Deposits in sales of land

In general a contractual provision that requires a party in breach of contract to pay or foreit a sum of money is unlawful as a penalty unless such provison can be justified as being a payment of liquidated damages being a genuine pre-estimate of the loss which the innnocent party will incur by reson of the breach. One exception to this general rule is the provision of the payment of a deposit by the purchaser on a contract for the sale of land. Ancient law has established the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract. The special treatment given such deposits derives from the ancient custom of providing an earnest for the perform of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money. The special treatment given to deposits could be open to abuse if parties could avoid the rule that renders penalties unenforceable by attaching the label “deposit”  to any penalty.  The courts have held that parties cannot label an extravagant sum as a “deposit” and thereby avoid the sum being a penalty. See: Stockloser v Johnson [1954] 1 QB 476 per Denning LJ at 491; see also Workers Trust Bank v Dojap Ltd [1993] 1 AC 573.  The Workers Trust case contains an interesting discussion about deposits in land sales.

Advertisements

, , ,

  1. Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Owners Corporation Law

Developments in strata body corporate law in Victoria

The Warne Account

The blog of Dan Warne, Australian tech writer.

Best Practices for Legal Education

A Vision and a Road Map

Tisher Liner FC Law Blog

Legal Updates on Business Law, Property and Litigation

THE NSW BAR -- A COMMENTARY

AN ASSOCIATION OF UNCOMMON PEOPLE

With Compliments

Geoffrey Gibson

CommBar Matters

Commentary and case law from the Commercial Bar Association's finest.

The law of land and sea

Australian law of property and environment

Amicae Curiae

Women. Law. Legal Education. Legal Practice. Career. Work/Life balance

Carrie Rome-Sievers, Barrister

Developments in insolvency and commercial law

Equity, Trusts and More

Travis Mitchell, Barrister at the Victorian Bar

Sam Ure

A Melbourne barrister practising in commercial disputes, tax and administrative law

The Property Law Blog

Robert Hay QC Property and Commercial Law Barrister

%d bloggers like this: