 To many Hong Kong estate agents, the use of "trial deposit" is a favourite play. It means that at the time the vendor and the purchaser are negotiating through an agent, the agent would suggest that the purchaser draw a cheque for a deposit so as to show his earnest interest in the property to the vendor, in the hope that the vendor may accept the purchaser's offer more quickly.
For the purchaser, placing a "trial deposit" involves certain risks. Although the agent in most cases pledge that the cheque will be in his custody and will not be given to the vendor before the deal is clinched, unscrupulous agents may do otherwise, as in the following case.
Through an agent, Ms Tseng inspected a flat in Shatin and liked it. The owner asked for $7 million but Ms Tseng would only offer $6 million. There was a larger difference between the two sides. The agent then suggested that Ms Tseng draw a cheque for $200,000 as a trial deposit payable to the vendor. The agent pledged to show the cheque to the vendor only as an indication of Ms Tseng's earnestness and that unless an agreement was reached the cheque would not be given to the vendor.
That evening, the agent called Ms Tseng saying that the owner would only lower the price to $6.7 million. Ms Tseng said she would make a final offer of $6.2 million. Sensing that the deal might be off, the agent suddenly said that there was another flat on a lower floor of the same building with identical area, layout, and view. The owner of that flat might accept $6.2 million. Ms Tseng was beginning to get tired and said without thinking that a flat on a lower level was possible.
The next day, the agent produced a provisional agreement for sale and purchase, already signed by the vendor, for another flat on a lower floor. He also told Ms Tseng that the $200,000 cheque of trial deposit had been given to the vendor of this flat. On questioning, Ms Tseng discovered that the two flats, the one at the high level and the one at the lower level, were owned by the same person. Thus, the agent was able to use the cheque for the trial deposit for the flat on the lower level.
Ms Tseng was very dissatisfied with the agent's conduct in acting without her consent. She gave up the idea of concluding the deal, and immediately instructed the bank to stop payment for the cheque. Needless to say, the vendor subsequently sued Ms Tseng for damages, and the agent also demanded through solicitors the payment of commissions payable by both the purchaser and the vendor, on the ground that she breached the agreement.
If this dispute should go to court, the outcome would be uncertain. Factors unfavourable to Ms Tseng included the absence of any written instructions regarding the "trial deposit" such as its validity period, the purchase price, and restriction on unauthorized release to the vendor. At least she ought to have written on the back of the cheque that it was to be used only for a particular flat.
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