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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 vendor of a property retained a deposit paid to
him by a prospective purchaser who failed to complete. Subsequently the property
was sold for a higher price than that agreed between the parties. The
Magistrates’ Court 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:
Baylis v. Bishop of London (1913) 1 Ch. 127
Carruthers v. Whitaker and Anr [1975] 2 NZLR 667
Casson v. Robertys (1862) 135 RR 571
Chillingworth v. Esche (1924) 1 Ch. 97
Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd
Hall v. Burnell (1911) Ch. D. 55
Howe v. Smith (1884) 27 Ch. D. 89
Martin v. Finch [1923] NZLR 570
Palmer v. Temple (1839) 48 RR 568
Soper v. Arnold (1889) 14 A.C. 429
Stockloser v. Johnson (1954) 1 QB 476
Appeal against
Judgment entered in the Suva Magistrates’ Court.
V.
Kapadia for the Appellants
A.R. Matebalavu for the
Respondent
Fatiaki J:
This is an appeal
against the judgment of the Suva Magistrates’ Court delivered on the 14th
of September 1995 in which the appellants
(the defendants below) were ordered to
refund to the respondent (the plaintiff below) the 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 Learned trial magistrate erred in law and in fact in granting
judgment for the Plaintiff/respondent as it was against
the weight of the
evidence adduced at the trial.”
In considering this appeal it
is necessary 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 defendant : (pp.32 to 34 of the record) :
“The question to be considered is whether the $12,500.00 paid by the plaintiff should be refunded or not.
It is admitted that there is no writing whatsoever to evidence any agreement regarding the deposit.
The receipt issued by the defendants has nothing in it to show whether the deposit was not refundable.
The two agreements 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 plaintiff said : ‘I will take the house in a couple of weeks and no worry.’ If this 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 plaintiff had no where in his evidence said that he agreed to the deposit being forfeited in the event of the sale falling through.
On all the evidence 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 circumstances are the defendants entitled 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 plaintiff falling through.
In fact the defendants have made a profit. The land had been sold for
$138,000.00 or $13,000 more than what they would have got from
the
plaintiff.
There 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
plaintiff. There is also no evidence that the plaintiff suffered any loss or
damage by the delay that was caused for
the sale of the property.
The evidence is to the contrary. The defendants as soon as they realised that
the plaintiff was not going to purchase obtained permission
from the Lands
Department and sold the property to the present owner at a large
profit.
In all the circumstances in this case and all the evidence taken into
consideration I am satisfied that the defendants have no right
to withhold the
deposit and the full amount must be refunded to the plaintiff. The defendants
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 the deposit should the contract fall through ; and secondly, the
equitable
doctrine of unjust enrichment.
As to the first ground,
Counsel for the appellants submits that the trial magistrate “(fell) into
error in holding that the
deposit must be refunded because the receipt does not
state that it is non-refundable” and also in “(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.
In this latter
regard the Court was referred to several authorities including the leading case
of Howe v. Smith (1884) 27 Ch.D.89 ; Soper v.
Arnold (1889) 14 A.C. 429; Hall v. Burnell (1911)
Ch.D. 55 ; Martin v. Finch (1923) N.Z.L.R.570 and Lowe
v. Hope [1969] 3 All E.R. 605. For present purposes however it is
sufficient to refer to the convenient summary of the law relating to deposits in
Vol. 34 of Halsburys Laws of England (3rd
edn.) which reads :
“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 security for the performance of the contract, and it is usual to provide
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 from the above and
from dicta in the cases cited, that subject to the existence of a binding
agreement and in the absence
of express provision, forfeiture of a deposit in a
contract of sale that has fallen through is dependant upon a finding that the
contract goes by the default of the purchaser.
This is also clear
from what was said by Cotton L.J. in Howe v. Smith (op.cit)
which was a case in which the written contract contained no clause at all as to
what was to be done with the deposit
if the contract was not performed, at
p.95:
“In order to enable the vendor (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.”
Counsel for the respondent 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 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 this regard Lord Denman C.J.
said in Palmer v. Temple (1839) 48 .R.R. 568 at p.573
:
“... in the absence of any specific provision, the question whether the
deposit is forfeited depends on the intent of the parties
to be collected from
the whole instrument.”
In similar vein in Howe v.
Smith (op.cit) where the nature 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 question as to the right of the purchaser to the return of the
deposit money must, in each case, be a question of the conditions
of the
contract. In principle it ought to be so, because of course persons may make
exactly what 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 the intent 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 receipt (Exhibit 2) issued by
the defendants (appellant) which reads, in part :
“being for Deposit to the house at 26 Laucala Bay Road.
$125,000.00. Balance $112,500.00"
The language of the
receipt clearly describes the payment as a ‘Deposit’ and the
‘Balance’ figure suggests
that it is also intended as part-payment
of the purchase price and therefore might be said to fall within the classic
mould of money
paid as a deposit and in part-payment of the purchase
price.
There was also the oral 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 was the oral 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 house pending finalisation of (his)
father’s Estate” 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 that evidence 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 falling through for whatever
reason.” In the light of the 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 (op.cit) when his lordship said at p.98 :
“It is quite certain that the purchaser cannot insist on abandoning his
contract and yet recover the deposit, because that would
be to enable him to
take advantage of his own wrong.”
The reason or cause of a
contract falling through is plainly a relevant consideration that fundamentally
affects the right of an innocent
party to either forfeit or recover any deposit
paid and cannot be ignored. Unfortunately in this case it was ignored by the
trial
magistrate and as a consequence no material findings were made by him in
that regard.
