Deposit

44 A deposit is not necessary to the validity of a contract for sale of land. In the absence of a stipulation in the contract in that regard, a seller cannot require a deposit, or any part of the purchase money, to be paid prior to completion: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 321; Perry v Suffields Ltd [1916] 2 Ch 187, 191; Van Der Hulst v Tainui Corporation Ltd [1998] 2 NZLR 359, 362 - 363. A deposit provides an earnest of performance by the purchaser and is a guarantee of or security for performance by the purchaser: Brien v Dwyer [1978] HCA 50; (1978) 141 CLR 378, 385 - 387, 392, 398, 406. If a sale goes on, the deposit goes in part performance of the purchase money for which it is deposited, but if by the default of the purchaser the contract goes off, the deposit is forfeited by the purchaser unless the contract otherwise provides: Howe v Smith (1884) 27 Ch D 89, 95, 97 - 98, 101 - 103.

45 When the deposit is paid to an agent for the seller, and the deposit becomes recoverable by the purchaser, it is the seller, and not the agent, from whom the purchaser must recover the deposit, whether or not the agent has paid it over or accounted for it to the principal: Christie v Robinson [1907] HCA 19; (1907) 4 CLR 1338. The general principle is that, unless the deposit is paid to a stakeholder, the deposit is to be treated as if it has reached the hands of the seller: Grant v O'Leary [1955] HCA 33; (1955) 93 CLR 587.

46 On the other hand, where the deposit is paid to a third person as stakeholder, and it becomes repayable to the purchaser, it is recoverable from the stakeholder, and not from the seller: Combe v Swaythling [1947] Ch 625, 628. The stakeholder is 'under a duty to hold it in medio pending the outcome of a future event. He does not hold it as agent for the seller, nor as agent for the purchaser ... until the event is known, it is his duty to keep it in his own hands ...': Burt v ClaudeCousins & Co Ltd [1971] 2 QB 426, 435 - 436.

47 The purpose of paying a deposit to a stakeholder is to ensure that it is in the hands of an independent person who will account to the seller if and when the seller becomes entitled to it. The purchaser, by paying the money in accordance with the terms of the contract, performs its part of the contract and is not bound to pay the sum again to the seller, as a condition precedent to conveyance, should the stakeholder default in accounting for the deposit to the seller: Grant v O'Leary (593 - 594).

48 Where a deposit is paid to an auctioneer, both the seller, and the auctioneer, become liable to the purchaser in the event that the purchaser becomes entitled to repayment of the deposit: Christie v Robinson (1347).

49 Subject to the terms of the contract, a purchaser who becomes entitled to the return of the deposit has a claim in restitution for total failure of consideration: Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, 432, 438, 459; Zsadony v Pizer [1955] VicLawRp 78; [1955] VLR 496, 502.