Sale of Goods Act-Earnest Money

EARNEST MONEY AND ADVANCE PAYMENT OR SECURITY DEPOSIT 
Earnest money implies a payment as a security. When the total price is to be paid, the earnest money is adjusted against the total price to be paid. When the transaction or contract is not or can not be undertaken because of the buyer’s fault the other party can forfeit the earnest money and keep it.  However, a security deposit is different because it is not part of the total value of the contract. This security amount cannot be forfeited when the contract is completed as it is not a part of the purchase price.
Illustration : A student deposits Rs.10,000 as a security deposit with an educational institution for a one year diploma course. After completion of the diploma course, the student is entitled to receive the security deposit of Rs.10,000.

Case Law 10:
Shree Hanuman Cotton Mills Vs. Tata Air Craft Ltd.[1] : A contracted with B to purchase his aeroscrap for Rs. 1.00 lac and paid Rs.25,000 as earnest money, which is 25% of the purchase price. One of the conditions of the contract was that if A failed to pay the balance, contract would stand cancelled and the earnest money would be forfeited. A defaulted in paying the balance and in consequence, B forfeited the deposit. A filed a suit for recovery of the deposit. The court held that the deposit was intended as earnest money, and the seller was entitled to forfeit it. 

Case Law 11:
Maula Bux Vs. Union of India:
A contracted to supply potatoes, eggs, and fish, etc. to Military Headquarters. He deposited Rs.18,500 as a security for due performance of the contract. A committed defaults in making regular and full supplies. The government rescinded the contract and forfeited the deposit. The court held that the amount was a ‘security deposit’ and the government was not entitled to forfeit the same.
STIPULATIONS REGARDING TIME
A contract of sale of goods may include a time schedule for two elements of the contract. a) payment of price and b) delivery of goods. Although, the element of time of payment is important, a delay in payment cannot give the seller the right to terminate the contract. Section 11 lays down the provision in relation to importance of the time factor in undertaking the contract. In this context, the terms of the contract would be important.  The view adopted by courts is that time is an important element with respect to the delivery of goods in commercial contract.
DOCUMENT OF THE TITLE
A right over a document of title symbolizes the right over goods. Section 2(4) has defined the documents of title as follows:
“Documents of title to goods” includes “bill of lading, dock-warrant, warehouse keeper’s certificate, wharfinger’s certificate, railway receipt, [multi-modal, transport document] warrant or order for the delivery of goods and any other document used in ordinary course of business as proof of the possession or control of goods or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document, to transfer or receive goods thereby represented”.
Illustration: Amit agreed to buy a new motor cycle from Sanjay, a dealer, for Rs.20,000. Amit paid the price and the motor cycle was registered in his name. Sanjay delivered the registration book (title of the motor cycle) to Amit. This is a valid contract of sale as the ownership of the motor cycle has been transferred to the buyer (Amit).
Note: Sometimes, the ownership is agreed to be transferred at some future date. In such cases, there is an ‘agreement to sell’, and legally, an ‘agreement to sell’ is included in the definition of ‘contract of sale’. 

Thus, the document of title is the proof that the goods are in the possession of the issuing authority and entitles the document holder, to receive the goods mentioned in the document or further transfer them.

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