1964 (3) TMI 112 - HC - Indian Laws

Court upholds refund of earnest money for unclear title; seller's failure justified contract rescission.

Sachidananda Patnaik and Anr. Versus G.P. and Co.

The court dismissed the appeal and held that the plaintiff was entitled to a refund of the earnest money with interest. The court confirmed the lower ... - Issues Involved:1. Non-disclosure of material defect in the seller's title.2. Plaintiff's entitlement to refund of earnest money.3. Whether time was of the essence of the contract.4. Plaintiff's repudiation and rescission of the contract.Issue-wise Detailed Analysis:1. Non-disclosure of Material Defect in the Seller's Title:The plaintiff claimed that they were unaware of the pending proceeding under Section 5(1) of the Orissa Estates Abolition Act, which affected the seller's title to the property. The District Judge initially found that the non-disclosure of this material defect vitiated the contract. However, this conclusion was deemed incorrect as there was no evidence that the defendants were aware of the proceeding at the time of the contract. According to Section 55(1)(a) of the Transfer of Property Act, the seller is bound to disclose any material defect in the property or title, which the buyer could not discover with ordinary care. The court found that the plaintiff failed to establish the necessary elements to prove fraudulent non-disclosure by the seller.2. Plaintiff's Entitlement to Refund of Earnest Money:The trial court decreed the plaintiff's suit for Rs. 1000/- with interest, rejecting the claim for refund of Rs. 340/-. The plaintiff did not appeal this decision, making the trial court's finding conclusive. The defendants appealed against the decree for refund of Rs. 1000/-, but the lower appellate court dismissed the appeal. The plaintiff's claim for refund was based on the inability of the seller to provide a clear title due to the pending proceeding under Section 5(1) of the Orissa Estates Abolition Act. The court found that the plaintiff was entitled to a refund as the seller could not deliver a title free from reasonable doubt, which is fundamental to the contract.3. Whether Time Was of the Essence of the Contract:The court examined whether time was of the essence of the contract, as argued by the defendants. Section 55 of the Indian Contract Act states that a contract becomes voidable at the option of the promisee if the intention was that time should be of the essence. The court found no evidence that time was of the essence, as neither the contract (Ex. 1 and Ex. 1/a) nor the registered notice (Ex. 4) specified a particular date for the execution of the sale deed. The contract's primary purpose was the sale of immovable property, where time is generally presumed to be subordinate unless explicitly stated otherwise.4. Plaintiff's Repudiation and Rescission of the Contract:The plaintiff's registered notice (Ex. 4) served on 23-7-1957 clearly rescinded the contract due to the seller's failure to produce rent receipts and establish a clear title. The court found that the plaintiff's action to rescind the contract was justified as the seller could not provide a marketable title free from reasonable doubt. The principle that a vendee is entitled to a refund of earnest money if the vendor cannot give a clear title is supported by Sections 18 and 25 of the Specific Relief Act and Section 55 of the Transfer of Property Act. The court concluded that the plaintiff was entitled to a refund of the earnest money due to the seller's inability to provide a title free from doubt, which goes to the root of the contract.Conclusion:The appeal was dismissed, and the plaintiff was entitled to the refund of the earnest money with interest. The court confirmed the lower appellate court's decision, emphasizing that the seller's inability to provide a clear title justified the rescission of the contract and the refund of the earnest money.