The parties entered into two linked contracts providing for a property and a business to be transferred, a lease granted and otherwise. The transfer of the property was in the sum expressed in the sum and at the time the other agreement provided for the deposit. After that transfer the claimant issued a notice to complete, and then sought payment of the deposit. The respondent who had already transferred the property claimed that this stood for the deposit, and requested its return.
Held: His appeal was refused. Although the court should have treated the two contracts as one, and the house as the deposit on the second contract, a deposit should not normally be returnable. Neither party was in a position to complete the second contract and the notice to complete was inappropriate.
Arden LJ discussed the interpretation of section 49(2): ‘The starting point must be that although section 49(2) is expressed in open-textured terms leaving it to the courts to determine the organising principles, the court must bear in mind that the payment in question was a ‘deposit’, that is an earnest for performance and that accordingly there should not be relief simply because the Corringham contract never took place . . The context here is of a conveyancing transaction. It is common knowledge that if a purchaser pays a deposit he is likely to forfeit it if he does not fulfil the contract. Moreover deposits are very usual features of conveyancing transactions and conveyancing transactions are common. It is important that there should be certainty attaching to the consequences of paying a deposit.
As the judge did not exercise his discretion under section 49(2), or alternatively declined to exercise it on the basis no deposit had been paid, it is open to this court to do so. For the reasons given, I would start from the position that the deposit should not normally be ordered to be repaid. Are there any mitigating circumstances in the present case? . . Furthermore in my judgment, in a situation where a purchaser could not himself perform, the circumstances which make it appropriate for the court to exercise its discretion under section 49(2) in his favour must be exceptional. Inability to complete is exactly the risk the deposit was intended to guard against. Accordingly I would not exercise the discretion conferred by section 49(2) in Mr Omar’s favour and would dismiss the appeal on that point.’
Judges:
Phillips MR, Pill LJ, Arden LJ
Citations:
Gazette 26-Jul-2001, Times 02-Nov-2001, [2001] EWCA Civ 1090, [2002] 2 P and CR 36, [2001] NPC 114
Links:
Statutes:
Law of Property Act 1925 49(2)
Jurisdiction:
England and Wales
Cited by:
Cited – Eyestorm Ltd v Hoptonacre Homes Ltd CA 19-Dec-2007
The appellant had agreed to take leases on a development of the defendant, hoping to sell the apartments on at a profit. After difficulties, the appellant refused to complete, and the defendant forfeited the deposits.
Held: Eyestorm’s appeal . .
Cited – MIDILL (97Pl) Ltd v Park Lane Estates Ltd and Another CA 11-Nov-2008
Refusal to return Land Contract Deposit
The court was asked as to whether a seller could retain a deposit paid by the claimant on a sale where contracts had been exchanged but the buyer had proved unable to go ahead.
Held: The appeal against refusal of return of the deposit failed. . .
Too restrictive – Tennaro Ltd v Majorarch 2003
The parties entered into three related contracts to grant long leases of three flats in the same block (Nos 37, 32 and 31), and deposits paid. The vendor served notices to complete and when the purchaser did not comply, he rescinded each agreement . .
Lists of cited by and citing cases may be incomplete.
Land, Contract
Updated: 01 June 2022; Ref: scu.159506
