Lost deposit

[sunnydays]

Wondering whether anyone has any advice regarding a deposit placed for the purchase of our boat. Our broker took a deposit but unfortunately the customer wasn't able to go ahead because of problems with finance, a real shame as our boat was 'under offer' for 6 weeks during the busy season. The broker says they have refunded the deposit but given that the deposit we placed on the boat when we initially bought it was non refundable (with another broker) we are wondering what the rules are (if any!)
Any help much appreciated!

 

[jfm]

Wondering whether anyone has any advice regarding a deposit placed for the purchase of our boat. Our broker took a deposit but unfortunately the customer wasn't able to go ahead because of problems with finance, a real shame as our boat was 'under offer' for 6 weeks during the busy season. The broker says they have refunded the deposit but given that the deposit we placed on the boat when we initially bought it was non refundable (with another broker) we are wondering what the rules are (if any!)
Any help much appreciated!

The question of whether the buyer was enttiled to return of deposit depends ENTIRELY on the wording of the contract. We don't know that wording, so can't advise.

Normally the contract wording would not provide for return of deposit due to not getting finace. If (and I say IF) that is the case your broker shouldn't have returned the deposit. He should have retained out of it asum to cover your losses. Of course, your losses might be zero or small, bearing in mind you still own the boat. However if you eventually sell the boat for a lower price, your losses are the price drop, and your broker ought to have withheld the deposit to cover that loss. In which case take action against the broker

But it depends entirely on the contract

 

[mjf]

I agree with jfm - however I would have thought it more professional if the broker had advised you prior to the refund and discussed it with you first. After all its not their money is it?

 

[tinkicker0]

Welcome to the forums Sunnydays.

JFM is absolutely right. A deposit is traditionally a sign of good faith from the buyer to the vendor as to his absolute intention to complete the sale and to invoke a warranty from the vendor to the buyer to withdraw the object from sale to other parties.

It makes the contract as without it, there can be none (valuable consideration is one of the fundamental requirements for a legally binding contract). Without money changing hands, the process is regarded as merely an invitation to treat. (you offer to sell him a boat and he can accept or refuse to buy).

Normally the deposit is witheld if the sale falls through, unless it is proved to be not the fault of the buyer, as JFM says, to help defray costs incurred and time wasted.

Should the costs incurred be more than the deposit witheld, then the buyer can in addition sue for damages for breach of contract, but the seller would have to show that he had taken all possible steps to mitigate his losses.
Selling a £100k boat for £50k for a quick sale and taking the original buyer to court for the rest would not go down well with the judge.

However, if the sale falls through due to no fault (buyer dies, becomes terminally ill or something) then the deposit is usually returned.

In your case, the buyer should have checked he had the funds available before offering to buy your boat and hence, it is his fault he cannot proceed, therefore he has lost his deposit.

UNLESS a specific or strongly implied term in any contract between your broker and the buyer says any deposit is fully refundable for whatever reason.

 

[jfm]

Tinkicker, just to pick you up on a couple of points and I apologise in advance for pedantry etc but it is on point:

1. There is no need for a deposit to make a contract. A contract requires consideration to be legally binding (with some exceptions), but the consideration is the purchase price of the boat. There is no need for any of it to be paid up front by buyer as a deposit, any more than there is a requirement on seller to hand over a 10% slice of the boat

2. "you offer to sell him a boat and he can accept or refuse to buy" is NOT an invitation to treat. Inivtation to treat comes before offer and is quite distinct from offer. The definition of invitation to treat in this context is "seller lets the world know the boat is for sale and invites buyers to make offers, which seller may or may not accept; only upon acceptance can there be a contract, thus the creation of a contract is entirely veto-able by seller"

3. In the absence of liquidated (= pre-quantified) losses, which is a rare thing in boat sales, either side is entitled only to their reasonably foreseeable losses (mitigated as you say) if the other side is in breach. The deposit functions as seller's security for that. Buyer gets no such security, by the way. Time "wasted" isn't per se an allowable loss.

4. Regarding your comment "However, if the sale falls through due to no fault (buyer dies, becomes terminally ill or something) then the deposit is usually returned", there is no such rule in English law. The concept of "fault" doesn't exist here. If the contract says seller gets his deposit back in case of death/illness then he gets it back. But without such a term in the contract he remains liable even if ill and his estate remains liable if he dies. Of course a seller might often return the deposit out of goodwill in these circs, but there is no rule of law on the point

As I say, sorry to be pedantic and law-lecture ish here. But I thought it was useful for the fprum generally if the rules are set out with a bit of precision. Happy to be corrected etc

 

[tinkicker0]

Tinkicker, just to pick you up on a couple of points and I apologise in advance for pedantry etc but it is on point:

1. There is no need for a deposit to make a contract. A contract requires consideration to be legally binding (with some exceptions), but the consideration is the purchase price of the boat. There is no need for any of it to be paid up front by buyer as a deposit, any more than there is a requirement on seller to hand over a 10% slice of the boat

2. "you offer to sell him a boat and he can accept or refuse to buy" is NOT an invitation to treat. Inivtation to treat comes before offer and is quite distinct from offer. The definition of invitation to treat in this context is "seller lets the world know the boat is for sale and invites buyers to make offers, which seller may or may not accept; only upon acceptance can there be a contract, thus the creation of a contract is entirely veto-able by seller"

3. In the absence of liquidated (= pre-quantified) losses, which is a rare thing in boat sales, either side is entitled only to their reasonably foreseeable losses (mitigated as you say) if the other side is in breach. The deposit functions as seller's security for that. Buyer gets no such security, by the way. Time "wasted" isn't per se an allowable loss.

4. Regarding your comment "However, if the sale falls through due to no fault (buyer dies, becomes terminally ill or something) then the deposit is usually returned", there is no such rule in English law. The concept of "fault" doesn't exist here. If the contract says seller gets his deposit back in case of death/illness then he gets it back. But without such a term in the contract he remains liable even if ill and his estate remains liable if he dies. Of course a seller might often return the deposit out of goodwill in these circs, but there is no rule of law on the point

As I say, sorry to be pedantic and law-lecture ish here. But I thought it was useful for the fprum generally if the rules are set out with a bit of precision. Happy to be corrected etc

Obviously you know your law back to front JFM

Apart from the deposit making the contract (I see your point there (I think) ), I thought the rest of what you said, I had said too.

By time wasted, I meant expending further time and effort to re advertise the boat etc which is an allowable expense.

I imagined the invitation to treat was when the boat was advertised and the prospective purchaser/s could make his/ their mind up whether to consider the purchase or not. It is not usual to strike a bargain without accepting a deposit and just viewing the boat is what I had in mind. With the valuable consideration (deposit)not been paid, this is how I construed a contract to buy not to have been formed.

I veiwed the value of the sale to be entirely separate from the deposit and the contract to buy.





I did not imagine the seller phoning the buyer and offering to sell him a boat.

By deposit usually returned on death etc, I meant as a goodwill gesture.

However I take your point that the post could have been better written.

The above shows how careful you have to be in what you say in front of witnesses in such circumstances.

It is easy to be stitched up like a kipper and JFM is right to make the point.


Umm and arrgh until money changes hands is the best way.

 

[MikeJ42]

I have bought 6 boats in my life, 3 of them 2nd hand with brokers, 3 brand new.
I have always demanded that my deposit be "subject to finance".
On the one boat I failed to complete on some years ago I got my deposit back.

 

[MikeJ42]

I have bought 6 boats in my life, 3 of them 2nd hand with brokers, 3 brand new.
I have always demanded that my deposit be "subject to finance".
On the one boat I failed to complete on some years ago I got my deposit back.

Sorry. my point is that I assumed everybody worked on that basis?

 

[PaulGooch]

Sorry. my point is that I assumed everybody worked on that basis?

With respect, I would not accept your deposit under those terms. To effectively have my boat off the market for six weeks, then find the buyer can't raise the money would be unacceptable to me. If i took a deposit on a boat it would be under the condition that it was non-refundable under any circumstances other than a serious problem with the boat.

 

[MikeJ42]

With respect, I would not accept your deposit under those terms. To effectively have my boat off the market for six weeks, then find the buyer can't raise the money would be unacceptable to me. If i took a deposit on a boat it would be under the condition that it was non-refundable under any circumstances other than a serious problem with the boat.

That seems entirely resonable in hindsight.

 

[bedouin]

With respect, I would not accept your deposit under those terms. To effectively have my boat off the market for six weeks, then find the buyer can't raise the money would be unacceptable to me. If i took a deposit on a boat it would be under the condition that it was non-refundable under any circumstances other than a serious problem with the boat.

Unfortunately you can't do that.

English law precludes "penalty clauses" in contracts so whatever the contract says the buyer can only be liable for your reasonable losses.

 

[PaulGooch]

Unfortunately you can't do that.

English law precludes "penalty clauses" in contracts so whatever the contract says the buyer can only be liable for your reasonable losses.

Of course, i meant i wouldn't just give all of the deposit back if the buyer changed his mind/couldn't raise the money etc

 

[Observer]

Unfortunately you can't do that.

