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A buyer pays ₹1,000 when signing a sale agreement as security for completing the purchase and pays…

The initial ₹1,000 was paid as earnest money to secure performance. The later ₹24,000 was part payment of the sale price. A clause declaring the total forfeitable does not…

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A buyer pays ₹1,000 when signing a sale agreement as security for completing the purchase and pays another ₹24,000 a week later as an instalment of the price. On the buyer's default, the seller invokes a clause making the full ₹25,000 forfeitable. How should the two payments be classified?

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Answer and explanation

Correct answer A

The initial ₹1,000 was paid as earnest money to secure performance. The later ₹24,000 was part payment of the sale price.

A clause declaring the total forfeitable does not reclassify the part payment. Whether any amount can ultimately be retained is a separate question involving the contract and applicable compensation rules.

Option feedback

Option A

The initial ₹1,000 was paid to secure performance. The later ₹24,000 was an instalment of the price.

Option B

The ₹1,000 secured completion of the bargain. The later ₹24,000 was an instalment of the price.

Option C

The original ₹1,000 served as security when the agreement was made. The ₹24,000 alone was paid as part of the price.

Option D

The forfeiture clause does not turn a later instalment of the price into earnest money.

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