Binod v Ratumaitavuki [1997] FJLawRp 34; [1997] 43 FLR 220 (9 September 1997)

[1997] 43 FLR 220

HIGH COURT OF FIJI ISLANDS

RAM BINOD & SAVITRI RAM

v

RATU JOSEPH MAE RATUMAITAVUKI

[HIGH COURT, 1997 (Fatiaki J) 9 September]

Appellate Jurisdiction

Contract- oral agreement for sale and purchase of land- whether deposit refundable by vendor after purchaser’s failure to complete.

The venf a property rety retained a deposit paid to him by a prospective purchaser who failed to complete. Subsequently the property was sold for a higher price than tgreed between the parties. The Magistrates’ Court rult ruled that the deposit should be refunded. On appeal the High Court HELD: (i) there was no concluded contract (ii) the onus of showing a right to retain the deposit rested on the vendor and (iii) that in all the circumstances it would be unconscionable to allow the vendor to retain the deposit.

Cases cited:
&#1p>

Baylis v. Bishop of London [1912] UKLawRpCh 126; (1913) 1 Ch. 127CarruCarruthers v. Whitaker and Anr [1975] 2 NZLR 667

C v. Rys (1862(1862) 135 RR 571Chillingworth v. Esche (1924) 1 Ch. 9Ch. 97

Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd

҈ ҈ [1942] UKHL 4; [1943] AC 32

Hall v. Burnell<160;( Ch.

Howe v. Smith&#16> (180;(1884) 27 Ch. D. 8

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Martin v. n v. Finch [1922] NZGazLawRp 156; [1923] NZLR 570

Palmer v. Temple (1839) 48 RR 568

per v. Arnold [1889] UKLawRpAC 35; (1889) 14 A.C. 429

Stoi>Stockloockloser v. Johnson (1954) 1 QB 476
&#16>Appr>Appeal against Jnt entered in the Suva Magistrates’ Court.

V. Kapadia;for tfor thor the Appellants
A.R. Matebalavu&#16 the Respondent

FatJ:
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This isppeal against thst the judgment of the Suva Magistrate17; Court delivered on the the 14th of September 1995 in which the appellants (the defendants below) were ordered to refund to the respon(the plaintiff below) the sthe sum of $12,500 paid pursuant to an oral agreement which fell through (to adopt the expression used throughout these proceedings).

The sole ground of appeal in the petition is as follows:

“THAT the Le rned trial magistrate erred in law and in fact in granting judgment for the Plaintiff/respondent as it was against the weif theence adduced at t at the trial.”

In considering thpeal ieal it is necessecessary to set out the critical parts of the trial magistrate’s judgment which are as follows after briefly setting out the evidence of the plaintiff and the defen: (pp.32 to 34 of the recorrecord) :

“The questo b to be considered is whether the $12,500.00 paid by the plaintiff should be refunded or not.

It is admitted ther there is no writing whatsoever to evidence any agreemegarding the deposit.

The greements ents have not been signed or executed hence the two draft agreement of sale and purchase are of no avail. They are not agreements and they cannot be used to decide this issue.

The Defendant in evidence said he told the plaintiff that he will not refund the deposit if the sale fell through. On the words of the defendant the piff said : ‘I will take the house in a couple of weeks and no worry.’ If this whis was the plaintiff’s reply then I cannot hold that those words of the plaintiff meant the plaintiff agreed with the defendant that the deposit will not be refunded.

The plaf had no wheo where in his evidence said that he agreed to the deposit being forfeited in the event of the sale falling through.

On all the evidtake taken into account I hold that the plaintiff had at no time agreed that the deposit will be forfeited in the event of the sale falling through for whatever the reason. Under these circumss are the defendants entitlntitled to keep the plaintiff’s money? The answer is no.

The deposit must be refunded. In this case there is no evidence at all that the defendants has suffered any loss or damage by the sale to the plaintifling through.

In the defendants hnts have made a profit. The land had had been sold for $138,000.00 or $13,000 more than what they would have got from the plaintiff.

ere is no evidence whae whatsoever to show the defendants were unable to sell the property to another offeror as the property was being held for the plaintiff. There is also no evidence that taintiff suffered any loss ooss or damage by the delay that was caused for the sale of the property.

The evidence is e cthe contrary. The defendants as soon as they realised that the plaintiff was not going to purchase obtained permission from tnds Department and sold the property to the present owner at a large profit.

