You do not have Javascript enabled Checking on Deposit Cheques - Trinity Law
Dec 16, 2015

Checking on Deposit Cheques

Contact: Michael James

The recent NSW Supreme Court case of Ma v. Adams[2015] NSWSC 1452 reinforces the need for legal practitioners and real estate agents to take great care when exchanging contracts and taking deposits.

On 6 December 2014, Ms. Adams (the vendor) offered her Baulkham Hills property for sale by auction. The property was knocked down to Mr. Ma and his wife (the purchasers) for $1,050,000 and the parties proceeded to sign contracts in the presence of the auctioneer.

The purchasers gave the auctioneer a personal cheque for $105,000, which was post-dated 8 December 2014. It was not disputed that the post-dating of the cheque was inadvertent.

The purchasers said words to the effect that the auctioneer was not to bank the cheque until they advised the auctioneer that there were funds in their account or they replaced the cheque with a bank cheque.

On Monday 8 December the lawyer acting for the vendor received instructions from her to terminate the contract as the purchaser instructed the agent not to bank it (due to insufficient funds in the account). Therefore, the purchasers were in breach of an essential term of the contract.

The principal issue for the court was whether or not the vendor’s purported termination of the contract on 8 December was valid because at the time of termination the purchasers were in fundamental breach of the contract as they had not paid the deposit “on the making of the contract” within the meaning of clause 2.2 which stated that the time for payment of the deposit was of the essence.

The vendor relied on the fact that the delivery of the post-dated cheque did not constitute payment of the deposit under clause 2.4 because a post-dated cheque was excluded from the definition of a “cheque” in the contract.

The purchaser conceded that the post-dated cheque was not a cheque for the purposes of the contract, they did not pay the deposit as required and accordingly were in breach of an essential term.

However they claimed that once the cheque was immediately capable of being banked for payment, the deposit holder held a cheque that satisfied the requirements of the contract. They said that occurred an instant past midnight on 7 December and that from that moment on the deposit was paid in full and the vendor lost the right to terminate.

The court did not accept this assertion and held that a post-dated cheque is always a post-dated cheque and therefore the deposit was not paid within the meaning of the contract.

The court followed a line of authority that regards the payment of the deposit as being an “earnest of performance” so that the vendor can be confident that the vendor has a genuine contract.

The court also held that even if the agent had realised that the cheque was post-dated, he did not have the vendor’s authority to accept such a cheque and could not bind the vendor to accept it.

What are the lessons to be learnt from this case?

  1. Purchasers must take great care to ensure that the deposit paid on exchange of contracts complies precisely with the terms of the contract.
  2. Agents should take similar care and remember that without specific instructions they cannot bind a vendor to accept a deposit not in accordance with the contract.
  3. Whilst this case involved the NSW Law Society / Real Estate Institute form of contract (where the terms of the contract specifically exclude the use of a post-dated cheque), purchasers and agents in the ACT should take great care to ensure that any deposit paid is exactly in accordance with the contract, as a similar interpretation could be taken locally.

Want to know more about property law? Contact Michael James on phone 02 6163 5050.

Sorry, the comment form is closed at this time.