English law precludes "penalty clauses" in contracts so whatever the contract says the buyer can only be liable for your reasonable losses.

It is true that a contractual "penalty" is unenforceable but a contractual term that provides for payment of "liquidated damages" (a specific or ascertainable sum) on breach is not a penalty. So a contract that provides for forfeiture of a deposit on breach by a buyer "as agreed compensation for anticipated loss" would be upheld as long as it can be shown to be a genuine pre-estimate of anticipated loss, even if (in any given case) it exceeds the seller's actual loss.

 

[bedouin]

It is true that a contractual "penalty" is unenforceable but a contractual term that provides for payment of "liquidated damages" (a specific or ascertainable sum) on breach is not a penalty. So a contract that provides for forfeiture of a deposit on breach by a buyer "as agreed compensation for anticipated loss" would be upheld as long as it can be shown to be a genuine pre-estimate of anticipated loss, even if (in any given case) it exceeds the seller's actual loss.

True - but in the case of a boat deposit it would be very unlikely to satisfy those conditions. In fact it could be very hard to prove any level of loss

 

[grumpy_o_g]

As I understand it, the concept of liquidated damages only works in so far as it pre-determines what a figure for the reasonable losses might be. If the agreed liquidated damages, be they a deposit or anything else, are unreasonable, excessive or punitive then a court will likely not allow them. That means even a "non-refundable" deposit should be refunded if the seller can't show a loss of the value of the deposit or greater (e.g. the seller didn't incur any costs as a result of the failed sale and then subsequently sold the same day for the full asking price).

Be interested to hear if the learned parties think that's correct.

 

[Nautorius]

Well,

I always have bought boats by putting down a token deposit (few thousand) and stating 'Subject to Finance'. I have had never pulled out of a purchase but would of expected to get the deposit back subject to incurred costs (launching, recovery etc)

Depends on what was agreed by Broker and prospective purchaser. If it was subject to finance you should have been told!

Paul

 

[lovezoo]

With respect, I would not accept your deposit under those terms. To effectively have my boat off the market for six weeks, then find the buyer can't raise the money would be unacceptable to me. If i took a deposit on a boat it would be under the condition that it was non-refundable under any circumstances other than a serious problem with the boat.

I think you will find that "non-refundable under any circumstances" doesn't work in English law, so you may as well sell your boat to the honest buyer who is up front with you and tells you the deal is subject to him getting a loan. The flash guy in a new car who tells you he has the cash in a savings account can just as easily pull out and get his deposit back (less the cost of your advert on Boats and Outboards) when his loan application falls through, so whats the difference?

 

[bedouin]

I think you will find that "non-refundable under any circumstances" doesn't work in English law, so you may as well sell your boat to the honest buyer who is up front with you and tells you the deal is subject to him getting a loan. The flash guy in a new car who tells you he has the cash in a savings account can just as easily pull out and get his deposit back (less the cost of your advert on Boats and Outboards) when his loan application falls through, so whats the difference?

You might be able to work it by wording the deposit as purchasing an option to buy.

It would have to be carefully worded to allow fair price renegotiation

 

[Observer]

You might be able to work it by wording the deposit as purchasing an option to buy.

It would have to be carefully worded to allow fair price renegotiation

Agreed. Also (to be acceptable to a sensible buyer) terms to the effect:

- that the option price (deposit) will be applied against (i.e. reduce) the contract price if a sale is agreed; and

- that the option price will be repaid if material defect(s) (that would have entitled buyer to withdraw from a sale contract) are found on survey.

If constructing a sale/purchase process on these lines, buyer should exercise considerable caution and (probably) seek professional legal advice.

 

[PaulGooch]

I think you will find that "non-refundable under any circumstances" doesn't work in English law, so you may as well sell your boat to the honest buyer who is up front with you and tells you the deal is subject to him getting a loan. The flash guy in a new car who tells you he has the cash in a savings account can just as easily pull out and get his deposit back (less the cost of your advert on Boats and Outboards) when his loan application falls through, so whats the difference?

Difference is, six weeks later when he comes along and tells me he has no money, i still have the boat for sale. Potential buyers will possibly have bought other boats, as mine was "under offer". If i have incurred losses, he doesn't have to pay them if he just says "sorry, i can't raise the money". By "non-refundable under any circumstances" i mean i wouldn't just give the deposit back if the buyer changed his mind, or couldn't raise the money, to do so makes the taking of a deposit pointless. I wouldn't take a large deposit and i wouldn't wait a long time for completion, a time frame for completion would also be included in the contract.