Inthe circumstcumstances in this case and all the evidence taken into consideration I am satisfied that the defendants have no right to withhold the deposit and tll amount must be refunded to the plaintiff. The defendantsdants cannot unjustifiably withhold the deposit. It will be a case of the defendants enriching themselves unconscionably.”

It is plain from the above excerpts that the trial magistrate based his decision on two main grounds, firstly, the absence of any agreement between the parties as to what was to happen to eposit should the contract fall through ; and secondly, the, the equitable doctrine of unjust enrichment.

As to the firsund, Coun Counsel for the appellants submits that the trial magistrate “(fell) into error in holding that the deposit mustefunded because the receipt does not state that it is non-refundable” and also in &#8n “(holding) that there was nothing expressly in writing stating that the deposit will be forfeited.” Counsel based his submissions on the common law of deposit which in counsel’s view, is quite clear.

Is latter regard the Cohe Court was referred to several authorities including the leading case of Howe v. Smith (1884) 27 89 ; Sope>Soper v. Arnold (1889) 14 A29; Hall v. Burnell&#160 (1911) Ch.D. 55 ;&#1>Martinartin v. Finch (1923)L.R.570 and L;Lowe v. Hu>&] E.R. E.R. 605. For present purposes however it is sufs sufficient to refer to the convenient sunt summarymmary of the law relating to deposits in Vol. 3#160;lsburys Laws of E of England (3rd edn.)&#16> which re

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“A deposit paid under a contract of sale serves two purposes ; if the sale is completed it counts as part payment of the purchase-money, but primarily it is sty fo perfce of t of the cohe contract, and it is usual to provide exde expressly that, in the event of the purchaser failing to observe the conditions of the contract, the deposit shall be forfeited to the vendor. Such a provision, however, is not necessary, and, unless the contract taken as a whole shows an intention to exclude forfeiture, the vendor is entitled, by virtue of the purpose of the deposit if the contract goes by the default of the purchaser to retain it as forfeited ...”

It is clear fromabove aove and from dicta in the cases cited, that subject to the existence of a binding agreement and in the absence of expressision, forfeiture of a deposit in a contract of sale that has fallen through is dependant uant upon a finding that the contract goes by the default of the purchaser.

This is also clear what what was said by Cotton L.J. in Howe v. Smith iop.chich was a case in whin which the written contract contained no clause at all as to what was to be done with the depos the act wt perfoperformed, at p.95:

“In order to enablenable the vendor ndor (to r(to retain the deposit), in my opinion there must be acts on the part of the purchaser which not only amount to delay sufficient to deprive him of the equitable remedy of specific performance but which would make his conduct amount to a repudiation on his part of the contract.”

Counsr the respondent went whilst not necessarily disputing the correctness of the law advanced in the submissions of the appellants&; counsel, nevertheless submitted that the law must be related to the facts of the case ande and any issues arising therefrom must be determined, in the absence of express provision, according to the intention of the parties to the contract, which, in this instance, was to be reduced into writing but for various reasons, never eventuated.

In regard Lord Denman Cman C.J. said in Palmer v. Temple (188 .R.R. 568 at p.573 :

“... in the absence of any specificision, the question whether the deposit is forfeited dependepends on the intent of the parties to be collected from the whole instrument.&#8221
In similar vein in Howe ith&#160 (160;(op.cit) wherenature oure of a deposit was considered and the right of the purchaser to the return of it was rejected, Bowen L.J. said at p.97 :

“The questi t as to the right of the pser to the return of the dehe deposit money must, in each case, be a question of the conditions of the contract. In principle it oughbe so, because of course persons may make exactly what barg bargain they please as to what is to be done with the money deposited. We have to look at the documents to see what bargain was made.”

What then was ttent of t of the parties or the conditions of the contract that dealt with the deposit in this case ? The evidence before the trial magistrate comprised a receixhibit 2) issued by the defendants (appellant) which reads,eads, in part :

“beor Depositposit to the house at 26 Laucala Bay Road.

$12.00. Balance $112,500.0000.00"

The language of the receipt clearly describes tyment as a ‘Deposit’ and the ‘BalanceRe’ figure suggests that it is also intended as part-payment of the purchaice and therefore might be said to fall within the classic ssic mould of money paid as a deposit and in part-payment of the purchase price.

