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Vendee (defendant) paid Rs 1,000 as earnest money and then Rs 24,000 after 7 days, as part of the sale…

The Rs 1,000 was designated as earnest money; the later Rs 24,000 was part-payment of the price. A clause allowing forfeiture of all Rs 25,000 does not convert that later…

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Vendee (defendant) paid Rs 1,000 as earnest money and then Rs 24,000 after 7 days, as part of the sale price. If the vendee does not pay the balance by the agreed date, the whole amount of Rs 25,000 is deemed to be forfeited as per the agreement. He failed to pay the balance amount. Under the Indian Contract Act, 1872, which amount is liable to be forfeited as earnest money?

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Answer and explanation

Correct answer A

The Rs 1,000 was designated as earnest money; the later Rs 24,000 was part-payment of the price. A clause allowing forfeiture of all Rs 25,000 does not convert that later payment into earnest money. Fateh Chand distinguishes these categories on materially identical amounts. The answer identifies the earnest component; actual forfeiture remains subject to the applicable breach and reasonable-compensation rules rather than an automatic entitlement to every rupee paid.

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