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Which case won?

“The property vendor made a verbal agreement to accept a 5% deposit. Now they’re suing me for 10%.” Which case won?
08 Feb | Which Case Won

“The property vendor made a verbal agreement to accept a 5% deposit. Now they’re suing me for 10%.” Which case won?

by Anneka Frayne, Tamworth and Sue Steel, Tamworth

The Facts

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When the default was not remedied, the vendor rescinded (ie cancelled) the contract, and sold the property to another buyer for $4,562,000.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.

casea
The case for the purchaser
  • 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.
caseb
The case for the vendor
  • 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.

So, which case won?

Cast your judgment below to find out
Case A Case B

Case B won. You were right!

How people voted
a34%
b66%

Expert commentary on the court's decision

Anneka FrayneDirector
“If you are a nervous public speaker, then your oral evidence in the witness box might be the failure of your case. Particularly in recent times where evidence has been given over audiovisual links, and the sound quality or internet connection are not perfect, your oral evidence may be fatal to your case.

Always ensure you put all of the terms of an agreement in writing, and that your lawyer has reviewed the agreement before signing.”
Sue SteelConveyancing Paralegal
Supreme Court rules in favour of the vendor

In Owenlaw Mortgage Managers v Baird [2007] VSC 521, the Supreme Court of Victoria ruled in favour of the vendor, Owenlaw Mortgage Managers. 

The court ordered the purchaser, Mr David Baird, to pay Owenlaw the outstanding $400,000 deposit. 

Court prefers vendor’s evidence to purchaser’s

The court stated that vendor’s right to the unpaid deposit simply turned on the facts and that those facts were unequivocally clear in establishing Owenlaw’s right. 

The court found Owenlaw’s witnesses to be honest, and their evidence to be persuasive and consistent with the terms of the contract of sale as executed by the parties. 

As against this, the court found Mr Baird and his witnesses to have given false and unreliable evidence that was inconsistent and improbable.  

Court finds no verbal agreement for 5% deposit

The court accepted Owenlaw’s evidence that it did not agree to a 5% deposit and rejected Mr Baird’s evidence to the contrary.  

In the court’s view, had Owenlaw agreed to a 5% deposit, it would have been noted or written on the contract.  

Further, Mr Baird’s evidence of a verbal agreement for a 5% deposit was contradicted by the written terms stipulating a $400,000 deposit and the cheque provided to Owenlaw in the sum of $400,000. 

The court rejected Mr Baird’s evidence that he told Owenlaw the cheque would bounce if it was cashed too quickly. In the court’s view, had Mr Baird really said that, then Owenlaw would not have accepted the cheque and would have asked the agent to go out to the underbidder (ie the bidder who made the second highest bid at the auction).  

The court also rejected Mr Baird’s evidence that a replacement cheque for a 5% deposit had been tendered to Owenlaw and had been refused. 

Always put full terms of agreements in writing

It is so important to ensure that agreements are in writing, and that they are not ambiguous.  

It is so common for a dispute to arise because of a conversation that one or both parties have misconstrued.  

Unfortunately, unless there is physical, objective evidence that the court can consider, the court only has the oral evidence given by examination and cross-examination at a final hearing.  

If you are a nervous public speaker, then your oral evidence in the witness box might be the failure of your case. Particularly in recent times where evidence has been given over audiovisual links, and the sound quality or internet connection are not perfect, your oral evidence may be fatal to your case.  

Always ensure you put all of the terms of an agreement in writing, and that your lawyer has reviewed the agreement before signing.  

Be mindful of legal implications of bidding on behalf of another party

At the auction, Mr Baird was bidding on behalf of another party.  

As the successful bidder, he signed the contract personally, adding the words “and/or nominee” after his name.  

No nomination was ever made, and the court pointed out that even if there had been a nomination, Mr Baird would have remained liable for payment of the deposit.  

Before bidding at an auction on behalf of another party, you should always seek legal advice to ensure that you take appropriate steps to protect yourself from potential liability. 

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.
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