This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Earnest was originally a sum of money paid by the vendee to bind the vendor to his offer; "a distinct payment for the seller's forbearance to sell or deliver a thing to any one else."1 As it bound the vendor and not the vendee it corresponded to offers at Modern Law, made under contract, supported by valuable consideration, not to revoke, which are often called options. As the theory gradually prevailed and finally took statutory form,2 that earnest bound both vendor and vendee, earnest came to be considered a thing of value, transferred from vendee to vendor to bind the bargain, not a part of the purchase price nor to be deducted from it. In its present obsolescent form, earnest is often confused with purchase money and is treated as a payment in advance of part of the purchase price.3 Earnest must be paid to the vendor. A deposit by vendee with a third person as forfeit in case of non-performance is not part payment or earnest within the statute,4 nor is it a payment of earnest where * the vendee touched the vendor's hand with money, vendee retaining possession of it.5
10 Norton v. Davison (1899), 1 Q. B. 401; Gorman v. Brossard, 120 Mich. 611; 79 N. W. 903; Matthies-sen, etc.. Refining Co. v. McMahon, 38 N. J. L. 536; Brabin v. Hyde, 32 N. Y. 519. "Where no written evidence of the contract is made and payment is relied on as the compliance with the statute, mere words are not sufficient. Some act in part performance or part execution of the contract such as the surrender or cancellation of the evidence of the debt, or a receipt or discharge of the indebtedness is necessary to make the contract valid." Matthiessen, etc.. Refining Co. v. McMahon, 38 N J. L. 536, 540; quoted in Milos v. Covacevich, 40 Or. 239, 242; 66 Pac. 914.
11 Galbraith v. Holmes, 15 Ind.
App. 34; 43 ST. E. 575; Brabin v. Hyde, 32 N. Y. 519.
12Dieckman v. Young, 87 Mo. App. 530.
13 Milos v. Covacevich, 40 Or. 239; 66 Pac. 914.
14 Milos v. Covacevich, 40 Or. 239; 66 Pac. 914. (This case, however, was decided under a statute providing that payment must be made at the time of the sale, and the receipt was given two days afterwards.)
15 Johnson v. Buchanan. 29 N. S. 27. To this effect see the dictum in Walker v. Nussey, 16 Mees. & W. 302. See also Plow Co. v. Hanthorn, 71 Wis. 529; 37 N. W. 825.
1 Pollock and Maitland's History of English Law (2nd Edition), Vol. II., p. 206 (original paging).