the suit partly, allowing the plaintiff to realise an amount of `15,000/- with interest @ 6% per annum from the date of decree till realisation from the defendant and his assets.
15,000/- from the defendant. According to him, 25,000/- was paid as earnest money and not as advance in consideration. The learned counsel further drew my attention to the deposition of P.W.1 wherein P.W.1 himself admitted that he paid `25,000/- to the defendant as security. If it is a security for performance, it will come under earnest money. In case of default from the part of the plaintiff, heRSA.1316/04-F :4:
is not entitled to get back that amount. The courts below concurrently found that the plaintiff has committed breach of contract and the defendant was not at fault in not executing the sale deed. In such circumstance, the defendant is not liable to return the amount received as earnest money.
RSA.1316/04-F :5:
(1). Whether the clause in Ext.A1 dealing with the money paid by the plaintiff to the defendant is one for security or advance?
(2). In the absence of proof of actual damage, is the plaintiff entitled to recover any amount by way of compensation?
25,000/- is referred as part of consideration at the beginning of the agreement. But, coming to the default clause, it is specifically stated that in case, the performance of the agreement fails due to the fault of the plaintiff, the sum of Rs.25,000/- paid will not be repaid to the plaintiff and he has no right to claim the said amount. But, in the deposition of P.W.1, he has specifically admitted that the sum of 25,000/- was paid as security for the performance of contract. If it is a security, certainly, it will fall under earnest money and cannot be treated as advance amount.RSA.1316/04-F :6:
25,000/- by the defendant is a compensation or a penalty. Needless to say, the rights and liabilities under a written contract shall be governed by the terms of contract and the same cannot be interpreted on extraneous consideration or views. In the absence of specific stipulation describing the forfeiture of 25,000/- either as compensation or as penalty, the same will not fall under Sections 73 and 74 of the Indian Contract Act. If the said payment of `25,000/- is not a compensation or penalty, certainly the rights and liabilities of the parties, in case of default, would be governed by the terms of contract only.RSA.1316/04-F :7:
amount. In the instant case, the courts below concurrently arrived at a finding that the agreement was broken due to the fault of the plaintiff. In other words, the plaintiff has committed breach of contract and the defendant is not responsible for non performance of the contract. If that be so, the default clause as such will come into operation, as it is not a compensation or penalty and it is an earnest money only. Therefore, in view of the specific stipulation in Ext.A1 agreement, that the defendant is not liable to refund `25,000/- in case of default from the part of the plaintiff, and the plaintiff has no right to claim the said amount, the defendant is not liable to pay back the said amount to the plaintiff. It is needless to say, where the contract has become broken due to default from the part of the plaintiff, he is not entitled to get any amount from the defendant who was willing to perform contract, as damages. But, the courts below miserably failed to appreciate the terms of contract and the law applicable to it in its correct perspective. Consequently, the findings are vitiated by illegality and perversity. The judgments and decrees
RSA.1316/04-F :8:
passed by the courts below are set aside and the suit will stand dismissed.
This Regular Second Appeal will stand allowed.
All pending interlocutory applications will stand
closed.
Sd/- K.HARILAL, Judge.
okb
// True copy // P.A. to Judge
2 issues framed by the court
Whether the clause regarding money paid by the plaintiff is one for security or advance?
In the absence of proof of actual damage, is the plaintiff entitled to recover compensation?
Colour shows how this judgement treated each authority
Dinanath Damodar Kale v. MalviReferred¶35
Dinanath Damodar Kale v. Malvi, Mody, Ranchhoddas and Co. [(1930) 32 BOMLR 272]
1 provisions across 1 enactments
Jomon Puthenpurakal
P.M. Lukose
K. Harilal
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court