Is this contract valid?



From: Dave :)

Hi All,

Last week I signed contracts for an IP purchase of the year. However, in speaking to some people, they have suggested I may have made a possible mistake.

The properties are off-the-plan, due to commence construction next week. Original asking price was $235,000 for each unit, with 10% deposit. These were listed for over three months. I contacted the vendor personally and found he was a very motivated seller and needed to sell these to fund his next project. I made a crazy offer of $200,000 each, with NO DEPOSIT whatsoever - the entire amount payable upon completion of the units.

The vendor accepted, and we signed the contracts, stating the above, last Thursday.

A couple of RE agents I've spoken to since have said I got myself a great deal. However, regarding the no deposit, they have cautioned me that the vendor may have an avenue to get out of the contract since there has been no consideration given by myself. Can anyone offer their advice or legal perspective on this? I always thought a contract of sale was a legally binding document, regardless of the amount (or lack of) deposit paid.

Any comments would be much appreciated.


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Reply: 1
From: Brad M


My very basic understanding of contract law is that there is no binding contract unless there is some form of consideration.

I definitely think it is worth asking a solicitor because the law is so complicated and we are talking about a lot of money.

Hope everything works out for you.

Brad M
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Reply: 2
From: Duncan M

You could lodge a caveat against the two titles, given that your contract would appear to represent a valid interest in them. Would possibly make the developer think twice about dishonouring the contract.


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Reply: 2.1
From: Dave :)

Thanks for your thoughts Brad and Duncan.

I spoke to my solicitor last night and explained the various stages of my negotiation with the vendor prior to signing the contract. I had initially told the vendor I'd be willing to give him 7.5% deposit for each unit, within 30 days. Then, when he came back to me with his acceptance, I 'bluffed' him and said I couldn't go ahead with the purchase because my deposit is tied up in the equity in my own home. I said it would probably be possible, but finance approval would be time consuming. I said that because I knew he was desperate to sell. I told him I'd give it a try, though. He told me not to worry and that he'd be willing to decline the deposit, in favour of an unconditional contract signed that night....the total amount payable on settlement.

My bluff worked, and I've been able to secure $460,000 worth of property with NO money down at all.

My solicitor suggested all I'd need to cover myself against the vendor dishonoring the contract is to add a clause in the contract, stating that I was willing to offer a 7.5% deposit, but the vendor declined. This is being sent to the vendor today for signing. This should be enough to cover me, I hope.


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Reply: 2.1.1
From: GoAnna !

Perhaps $100 could seal the deal? I understood that something of material value needed to exchange hands. Like an engagement ring when you undertake to get married. Used to be a huge deal to break that one...

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From: Dave :)

hehe...thanks Anna.

Maybe I could leave my ring to seal the deal?
...oops, my wife's coming.

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Reply: 3
From: Pierre .

My understanding was that the minimum required deposit to be paid on exchange was 0.25% of the purchase price. The remainder of the deposit can be paid on settlement.

Not sure if this is state-based (probably is). This should be bread-and-butter stuff for your solicitor. I'd be worried if he/she can't answer that question immediately and accurately.

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Reply: 3.1
From: Kristine .


Section 126 of the Instruments Act requires that, to be enforceable, certain agreements must be in writing. One of the nominated agreements is for a contract for the sale or other disposition of an interest in land. ("land" means all things pertaining to the land.

A parol (oral) contract is valid, but not enforceable before the courts.

It is not necessary to pay a deposit. This does not validate or invalidate a contract, and the practice is for commercial reasons only (but some contracts eg sale of business, may require a deposit to be valid).

The contract must, among other things, state the purpose of the contract, that there is agreement between the parties, that the intent of the parties is to create a legal obligation, and that there is 'consideration' for the 'promise' of the contract.

In simple terms, if Dave and I contract for Dave to build a fence for me (the promise), and in payment (consideration) I will give him my prize heifer, then short of cutting off a leg, it would be a bit hard for me to pay Dave a deposit.

Paying a deposit is a nicety.

Good luck with your investment Dave,

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Reply: 3.1.1
From: Dave :)

Thanks Kristine,

You've been very helpful. What you've explained here is basically what my solicitor said. Just to make certain, though, she did make the vendor acknowledge that he turned down a 7.5% deposit in favour of an unconditional contract.

I love the way you explained it Kristine....thanks for making me laugh first thing in the morning!


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