Shri Ganpati Jurists Learning and Awareness:
LEGAL LEARNING | FORFEITURE OF EARNEST MONEY VALID EVEN IF TERMED AS 'ADVANCE'
Topic: Earnest Money vs. Advance – When Can It Be Forfeited?
Key Takeaways:
1. Earnest Money is Not a Penalty
The Supreme Court held that the forfeiture of earnest money paid under an Advance Sale Agreement (ATS) is not hit by Section 74 of the Indian Contract Act, 1872, which applies only to penalties.
2. Nature of Payment Matters
Even if the amount is labeled "advance," it may be treated as earnest money if it was:
Paid at the time of contract signing,
Intended as security for due performance, and
Subject to forfeiture in case of default.
3. Section 74 Not Applicable to Fair Forfeiture Clauses
Reiterating Fateh Chand v. Balkishan Dass, the Court emphasized that Section 74 is inapplicable to earnest money forfeiture, unless the clause is unconscionable or one-sided.
4. Proof of Loss Not Always Needed
Even assuming Section 74 applies, the Court held that actual loss need not be proven if the loss is substantial and proven by evidence—as was done in this case.
5. Distinction Between Earnest & Advance Explained
Earnest Money: Security for performance; forfeitable on breach.
Advance Payment: Part-payment of purchase price; refundable unless also treated as security.
6. Binding Nature of Forfeiture Clause
The Court stressed that when time is of the essence and the parties knowingly bind themselves with mutual obligations, forfeiture on default is valid and enforceable.
Legal Insight:
The intention of the parties and the wording of the contract are key to deciding whether a payment is forfeitable. Labeling money as "advance" won’t protect a defaulter if the real nature is that of earnest money securing contract performance
#LegalLearning #IndianContractAct #EarnestMoney #AdvanceVsEarnest #SupremeCourtJudgment #ShriGanpatiJurists #ContractLawIndia #LawyersPunjab #AdvocatesPunjab #BathindaLawyers #LawAwareness #BeYourOwnLawyer#LegalAwareness #SupremeCourtJudgment ##RealEstateLaw # #RuleOfLaw #BathindaLawyers #LawyersPunjab #AdvocatesPunjab #ShriGanpatiJurists #LegalAdviceIndia #IndianLawFirm #LegalAwareness #KnowYourRights #LegalSupport #lawfirmindia #law # civillaw