Shri Hanuman Cotton Mills vs Tata Aircraft Ltd case was a suit filed after breaching of contract. The Indian Contract Act, 1872 defines the provision of ‘earnest money’ under section 74 of the contract act. We can also term earnest money as the token money which is paid by the buyer which shows his interest in a property or goods is genuine.
Hon’ble Justice Vaidyialingam
Hon’ble Justice Shelat
Hon’ble Justice Dua
DATE OF JUDGMENT
28th October 1969
Section 9 and 74 of the Indian Contract Act, 1872
FACTS OF THE CASE
- The respondent, i.e. TATA Aircraft Ltd. agreed to sell some aero-scraps to the appellant i.e. Shri Hanuman Cotton Mills for Rs.10,00,000/-.
- The appellant paid Rs.2,50,000/- on the date of the contract and it was agreed between the parties that the rest of the payment was made in two installments.
- It was also agreed that the terms and conditions of the contract were governed by the respondent’s business. According to clause 9 of the respondent’s terms of business that the buyer has to deposit 25% of the total value to the respondent and that deposit is to be treated as earnest money and settle out in final bills and no interest shall be payable to the buyer on that amount.
- That clause 10 defines that the respondent may cancel the contract if the buyer makes the default in payment of the contract and also to give up the earnest money unconditionally.
- The appellant commits the breach of contract by refusing to pay the rest of the money according to the contract and to take delivery of aero scrap. Therefore, the respondent revokes the contract and forfeited the sum of Rs. 2,50,000/-.
ISSUES PRESENTED BEFORE THE COURT
Whether the sum of Rs. 2,50,000 was paid by the plaintiff as and through part payment or as an earnest deposit?
Whether the defendants were entitled to forfeit the said amount?
CONTENTIONS OF THE PARTIES
Plaintiff- The plaintiff pleaded that there had been no concluded agreement entered between the parties and when the matter was in a stage of proposal and counter-proposal, plaintiffs had withdrawn from the negotiations. As the defendants are not willing to perform their part of the contract. Plaintiff also argued that the respondent made a false representation regarding the quantity of scrap material available.
Defendant- The defendants contended on claims of the plaintiff that concluded contract has been entered between the parties as per the two letters dated 18th and 20th November 1946. The defendants further said that there had been no misrepresentations made by them, but the plaintiff repudiated the contract giving no reasons. They are always ready and willing to perform the contract and they are entitled to forfeit the sum of Rs.2,50,000 as under the terms of the contract. Defendants further pleaded to pay the sum of Rs. 42,499 for the loss and damage sustained by them.
RATIO DECENDI OF CASE
The Court observed and held the view that the sum of Rs.2,50,000 /- was paid by the appellants and through earnest money or deposit. It is only when the plaintiff pays the entire price of goods and performs the conditions of the contract that the deposit of Rs. 2,50,000 will go towards the payment of a price.
Further, the Court opined a viewpoint that in absence of any provisions to contract; the defendants are liable to forfeit the deposit money when the plaintiff committed the breach of contract. In this view defendant’s right to give up the sum was accepted and the plaintiff’s right was dismissed for claiming the refund of that amount. The Court applied section 74 of the Indian Contract Act, 1872 and ultimately fixed a particular amount which the plaintiff would be entitled to as reasonable compensation in the circumstances.
The plaintiff’s suit in the result was dismissed by the learned Single Judge as it does not entitle them to claim the refund of the amount forfeited by the defendants. Further, the appeal made by the plaintiff was also confirmed to be dismissed.