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TMI Blog1968 (10) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff or the defendants, one has to pay to the other a sum of ₹ 225/- as damages and the defendants had the additional privilege for forfeiting the sum of ₹ 225/- if the plaintiff commits a breach of contract. The transaction did not go through and the plaintiff filed a suit for the return of the advance. The defendants solely relied upon the above clause relating to the forfeiture and contended in the lower Court that they were entitled to forfeit the same. The defendants' contention found favour with the learned District Munsif of Chidambaram though the defendants did not aver or prove damages having been sustained by them in consequence of the breach of the contract by the plaintiff. Thus the plaintiffs suit was dismissed. Against this the plaintiff has preferred the present Civil Revision Petition under Section 25 of the Madras Provincial Small Cause Courts Act 2. Mr. M. Srinivasan, learned counsel for the petitioner, contended that the defendants did not primarily discharge their burden by alleging in the pleadings that the money though named as 'advance' was in the nature of deposit for the due performance of the contract and that in any event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en where a certain sum is named as the predetermined damages and in case of breach of the same by either of the contracting parties, the Court has jurisdiction to find in a lis involving adjudication of the rights and obligations of parties to such a contract, as to who is in default and what is the reasonable compensation payable by the party in default to the other. It does not matter which party to the contract, initiates the proceedings and the Court is not bound by the quantified estimate of damages provided for in the contract itself. It is salutary however for the Courts not to exceed the quantified damages so named in a contract. To quote the Supreme Court in. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties pre-determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract predetermining damages or providing for forfeiture of any property by way of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the practice in mercantile contracts, to hold that whatever be the damage suffered or not suffered the seller is to be entitled to keep the deposit. I do not think that any such broad distinction as contended is warranted. The above observation was made in the particular circumstances of that case which related to a mercantile contract. The quotation ought not to be understood as laying down any dichotomy as pleaded. The cases in Fateh Chand v. Balkishan Dass, (FB), and Bhagavathi Mudaliar v. Subramaniam, C.R.P. 2058 of 1965 of this Court -- unreported () are all cases where contracts to sell and purchase lands were interpreted; but yet no such refined distinction as is sought to be made by the learned counsel for the respondents, was accepted or even referred to. There is, therefore, no justification for different principles of law being applied to mercantile contracts alone. The law has been declared uniformly by the Indian Contract Act and is applicable to contracts involving sale of land as also to agreements in the nature of ordinary commercial contracts. Very few exceptions are available to make a distinction as claimed by Mr. Ratnam. 5. I therefore come to the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he content of the word 'deposit' or 'earnest money', then is it forfeitable without proof of damage whether or not expressed in a contract. Incidentally in some contracts the word 'advance' is used. Mere misdescriptional nomenclature will not conclude matters. What may be called 'advance' may be deposit' and what may be termed 'deposit' may ultimately be proved to be 'advance'. In either case it is the intention of the parties that governs. The cardinal rule of interpretation of contract, whether mercantile or otherwise, is to find out the intention of the parties. Such an intention could be gathered by the express terms of the contract or from the conduct and by the surrounding circumstances incidental to such a contract. The expression adopted may be a guide to find out such an intention. But it is not al-ways the sole guide. In the instant case the parties used the word 'advance' in the earlier part of Exhibit A-2, but stipulated for its forfeiture in case of breach, later. If, therefore, it is established by pleadings and proof that the amount given by the depositor was earnest money for the due performance of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s judgment would still apply. Thus in a given contract if a sum is paid under the caption of deposit or earnest money or has to be interpreted as such according to the intentions of parties, and is made forfeitable in case of breach, even then Courts have to adjudge the reasonable compensation to which a party would be entitled to, in such circumstances. Such determination of reasonable compensation can be made either in a suit filed by the depositor (purchaser) against the depositee (vendor) or in a suit filed by the depositee (vendor) complaining of such breach. Such adjustments which are necessary can and ought to be made in any one of the suits filed as above. In the instant case, the purchaser who is in default filed the suit for recovery of the advance which is now urged by Mr. Ratnam as earnest money which is also expressly forfeitable. Even in such a case the Court has to find whether the defendants have sustained the damage by reason of the plaintiff's default and award only a reasonable compensation. 8. The defendants (vendors) who interdict a claim for refund of deposit, have to plead and prove the damage suffered by them upon which the Court will adjudicate a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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