Advance Money – Forfeiture of

The law is clear that to justify the forfeiture of advance money being part of “earnest money” the terms of contract should be clear and explicit. Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non-performance by the depositor. There can be converse situation also that if the seller fails to perform the contract the purchaser can also get double the amount, if it is so stipulated. It is also the law that part payment of purchase price cannot be forfeited unless it is a guarantee for the due performance of the contract. In other words, if the payment is made only towards part-payment of consideration and not intended as earnest money then the forfeiture clause will not apply. Satish Batra v. Sudhir Rawal, (2013) 1 SCC 345.

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Filed under Commercial Law, Earnest Money

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