CHOW TAK YAN v. CHUI HON KAY

IN THE COURT OF APPEAL

1995, No. 53
(Civil)

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H E A D N O T E

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Provisional agreement for sale and purchase of a flat. Initial deposit paid by cheque upon signing of the provisional agreement. Further deposit to be paid upon signing of a formal agreement: thereupon, purchaser to be let into the flat to renovate it. Cheque for initial deposit countermanded. Action by vendor on the cheque. Alleged by purchaser that after the cheque had been given but before a formal agreement was signed and the further deposit was paid, vendor indicated that he insisted upon extra sum in return for letting purchaser in to renovate the flat. Pleaded by purchaser that the consideration for the cheque totally failed: it being a condition precedent to the presentation of the cheque that he be granted a licence to enter the flat to renovate it. Held: There was no room for saying that the cheque for the initial deposit could not be presented until the further deposit had been paid. A cheque is a bill of exchange drawn on a banker payable on demand; and a bill of exchange is an unconditional order. No total failure of consideration. Vendor entitled to judgment on his claim on the cheque.

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J U D G M E N T

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Bokhary, J.A.:

1. By a provisional agreement for sale and purchase dated August 9, 1994, the defendant purchaser agreed to buy and the plaintiff vendor agreed to sell Flat B on the 34th floor of Block 1 Sea Crest Villa in Tsuen Wan for $2.9 million.

2. That provisional agreement provided for payment by the purchaser of an initial deposit of $100,000 upon the signing of the same. It also laid down the following terms. The formal agreement for sale and purchase would be signed on August 22, 1994. Upon the signing of the same, a further deposit of $770,000 would be paid by the purchaser. Thereupon, the purchaser would be let into the flat to renovate it. Completion would take place on November 9, 1994. And the purchaser would upon completion pay $2,030,000, being the balance of the purchase price.

3. The initial deposit of $100,000 was paid by a cheque dated August 9, 1994, for that amount drawn by the purchaser in the vendor's favour. But the cheque was dishonoured upon presentation because the purchaser countermanded it.

4. The vendor sued upon the cheque. The purchaser filed a Defence and Counterclaim. And the vendor then filed a Reply and Defence to Counterclaim.

5. Following all of that, the vendor took out a summons for the striking out of the Defence and Counterclaim and for judgment on his claim on the cheque.

6. The striking out of the Defence and Counterclaim was sought on the grounds: that it disclosed no reasonable defence or cause of action; that it was frivolous and vexatious; and that it was an abuse of process.

7. On January 24 this year, H.H. Judge Wilson entered judgment for the vendor on the claim but ordered that the Counterclaim do stand.

8. The purchaser now appeals against such entry of judgment.

9. In outline, the counterclaim was advanced on the basis of the following allegations by the purchaser (which the vendor denied).

10. On August 10, 1994, even before the cheque was cleared, the vendor adopted the stance that, even after the formal agreement for sale and purchase had been signed and a further deposit of $770,000 had been paid, he would not let the purchaser into the flat to renovate it unless he was paid an additional $45,000. When the purchaser countermanded the cheque and characterised the vendor's stance as a repudiatory breach of the contract contained in the provisional agreement for sale and purchase, there ensued negotiations which resulted in a settlement agreement reached shortly after the vendor had commenced his action on the cheque.

11. The terms of the settlement agreement are pleaded thus in the particulars to paragraph 12 of the Defence and Counterclaim:-

"(a) In a telephone conversation on or about 11th September 1994, the [purchaser] through Mr Wong of the estate agent offered to proceed in the purchase of the premises on condition, inter alia, that the [vendor's] claim in this action would immediately be withdrawn. Under the terms of the said offer, the vendor and purchaser shall sign the formal Sale and Purchase Agreement through their respective solicitors on or before 20th September 1994 and completion of the sale and purchase would be scheduled to be held on 30th November 1994. Further, a lump sum deposit of HK$290,000.00 equivalent to 10% of the agreed purchase price would also be tendered through their respective solicitors upon the signing thereof. It was also a term of the proposed offer that the [purchaser] would be entitled to a licence to occupy the premises for the purpose of decoration upon the signing of the formal Sale and Purchase Agreement.

(b) In a telephone conversation on or about 13th September 1994 Miss Lai of the estate agent informed the [purchaser] that the [vendor] had accepted the said offer."

12. The counterclaim is for specific performance of the settlement agreement and/or damages. By such counterclaim, the purchaser attempts to bring an action upon an oral contract for the sale of land in the absence of any or any sufficient part performance. That is of course precluded by section 3 of the Conveyancing and Property Ordinance, Cap. 219.

