Dealer gets to keep deposit - Court confirms

In a recent court case, a car dealer, with help and advice from Lawgistics, successfully defended against a claim brought by a customer for return of the deposit.

The customer had a look at one of the dealer’s cars, took it on a test drive and decided to buy it. The customer offered to part-exchange his car towards the sale price, and this was accepted. The customer then signed the sales invoice and paid a deposit. The invoice had a statement that all deposits paid are non-refundable and that the customer warrants, amongst others, that the car to be part-exchanged had never been involved in an accident or written off by the insurers. Immediately after the salesman took the deposit, he ran an HPI check on the part-exchange car. The check revealed the car at some point was a ‘Category D’ write-off, of which the customer in all likelihood was not aware.

The sale was called off. The customer tried to raise finance to buy the chosen car but was not successful. The customer then asked for his deposit back and was refused. Court proceedings followed.

The court reminded the customer that on payment of the deposit he entered into a binding contract. The customer confirmed that his car to be part-exchanged had not been a write-off and the dealer was entitled to rely on this representation.

The sale could not proceed through no fault of the dealer. The court agreed that the dealer was entitled to recover loss and expense caused by cancelation of the deal and to keep the deposit.

What helped greatly in persuading the court to dismiss the claim was the documentary evidence the dealer disclosed, which clearly showed the non-refundable nature of the deposit and the customer’s declaration regarding the state and condition of part-exchange car. As the customer signed the invoice, there could be no reasonable argument that the customer was not aware of the terms of the sale.

Normally the court will accept the deposit amount as an adequate measure against the dealer’s losses agreed by the parties, known in legal speak as liquidated damages. Only when the damage caused by the customer withdrawing from the purchase will be out of any proportion to the deposit paid, for example, the car had some extensive works done at the customer’s request, the court may be prepared to award a sum exceeding the deposit amount.

Lawgistics Members can get advice on this and other legal matters by contacting the legal team on 01480 455500.


Authors: Kiril Moskovchuk

Published: 14 Oct 2019


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