Stockloser v Johnson [1954] England Facts: Plaintiff agreed to buy machinery from Defendant, payable in installments. The contract stated that the vendor (defendant) would remain full owner until and unless every last installment was paid. There was also a clause in the contract stating that if the purchaser (plaintiff) defaulted in payment, the vendor (defendant) was entitled to terminate the contract and that all payments made by the purchaser to the vendor would be forfeited to the vendor (defendant). The plaintiff failed to make necessary payment installments and the defendant terminated the contract. The plaintiff sought to recover from the defendant the installments that had been paid before the termination of the contract.
Issues: Was the plaintiff purchaser entitled to recover his installment payments from the defendant vendor?
Holding: NO. The court held for the defendant vendor keeping the installment payments.
Reasons: Even if the power to grant relief existed, the court held it would not have been given in the circumstances of that case, in part because there was an express forfeiture clause permitting the defendant to keep the installments.
Denning did however express the view that, even in cases where there was no sharp practice, there was power to relieve a defaulting party from a provision for forfeiture of installments already paid where it would be unconscionable for the other party to retain them; that was so even if the defaulting party was unable to go on with the contract (AKA there might be relief in equity).
Test to determine when the plaintiff purchaser entitled to recover his installment payments from the defendant vendor:
When there is no forfeiture clause: “If buyer defaults before all installment payments are made, then: (1) if and so long as the seller keeps the contract open, the buyer cannot recover money paid in part payment; (2) BUT once the seller rescinds (due to buyer’s default) the buyer is entitled, at law, to recover the payments made, subject to seller’s right to damages. OR
When there is a forfeiture clause (or money is paid as deposit): at law, buyer, in default cannot recover money paid; in equity however buyer may have a remedy against forfeiture, if (i) the forfeiture clause is penal (IE out of all proportion to damage); and (ii) it would be unconscionable for the seller to retain the money.
You want court to see it as a liquidated damages clause and not a penalty clause, so it can be enforced. So again you need a reasonable pre-estimate of losses – it can be generous, but the amount of the penalty cannot be way out of proportion to any sort of reasonable estimate. So, generous pre estimate that is not unreasonable of the loss – cannot be arbitrary / way out of proportion then the court will see it as a penalty and not enforce it.