13. It is unnecessary to say more about the counterclaim. Counsel for the purchaser realistically accepts that the counterclaim must go. But he contends that there is an arguable defence to the claim on the cheque.

14. Paragraph 7 of the Defence and Counterclaim reads as follows:-

"In the premises, in accordance with the Provisional Sale and Purchase Agreement it was a condition precedent to the presentation of the said cheque that the [purchaser] be granted the said licence."

15. A cheque is a bill of exchange drawn on a banker payable on demand. Everybody knows that. But if anybody did not, he only needs to look at section 73(1) of the Bills of Exchange Ordinance, Cap. 19. And a bill of exchange is an unconditional order. Everybody knows that. But if anybody did not, he only needs to look at section 3(1) of the same Ordinance.

16. Here the right to enter the flat for the purpose of carrying out renovations would only arise upon the signing of the formal agreement of sale and purchase and the payment of a further deposit of $770,000. There is no room for saying that the cheque for the initial deposit could not be presented until the further deposit had also been paid. That would be to post-date a cheque which was not a post-dated one.

17. There was an agreement for the sale of a flat for $2.9 million. If the vendor was in breach of a term for letting the purchaser in to renovate the flat, there might be some right in the purchaser to monetary compensation as a result. But that does not mean the destruction of the entire bargain. It is plain that there was no total failure of consideration.

18. I would dismiss this appeal so as to leave the judgment on the claim standing. As for the counterclaim, it must go. Indeed, counsel for the purchaser concedes that it must go. So I would vary the judge's order by striking out the Defence and Counterclaim as a pleading and dismissing the counterclaim as a cause of action.

Godfrey, J.A.:

19. I agree that this appeal must be dismissed.

20. The defendant, by his counterclaim, had sought specific performance of the settlement agreement to which Bokhary J.A. has referred, but Mr Tsang for the defendant has very properly accepted that in the absence of any writing or act of part performance (the agreement being an agreement for the sale and purchase of an interest in land), it will not be possible for the defendant to sustain the counterclaim and accordingly, I agree that it ought to be struck out.

21. The striking out of this counterclaim will not prejudice any claim that the defendant may hereafter be advised to advance for the return of the money which he paid by way of deposit to the plaintiff on the original contract here - the underlying contract. If, as the defendant claims, the plaintiff has, by his conduct, repudiated that contract, then any money paid by the defendant to the plaintiff pursuant to that contract will clearly be recoverable.

22. I turn to the question of the payment that was in fact made by the defendant to the plaintiff. The payment was a payment made by way of deposit and was made by cheque. The principle is that a cheque is given and taken in payment as so much cash, and not as merely giving a right of action for the creditor to litigate a counterclaim; see Jackson v. Murphy (1887)4 TLR 92n. The judge below gave judgment for the plaintiff on the cheque and I have no doubt that he was right to do so, although the defendant says that he has two defences to the plaintiff 's action on the cheque, the first that there has here been a total failure of consideration, and the second, that the payment was a conditional payment.

23. As to the first suggested defence, while it is quite true that it is a defence to an action on the cheque to show that there has been a total failure of consideration, that means a total failure of consideration for the cheque. Here the consideration was the entry by the plaintiff into the underlying contract. There was no failure of consideration. We were referred to no authority, and I do not believe there is any authority, which would support the defendant's contention that because a vendor under a contract for the sale of land repudiates the underlying contract pursuant to which the deposit cheque was given, that somehow brings about a total failure of consideration for the cheque.

24. As to the second suggested defence, prima facie (as Bokhary J.A. has pointed out) a cheque is an unconditional order to the banker to pay. There is nothing to support the defendant's contention that the defendant's order to the bank here was made conditionally. The defendant relied on some words of Mr Justice Goulding in Myton Ltd. v. Schwab-Morris [1974]1 WLR 331 where the judge remarked that a cheque paid by a purchaser to a vendor in the ordinary way is a conditional payment, so that, if the cheque is not met, the vendor can assert that his original rights remain. But that has nothing to do with our case, where the only issue, or alleged issue, is whether the order to pay given by the defendant to his bank was unconditional or conditional.

25. There being, therefore, no valid defences to the plaintiff's claim on the cheque, the judge, as I have said, was right to give summary judgment for the plaintiff on the cheque and this appeal must be dismissed.

Nazareth, V.-P.:

26. I agree that the appeal must be dismissed and I would also strike out and dismiss the counterclaim.

[Appeal allowed. Judgment on the claim stands. Judge's order varied to strike out Defence and Counterclaim as a pleading and dismiss counterclaim as a cause of action. Payment out (with interest) to the vendor of the $100,000 paid into court by the purchaser as a condition of the leave to appeal granted by the judge. Costs of the appeal to the vendor.]