Sale of land: Deposit

Defendant agreeing to sell property to claimant - deposit to be paid with balance on completion - claimant issuing notice to complete - failure of defendant to complete - claimant seeking to recover deposit - whether deposit paid - whether court should order return of deposit - claim dismissed - appeal dismissedOmar v El-Wakil: Court of Appeal: Lord Phillips MR, Pill LJ, Arden LJ: 11 July 2001The parties entered into two agreements both dated 22 January 1992.

By the first agreement, the claimant and two companies owned by him sold a 110,000 business to a company controlled by the defendant.The first agreement was silent as to the method of payment, but contained a covenant to enter into a second agreement.

It also provided that the claimant, as owner, should grant the defendant's company a lease of 87 Bell Street, London NW1, and that the parties should indemnify each other against pre- and post-completion date debts.

By the second agreement the defendant sold the claimant a property at 11 Corringham Road, London NW11.

The price was 350,000, with 110,000 to be paid on signing the contract, and the balance on completion.

The contract stated that completion should take place on 22 April 1992, or 14 days after the date on which the defendant notified the claimant that he was ready to complete, 'whichever shall be later'.In due course the claimant served notices to complete.

The defendant failed to do so, and the claimant issued proceedings to recover damages in the amount of the 110,000 deposit, alternatively repayment of the deposit.The judge held that the claimant could not say he had paid 110,000 to the defendant, and that in any event, the claimant had at all stages in 1992, been unable to complete as he had not been in a position to pay the balance of the purchase price to the defendant.

Furthermore, it was difficult to determine whether the defendant could have completed the transfer, since the amount of the proceeds from the sale of the property were less that the amount the defendant required to redeem his mortgage.

Accordingly, the judge dismissed the claim.The claimant appealed, contending that the judge should have found that the 110,000 deposit had been paid and should have ordered it to be repaid.

The claimant relied, among other things, on section 49(2) of the Law of Property Act 1925, which provided that: 'Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of the deposit.'Held: The appeal was dismissed.

1.

The first question was whether any deposit had been paid.

The judge had considered the transactions separately when it was clear that the parties regarded them as part of a single transaction.

The deposit did not have to be paid in cash, and was clear that the parties had considered that it had been paid by the transfer under the first agreement.

The judge should have concluded that the obligation to pay it was discharged.2.

On the judge's findings, the contractual provision for forfeiture of the deposit provided for by clause 2 of the National Conditions of Sale (20th ed) did not operate, as neither party had been in a position to complete.The court could exercise its discretion under section 49(2) of the Act, bearing in mind that a deposit should not normally be ordered to be repaid.

On the facts, it could be concluded that the courts' discretion was not to be exercised in the claimant's favour not least because of the claimant's conduct; he could not himself complete and it would be wrong for the defendant to be ordered to pay cash when the deposit had not been paid in cash.Alexander Hill-Smith (instructed by The Sethi Partnership, Ruislip) for the claimant; Martin Russell (instructed by Moss Beachley Mullen & Coleman, London) for the defendant.