Learn all about the problems and solutions that are found in forfeiture of deposit and what it all is about!

1. Forfeiture Of Deposit
UNL1622 – Contract II
Summita Segaran
Tevaasiny A/P Vijayakumar
Simranjit Kaur
Nur Najehah

2. Introduction
• What is deposit?
▫ A sum to be paid as a first installment on the
purchase of something or as a pledge of a contract,
the balance being payable later.

3. Definition of “Deposit”
• In Howe v Smith’s case, Cotton LJ defined deposit
as serving 2 purposes :
(1) Deposit is treated as a guarantee for performance
(2) If the buyer performs his part of the deal, the deposit
goes towards part payment of the purchase price
stated.

4. What is forfeiture of deposit?
• To lose to another individual some rights or
property (money) due to breach of contract to
become liable to the part payment made as an
assurance in the contract and use to compensate
(money) imposed by law for the loss or damages
made.

5. General Rule : Forfeiture of Deposit
• When in the contract the buyer does not go
through or complete the purchase, the deposit
paid by the buyer will be forfeited to the seller
“on account of damages, without prejudice to the
seller’s other remedies.

6. What is Forfeiture?
• What is forfeiture
▫ Giving up something such as money or assets as
consequences of breaching the law
• Example
▫ Landlord forfeits deposit of the rental as the tenant
fails to fulfill his duty or breach the contract ( can only
forfeits if the agreement contains a special clause )
• Exception
▫ Universiti Teknikal Melaka (UTeM) v Mars
Telecommunication Sdn Bhd (2012)
 Court held that the respondent can claim for the rent by
virtue of Section 75 of Contracts Act

7. Section 75
• Section 75 of the Contracts Act 1950
▫ If a party breach a contract, the party must pay
sum stated in the agreement or do something as a
penalty, with a reasonable compensation not
exceeding the amount to the adversely affected,
and the adversely affected does not need to prove
his damage

8. Continuation..
• Kim Guan Construction Sdn Bhd v A. Anandaraj
Pillay & Anor (2012)
▫ Court of Appeal held that the judgment was in
favor of the plaintiff. As by the virtue of section 75,
the court must determine what is reasonable
compensation “whether or not actual damage or
loss is proved to have been caused thereby”.
However in this case, the defendant fail to prove
basis of rectification work let alone the quantum
of damages

9. Continuation…
• Common law
▫ Agosti v Winter (2009)
 Court held, seller is entitle to forfeit deposit if only
he could prove that the actual damage, and can only
claim the amount not exceeding the damages.
▫ Tang v Zhang (2013)
 However, court delivered new solution in this case.
It was held that seller need not to prove damages in
order to forfeit the deposit even though the cases
mentioned that forfeiture of deposit is “on account of
damages”. This decision now is binding.

10. Quantum of Damage
• However party needs to prove to the court the actual
extent of the damage in order for the claim to be
successful.
• How to measure the damage?
▫ Expectation measure
 If the breach is made by the defendant, the court will
award sum to the affected person that would put him
back to his economic position if the promise was done
▫ Reliance promise
 If impossible to award in previous way, Court will grant
money compensation to restore his position in the
economic is such promise was done

11. Cases
• Murphy v Stone Walwork
▫ Judge must do their best to reach the right figure
on a reasonable balance of the probabilities
avoiding undue optimism and undue pessimism
• Ratcliffe v Evans
▫ court suggest to use mathematical formulae to
assess or measure the damage

12. Issues and Possible solutions

13. Whether a seller can “forfeit” an
unpaid deposit?
• Case of Morello Sdn Bhd v Jaques (International) Sdn
Bhd
• Answer was yes
• Problem laid in the part where there were no provisions
that spoke about forfeiting initial payment in any event
of breach from the appellants. The respondent then
ended the agreement between them and proceeded to
take action against the other. The held was the initial
payment which was stated to be a deposit was indeed a
true one.
• he respondent of the case was entitled to retrieve the
unpaid deposit even though it was not stated in the
contract any provision for forfeiture of deposit.

14. Whether a seller who terminates the
agreement due to the buyer’s fault of
breaching the contract is entitled to
recover the deposit that’s not paid?
• Answer to that was no, the unpaid deposit it not
recoverable

15. Indeed allowed!
• Whether a vendor is allowed to get unpaid
deposit even though no provisions are stated
about it in the contract.

16. Whether the deposit is regarded as such even
when the words aren’t clearly stipulated?
• Words were used instead of “deposit” would it still
be considered to be a deposit in its true meaning?
• Case of Constrajaya Sdn bhd v Johor Coastal
Development Sdn Bhd was referred to
• Court held that in the absence of the word,” deposit”
and by replacing it with “installments” it clearly
states the fact that the payment was merely part
payment towards the purchase price and as such
can’t be forfeited.

17. Equitable relief of which whether
courts are allowed to grant them
• Solution can be found by referring to case if
Stockloser v Johnson.
• Courts are said to have jurisdiction to grant
relief against forfeiture of deposit however two
conditions have to be fulfilled.
• Forfeiture clause is penal in nature, that is, the
sum of money forfeited is disproportionate to
loss suffered and also it is unconscionable for
the vendor to retain the money.

18. OPINIONS ON FORFEITURE OF
DEPOSIT

19. • Forfeiture, under the terms of a contract,
speaks of the condition by the defaulting party
to surrender their possession of an asset, or
their cash flows from that particular asset, as a
reimbursement for the subsequent losses of
the other party.
• In my opinion, the procedure of forfeiture
every so often comprises of legal proceedings
in a court of law

20. ISSUES OF FORFEITURE OF
DEPOSIT

21. 1. During the act of forfeiting, is the seller
allowed to forfeit and unpaid deposit?
▫ Morello Sdn Bhd v Jaques (International) Sdn
Bhd
▫ Seller is allowed to forfeit and unpaid deposit
2. Who is entitled to the deposit in real estate
contracts, where when it fails to complete,
queries can rise in relation to whom has the
entitlement towards the initial deposit?
▫ Tang v. Zang, 2013 BCCA 52
▫ A deposit is said to be forfeited by a buyer who
refuses to accept the contract and who is not
reliant on on proof of damages

22. 3. Does the courts have the equitable jurisdiction
to grant relief against forfeiture ?
▫ Stockloser v Johnson [1954] 1 All ER 630
▫ Courts do have an equitable jurisdiction to
grant relief in contradiction of the forfeiture of
money

23. Conclusion
• There is no specific provision provided in the act
on the forfeiture of deposit.
• The court shall imply the said terms of it.
• Acts as a safeguard of seller in case the buyer
forfeits the purchase or the contract.