What is the legal test for a deposit under a contract?

Stroud’s Judicial Dictionary[10] states as follows: A deposit, as distinguished from a part payment, serves two purposes, namely, in the event of the contract being performed to go in diminution of the purchase price, and in the interval between contract and completion to operate as an earnest or guarantee that the contract shall be performed (Dies v. British & International Mining & Finance Corporation, [1939] 1 K.B. 724).

Words and Phrases Legally Defined[11] notes as follows: “The underlying concept of a deposit in a simple case where completion is to take place within a short period is that it is to serve as it were as a guarantee that the purchaser means business, and any question of forfeiture, will really only arise if the purchaser fails to come up with the balance of the price on the date fixed for completion; and in these circumstances, there is no difficulty in treating a reasonable deposit as liquidated damages, and there can be no basis for treating it as a penalty against the forfeiture of which relief can be granted. But the position may be very different where the contract is to run for a long period before final completion, the purchaser meanwhile being bound by a variety of covenants of widely differing importance, so that one breach may produce substantial damage whereas another breach could produce only little damage or perhaps no actual damage at all. The wider the variety of contingencies on which forfeiture is to occur the more difficult it becomes to regard the deposit as liquidated damages.” Coates v. Sarich, [1964] W.A.R. 2 at 15, per Hale J (Australia).