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Vendor and purchaser enter into property contract following
auction
The vendor listed a commercial property for sale in South Yarra,
Victoria as mortgagee in possession.
The vendor and purchaser entered into a written contract of sale
on 24 February 2005 following a public auction of the property held
that day.
The written contract provided for a purchase price of
$4,562,000, with a deposit of $400,000 payable on signing. The
balance was payable 45 days from the day of sale, or earlier by
mutual agreement.
The purchaser provided the vendor with a deposit cheque for
$400,000.
Later that day the vendor's agent banked the cheque with a
request for special clearance.
Purchaser's deposit cheque dishonoured and vendor rescinds
contract
The following day, the bank notified the agent that the cheque
had been dishonoured, and the vendor issued a notice of rescission
to the purchaser.
The notice of rescission required that the default in payment be
remedied within two days of service of the notice.
When the default was not remedied, the vendor rescinded (ie
cancelled) the contract, and sold the property to another buyer for
$4,562,000.
The vendor then commenced proceedings against the purchaser to
recover the $400,000 deposit.
case a - The case for the purchaser
case b - The case for the vendor
The vendor repudiated the contract (ie indicated that it did
not intend to perform its fundamental obligations under the
contract). Therefore, I am not liable to pay the unpaid
deposit.
I attended the auction with the knowledge that there was only
enough money in the relevant bank account to cover a 5% deposit.
It's for this reason that shortly before I executed the
contract for sale, I asked the agent if the vendor would accept a
cheque for 5% as the deposit with a lesser settlement period. The
vendor agreed to the proposed term. This verbal agreement formed
part of the contract of sale.
The cheque that I handed over for the greater amount of
$400,000 was handed to the agent prior to the verbal agreement to
accept 5%. This was the first auction I had ever been to and the
first time I had ever bid for a property, and I made the error of
not requesting the cheque back so I could amend it to reflect the
agreement to accept a 5% deposit.
The agent also neglected to return the cheque, and he proceeded
to deposit the cheque with a request for special clearance. This
was even though I told him that there were insufficient funds in
the relevant bank account to cover the amount of the cheque.
The fact that the cheque was dishonoured did not constitute a
breach of contract, since I was always ready, willing and able to
pay the 5% deposit as per our verbal agreement.
After receiving the notice of recission, I even offered to
tender a new cheque in the correct amount of 5%, but the vendor
refused. This refusal was a repudiation of the contract by the
vendor which I accepted, at which point the contract came to an
end.
I am therefore not obligated to pay any deposit to the vendor
and the court should rule accordingly.
Irrespective of what the purchaser alleges, we never made a
verbal agreement to accept a 5% deposit.
The contract was solely in writing. Had we agreed to a
reduction in the deposit to 5%, we would have amended the written
contract accordingly.
The purchaser was required under the written agreement to pay a
deposit of $400,000.
The purchaser's deposit cheque for $400,000 bounced, and
the notice of recission made it clear that if he did not remedy
this failure to pay, we would rescind the contract, which we
did.
In such circumstances, the law allows us to recover the deposit
that should have been paid before the contract was discharged.
Therefore we are entitled to recover the $400,000 deposit from
the purchaser and the court must order the purchaser to make the
payment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