There was ale oral evid evidence of the defendant (at p.26) that at the time of receiving the money, he had somewhat prematurely “... told the plaintiff that the deposit will not be refunded”, to which the plaintiff replied, “I will be taking the house in a couple of weeks and no worry.”

Then there he oral evid evidence of the plaintiff (at p.16) that he “paid a sum of $12,500 as deposit ...” which he “understood it was a deposit for housding finalisation of (his) father’s Estate” and; and later in cross-examination he said (at p.18) : “I paid the deposit so that the defendant could sell the property to me.”

On the basis of thidencidence the trial magistrate held “that the plaintiff (respondent) had at no time agreed that the deposit will be forfeited in the event of the sale fg through for whatever reason.” In the light of the lthe law as earlier discussed however, that was not a finding that the trial magistrate was entitled to make insofar as he considered the reason for the contract falling through was irrelevant.

Not only does the finding fail to take into account the legal nature of a deposit as an earnest or guarantee for the fulfilment of the contract but more seriously, it ignores the dictum of Bowen L.J. in Howe v. Smith<160;(op.ciop.cit) when his lordship said at p.98 :

&;It is quite certacertain that the purchaser cannot insist on abandoning his contract and ycover the deposit, because that would be to enable him to t to take advantage of his own wrong.”

The reason or cause ofna contract falling through is plainly a relevant consideration that fundamentally affects the right of an innocent party to eitorfeit or recover any deposit paid and cannot be ignored. Unfortunately in this case it wast was ignored by the trial magistrate and as a consequence no material findings were made by him in that regard.

The result os appeal isal is not concluded however, by either the trial magistrate’s manifest error in law or by his serious omission flowing therefrom, nor in my vie I required to deal with that rather vexed question upon whon which the parties and counsel seriously differ. I say this because of the nature of the submissions of counsel for the respondent on appeal.

In counsel&#8 submissioission, the present case is not one concerning a deposit paid pursuant to a binding written agreement which made no provision for either its forfeiturrepayment in the event of the contract falling through as i as in the authorities cited by counsel for the appellants, instead, after referring to the legal requirement that a contract relating to the sale of land must be evidenced by some writing, counsel in his submission writes :

“In this case -

(a) ; nd bincong act ract existexisted between the parties ; and

(b) ـ < (there was) no writtdum reum reemetween the es the depshall be non-rnon-refundefundable.able.̶”

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More particularly, cl rsel referred to the unsigned Sale and Pur agres (Exs D3 and 4) d 4) as noas not onlt only evincing an intention on the part of the parties to reduce their agreement into writing but more imntly, the fact that neitherither agreement was signed despite having been exchanged by the parties, confirms that they had not reached any consensus as to the terms of a binding Sale and Purchase agreement. In counsel’s words : “Accept the purchase price finalised and deposit paid but anything else was not agreed.”

In effectnsel’s s7;s submission is that the evidence merely discloses that the parties were still at the negotiations stage or at most had orally agreed some basics which were to be incorporated into a binding written cont contract executed by them and therefore, in the absence of a such a contract, there was no actual or enforceable agreement between the parties, and accordingly, the respondent was entitled to the refund of his deposit which counsel described in his submissions to the trial magistrate (at p.29) as ‘merely (a) holding deposit’.

In rruth. Whi. Whitaker and Annd Anor [1975] 2 N.Z.L.R. 667 the New Zealand Court of Appeal in rejecting the existence of a concluded contract for the sale of land in that case where the Sale and Purchase Agreement was only sign the purchaser

&#822d : Where part partiesrties are proposing to enter into a contract the manner in which it is to become binding must be gathered from the intentions of the parties express or implied. In a contract for the sale of land there is a well-known common and customary method of dealing in a document signed by both the vendor and the purchaser. Normally in such contracts the inference is that the above method is contemplated by the parties.”

The situation in this case is more akin to that in Cassonoberts (160;(1862) 135 R.R. hich cich concerned a parol contract for the sale of freehold land, where the headnote reads :

&#8220e the no cct or n or no contract which can be enforced, the, the purchaser is entitled to a return ofrn of his deposit even though the vendor ie and willing to complete the sale, unless an express or implied agreement to the contrary rary is established.”

