A recent unanimous decision of the Queensland Court of Appeal in Willmott v McLeay [2013] QCA 84 confirmed that where part of a deposit on a contract for the sale of land remains unpaid, the vendor acquires a debt for the unpaid amount as of the date the deposit was due. The Court also found that such a debt does not confer an unfair windfall to the vendors.
Background
The parties entered into a standard form, Real Estate Institute of Queensland, contract for the sale of land. The purchaser paid an 'initial deposit' of $1,000 on signing the contract, with the 'balance deposit' of $204,000 to be paid within 7 days.
The purchaser failed to pay the balance deposit within the allotted time, or by a later date to which an extension had been given. The purchase price was not paid.
The vendor terminated the contract and sought recovery of the unpaid balance deposit as a liquidated debt.
Decision
Holmes JA was clear that a liquidated debt for the unpaid balance of a deposit arises at the time the deposit was due. This debt survives the termination of the contract and does not limit the vendors other rights under the contract:
"Under cl 2.2(3) the seller acquires a right to recover the unpaid balance of the deposit at the time when payment is required under the contract... Clause 9.1 makes it clear that the seller may terminate for the buyers' default without limiting its other rights under the contract." (at 19)
Further, Holmes JA held the recovery of such a debt does not constitute any unfair windfall to the vendors:
"[The] conclusion that the sellers have an accrued right to claim the deposit as a debt in addition to the rights conferred by cl 9.4 does not entail, as was suggested in submissions below, an unfair windfall to the vendors; to the contrary, it accords with the dual character of the deposit as part payment of the purchase price but also as "a guarantee that the purchaser means business" or as "an 'earnest' of the bargain or its performance"." (at 20)
Fraser and White JJA agreed with the decision and reasoning of Holmes JA.
Implications
The decision in Willmott v McLeay confirms that the unpaid balance of a deposit is a liquidated debt incurred as of the date the deposit was due, and the debt exists independently of the election to affirm or to terminate the contract, or any subsequent dealings the vendor may have with the land.
There is no unjust enrichment by recovery of the debt for an unpaid deposit in circumstances where the vendor has gone on to sell the land to a new purchaser at the same or higher price and has arguably not sustained any damage.
Finally, the operation of statutory interest provisions on the debt will mean the vendor can recover interest at the court rate from the time the debt arose, i.e. from the date on which the balance of the deposit was due.
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.
