Deposits #43

Oct 28, 1983

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By Gerry Neely
B.A. LL.B.

While it is not necessary to have a deposit in order to create a binding contract, having a deposit or even the promise of a deposit has proven to be beneficial to vendors where the purchasers have declined to proceed with their purchases. This can be equally as important to the licensee who has earned a commission, even though the sale does not complete.

In the first case, the vendor obtained judgment for $45,000.00 plus pre-judgment interest of 17% against a purchaser who changed his mind after his offer had been accepted. The $45,000.00 was a deposit which the vendor insisted had to be put up by the purchaser before the vendor released financial information concerning his property. The deposit was made in the form of a cheque issued by the purchaser and delivered to the vendor's solicitor. Having decided not to proceed, the purchaser stopped payment on his cheque. The property was sold subsequently by the vendor without financial loss but he sued for the amount of the deposit. The purchaser argued that the vendor could only recover if he sued for specific performance or rescission and showed a loss on the resale which was greater than the amount of the deposit. The court held that a cheque could, in the circumstances that existed here, be evidence of an existing debt and on this basis gave judgment for the vendor.1

In the second case, a purchaser made an offer which was accepted subject to the collapse of an existing contract entered into between the vendor and another purchaser. The amount of the deposit was stated to be $10,000.00, of which $200.00 was paid when the offer was made, and the balance of $9,800.00 was to be paid forthwith upon the collapse of the existing contract. That event occurred, but the purchaser refused to complete because he was unable to obtain financing, even though his offer was not subject to his being able to do so. Having accepted the purchaser's repudiation, the vendor then sued for the total deposit of $10,000.00. Naturally the purchaser argued that the only amount the vendor could retain was the sum of $200.00. The Court, however, agreed with the vendor that the purchaser could not put himself in a better position by refusing to pay the balance of the deposit, than the position in which he would have been had the whole of the deposit been paid. Judgment for the vendor of $9,800.00 plus prejudgment interest of 17%.2

In the third case, the intending purchaser gave a cheque for $10,000.00 to the vendor as a deposit for the purchase of property under an agreement which was subject to the issuance of a building permit in the purchaser's name. The vendor agreed with the purchaser's request to not deposit the cheque. The building permit would have been made available had the purchaser applied for it, but he failed to do so. When the vendor attempted to cash the cheque after advising the purchaser of his intention, he found that there were insufficient funds in the account. The vendor sued successfully for $10,000.00, the Court rejecting the purchaser's argument that the condition was unfulfilled.3

In the fourth case, the vendor's action to recover a subsequent deposit of $10,000.00 was unsuccessful. An initial deposit of $1,000.00 had been paid at the time the offer was accepted but, when it became apparent that the purchaser required an extension of time for completion, the vendor insisted that an additional deposit of $10,000.00 be made. The purchaser was still unable to complete as a result of a mortgagee's delay. Because time was of the essence, the vendor refused to complete and sold for $132,000.00 the house which the unfortunate purchaser had been entitled to purchase for $105,000.00. The vendor's action for the amount of the subsequent deposit of $10,000.00 was lost because the Court held that at the time the deposit was demanded, the vendor was aware that the property could be resold for a substantial profit. The second deposit was held to be a penalty for which relief from forfeiture was granted to the purchaser.4

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  1. Vanvic Enterprises Ltd. v. Mack, 38 B.C.L.R. 203.
  2. Angus v. Sian, S.C.B.C. (1982) 25 R.P.R. 162
  3. Lemac Holdings Ltd. v. Paul's Holdings Ltd.County Court (1982) 40 B.C.L.R. 241.
  3. Howren v. J. Heathcote & Co.,S.C.B.C. (1982) 37 B.C.L.R. 279.