Receipt Clause - Conclusive Evidence of Payment or Not ?
In most loan agreements and sale and purchase agreements for properties, it is common to include a clause which states that one party has received payment from the other party in the agreement. This clause is often known as the receipt clause ("Receipt Clause") and examples of the Receipt Clause are as follows:
"Received on or before the day and year first above written of and from the Purchaser the sum of HK$1,500,000..." or "In consideration of the sum of HK$1,500,000 paid by the Purchaser to the Vendor (receipt whereof is hereby acknowledged)..."
If one has signed an agreement containing a Receipt Clause but had not in fact received any part or full payment, his position may be like the plaintiff in the case of Asgain Company Limited v Cheng Ka Yan (DCCJ 81/2014).
Facts of the case
The plaintiff took out a claim as vendor for outstanding payment arising from the sale and purchase of an industrial unit in Kwun Tong. It is claimed that the defendant had not made full payment for the purchase. On the other hand, the defendant argued that payment for purchase price had been fully paid to the plaintiff and the plaintiff is estopped (i.e. banned or prevented) from making any claim because of the Receipt Clause in the Memorandum of Agreement for Sale and Purchase and the Assignment executed between the parties.
The Court went through the witnesses' evidence given in detailed and found that the Defendant had failed to prove that she had paid the sum stated in the Receipt Clause in the manner she described. She only made a smaller amount as part payment.
One of the legal issues the Court then considered was to determine whether the plaintiff was estopped from making any claim for outstanding payment against the defendant as a result of the Receipt Clause and section 18(1) of the Conveyancing and Property Ordinance ("Section18(1) CPO") relied on by the defendant.
During the trial, the Plaintiff's representative explained that he had not paid attention to the Receipt Clauses when the Memorandum of Agreement for Sale and Purchase and Assignment were executed.
(i) Doctrine of Contractual Estoppel
Under the common law, parties are free to enter into contracts in whatever terms they deem fit. If a written agreement contains an acknowledgement of a fact which both parties at the time of the agreement know to be untrue, the law may still enable one of them to rely on that acknowledgement as to estop the other from controverting or denying the agreed statement in an action brought on the agreement.
The Court generally agreed that the doctrine of contractual estoppel could be established in cases that payment had not been made. However, the relevant question in this case is whether the parties had agreed to admit or treat that payment had been fully made putting aside whether that was factually true or not. This went to whether the parties had actually agreed to the inclusion of the Receipt Clause.
Though the Receipt Clause appeared both on the Memorandum of Agreement for Sale and Purchase and the Assignment, the Court considered that the plaintiff had not paid attention to them as the lawyer went through the terms with him in a broad brush manner. The plaintiff did not have any impression that he was explained that there was a term saying that money had been received. In the circumstance, the Court found that the plaintiff had not intended the inclusion of the Receipt Clause and had agreed to its effects. More importantly, it was found that the defendant had not relied on the Receipt Clause herself by continuing making small sum of part payments to the plaintiff after execution of the Assignment. As a result, it was held that the doctrine of contractual estoppel had not been established.
(ii) Statutory Discharge
Section18 (1) CPO provides that "A receipt for consideration in the body of an instrument shall be a sufficient discharge to the person paying the consideration and, in favour of any other person acting on the faith of the receipt, shall be sufficient evidence of payment."
The receipt under Section 18(1) CPO constitutes a sufficient discharge but not a conclusive discharge or conclusive evidence of payment. Given that the defendant had failed to prove that the parties had agreed to proceed with the sale and purchase transaction based on the Receipt Clause and the defendant had been making continuous small payments, the Court held that the defendant could not also rely on Section18(1) CPO. As a result, judgment was entered against the defendant and she was ordered to pay the outstanding balance of purchase price.
AUTHOR: Angela Wang & Co
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.