The result of this appeal is not concluded however, by
either the trial magistrate’s manifest error in law or by his serious
omission flowing therefrom, nor in my view, am I required to deal with that
rather vexed question upon 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’s submission, the present case is not one
concerning a deposit paid pursuant to a binding written agreement which
made no
provision for either its forfeiture or repayment in the event of the contract
falling through 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) no binding contract existed between the parties ; and
(b) (there was) no written memorandum or agreement between the parties that the deposit shall be non-refundable.”
More particularly, counsel referred to the unsigned Sale and
Purchase agreements (Exhibits D3 and 4) as not only evincing an intention
on the
part of the parties to reduce their agreement into writing but more importantly,
the fact that neither 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 effect, counsel’s submission is that the
evidence merely discloses that the parties were still at the negotiations stage
or at most had orally agreed some basic terms which were to be incorporated into
a binding written 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 Carruthers v. Whitaker and
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 signed by the purchaser
“Held : Where parties 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.”
Having
carefully considered the evidence ; the trial magistrate’s findings and
the submissions of counsel, I am firmly of the
view that the trial
magistrate’s ultimate conclusion was correct but for slightly different
reasons, and I prefer and uphold
the submissions of counsel for the
respondent.
In my view the present case under appeal is
distinguishable from the authorities cited by counsel for the appellants insofar
as those
cases concerned binding agreements in writing which had fallen through
as a result of the purchaser’s default.
The situation in this
case is more akin to that in Casson v. Roberts (1862) 135 R.R.
571 which concerned a parol contract for the sale of freehold land, where the
headnote reads :
“Where there is no contract or no contract which can be enforced, the
purchaser is entitled to a return of his deposit even
though the vendor is able
and willing to complete the sale, unless an express or implied agreement to the
contrary is established.”
In rejecting the defendant’s
claim that the deposit had been forfeited in consequence of the
purchaser’s non-completion
of the purchase, Romilly M.R. said at
p.572:
“Where it is necessary 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 necessarily do so in a manner most
unsatisfactory. 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
binding written Sale and Purchase Agreement and accordingly, the payment in this
case may be described, in the words of Sargant L.J. in Chillingworth v.
Esche (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.”
Warrington L.J. in the same case said of the
deposit paid in that case at p.112:
“Then it is said that unless the consequence of the payment of the
deposit amounts to a guarantee to complete the purchase the
payment of it is
perfectly futile. I do not agree, because the purchaser by payment of 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.”
For his part Pollock M.R. in rejecting the
vendor’s entitlement to retain the deposit said at p.107
(ibid):
“... I think the onus of showing a right to retain (the deposits) rests
on the vendor, ... the authority for it is to be found
in Baylis v.
Bishop of London (1913) 1 Ch.127 at p.140 where Hamilton L.J. said `the
question is whether it is conscientious of the defendant to keep the
money, not
whether it is fair for the plaintiff to ask to have it back’, and 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.”
If I should be wrong however in my assessment of the
evidence in this case, and therefore must assume that a concluded and binding
Sale and Purchase agreement existed between the parties, then I turn to consider
the second ground on which the trial magistrate
based his decision, namely,
unjust enrichment.
The trial magistrate cited 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 view of the
doctrine of unjust enrichment may be traced to the judgment of
Lord Wright
in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd.
[1943] A.C. 32 where his lordship said at p.61 :
“It is clear that any civilised system of law is bound to provide
remedies for cases of what has been called unjust enrichment
or unjust benefit,
that is to prevent a man from retaining the money or some benefit derived from
another which it is against conscience
that he should
keep.”
There are also the dicta of Denning L.J.
in Stockloser v. Johnson [1954] 1 Q.B. 476 when he said at
pp.489/490:
“It seems to me that the cases show the law to be this : ... (2) But
when the money is paid as a deposit (which is equivalent
to a forfeiture
clause), then the buyer 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 Steedman v. Drinkle [1916] 1 A.C. 275, where the Board
consisted of a strong three, Viscount Haldane, Lord Parker and Lord
Sumner.”
and later his lordship said
:
“Two things are necessary : first, the forfeiture ... must be of a
penal nature, in the sense, that the sum forfeited must be
out of all proportion
to the damage, and secondly, it must be unconscionable for the seller to retain
the money.”
Sommerville L.J. for his part said at
p.485 (ibid) :
“I think that the statements of the law in the cases to which I will
refer indicate a wider jurisdiction. I think they indicate
that the Court would
have power to give relief against the enforcement of forfeiture provisions,
although there was no sharp practice
by the vendor, and although the purchaser
was not able to find the balance. It would, of course, have to be shown that the
retention
of the instalments was unconscionable, in all the
circumstances.”
In the present case as to the
‘things’ enunciated by Denning L.J. (op.cit) the
trial magistrate said :
“In this case there is no evidence at all that the defendant has
suffered any loss or damage by the sale to the plaintiff falling
through. In
fact the defendants have made a profit ... $13,000 more than what they would
have got from the plaintiff”
and later he said
:
“There 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
plaintiff. There is also no evidence that the plaintiffs (sic) suffered any loss
or damage by the delay that
was caused ... The evidence is to the
contrary.”
Given those findings, I am satisfied that the
trial magistrate was entitled to and correctly concluded that in all the
circumstances
were the defendants to retain or forfeit the plaintiff’s
deposit : “It will be a case of the defendants enriching themselves
unconscionably.”
The appeal is accordingly dismissed with
costs to the respondent.
(Appeal dismissed).
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