Iecting the defendant&#ant’s claim that the deposit had been forfeited in consequence of the purchaser’s non-completi the purchase, Romilly M.R. said at p.572:

“Wht is necesnecessary tory to ascertain who is to blame for the non-performance of an agreement when the Court is asked to determine whether a deposit paid ought to be returned, it must necessaro so in a manner most unsatunsatisfactory. When a deposit is paid by a purchaser to a vendor the presumption is, that it is paid on behalf of the purchaser, and that he was to obtain the benefit of it on the completion of his purchase : in fact, that it was made in part discharge of the purchase-money. An agreement certainly might be made that the deposit should be forfeited in case the purchase should not be completed, but this must either be expressed or clearly implied from the contract itself. It had in many cases, from the terms of the contract, and even from its silence, been held that a forfeiture must be inferred. There is, however, no authority which holds that the deposit must be considered as forfeited in the absence of any agreement whatever, or one which could neither be enforced at law nor in equity.”

In my considered view the evidence and the trial magistrate’s findings in this case are capable of supporting the conclusion that the parties had merely agreed to enter into a bg written Sale and Purchase Agreement and accordingly, the the payment in this case may be described, in the words of Sargant L.J. in Chillingworth v. Esche#1u> (1924) 1 Ch. 97 at p.115 :

“... as being an anticipatory payment intended only to fulfil the ordinary purpose of a deposit if and when the contemplated agreement should be arrived at.”
&#br>Waton L.J. in the sthe same case said of the deposit paid in d in that case at p.112:

0;Then it is said taid that unless the consequence of the payment of the deposit amounts to a guarantee to complete the purchase the payment of it is perfectly e. I do not agree, because the purchaser by payment of a de a deposit shows that he means business. The purchaser has not bound himself, but in order to show a definite intention he is willing to part with money, and run the risk of the vendor spending the money and being unable to return it if negotiations are broken off. The purchasers contend that this is a deposit paid in anticipation of a final contract and nothing more. That seems to me to be the true view.”

Baylis v. BishoLondo&#16> (1913) 1 Ch.127 at p.140 wHere Hamilton L.Jn L.J. said `the question is whether it is conscientious of the defendant ep the money, not whether it is fair for the plaintiff to ask to have it back’, and iand in the cases of `money had and received’ in the old forms of pleadings one of the allegations was that the purchaser had lost the use of the money.”

Thal magistrate cited nted no authority for his conclusion in this regard other than to say : “It will be a case of the defendants enriching themselves unconscionably.” The modern vi the doctrine of unjust enrt enrichment may be traced to the judgment of Lord Wright in Fibroolka Akcyjna v. Fai. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; [1943] A.C. 32 where his lordship said at p.61 :

&#8220s clear that that any civilsystem of law is bound to provide remedies for cases of whaf what has been called unjust enrichment or unjust benefit, that is to prea man from retaining the money or some benefit derived from from another which it is against conscience that he should keep.”

There are also the dof a of Denning L.J. in Stock v. Johnson&#16> [1954] 1 Q.6 when he said aaid at pp.489/490:

“It seems tthme that the cases show the law to be this : ... (2) But when the money is paid as a it (wis equivalent to t to a forfeiture clause), then the buyer uyer who is in default cannot recover the money at law at all. He may, however, have a remedy in equity, for, despite the express stipulation in the contract, equity can relieve the buyer from forfeiture of his money and order the seller to repay it on such terms as the court thinks fit. That is, I think, shown clearly by the decision of the Privy Council in #160;[1916]C. 275, where thre the Board consisted of a strong three, Viscount Haldane, Lord Parker and Lord Sumner.”
and later his lordshordship said :

&#8220things aressacessary : firs first, the forfeiture ... must be of a penal nature, in the sense, that the sum forfeited must be out of roporto the damage, ane, and secondly, it must be unconscionable for the seller to retain the mohe money.”

Sommerville for his pars part said at p.485 (ibid) :

In resent case as to thto the ‘things’ enunciated by Denning L.J. (op.cit) rial magistrate said :
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8220;In this case ther there is no evidence at all that the defendant has suffered any or d by the sale to the plaintiff falling through. In fact the defendants have made aade a prof profit ... $13,000 more than what they would have got from the plaintiff”

and later he said>

&#8here is e is no evidence whatsoever to show the defendants were unable to sell the property to another offeror as the property was being held for the plain Theralso no evidence ence that the plaintiffs (sic) suffered aned any loss or damage by the delay that was caused ... The evidence is to the contrary.”

The appeal is accgly dily dismissed with costs to the respondent.

(Appeal dismissed).