Non-Refundable and Absolutely Forfeited Means Exactly That #462
CATEGORY: Legally Speaking
TAGS: Contract of Purchase and Sale
Prior to April 2012, Section 12 of the standard Contract and Purchase and Sale (CPS) provided that unless the balance of the purchase price was paid by the buyer on the completion date set out in the contract, "the seller may, at the seller's option, terminate this contract, and, in such event, the amount paid by the buyer will be absolutely forfeited to the seller…on account of damages without prejudice to the Seller's other remedies."
As covered in the April 2012 issue of Legally Speaking1, two decisions of the BC Court of Appeal reached different conclusions as to whether Section 12 of the CPS required the deposit to be forfeited to the seller where the buyer failed to complete, but the seller had not suffered any actual damages.2
These two conflicting decisions were considered by the BC Supreme Court in 20123. In the Tang case, the buyer had failed to complete and the seller sought the "absolute forfeiture" of the deposit even though the seller had resold the property for a higher amount than that agreed to by the buyer. The buyer argued that, as a result of the resale at the higher amount, the seller had not suffered any damages and therefore, the buyer was entitled to the return of the deposit on the basis of the Agosti decision.
The BC Supreme Court concluded that the only difference between the two conflicting Court of Appeal decisions was that the Williamson decision, which determined that the deposit was forfeited even if the seller had suffered no damages, considered a contract where the deposit was described as both "non-refundable" and "absolutely forfeited". The Agosti decision, which concluded that the deposit was only forfeited if the seller had suffered damages, considered the then current standard CPS where the deposit was only described as "absolutely forfeited."
On the basis of that, somewhat narrow, distinction the BC Supreme Court concluded in Tang that because the then current CPS did not describe the deposit as both "non-refundable" and "absolutely forfeited", the Agosti decision applied and the deposit was to be returned to the buyer. The seller appealed that decision.
As a result, Section 12 of the standard CPS was immediately amended to provide that the deposit was both "non-refundable" and "absolutely forfeited" to negate the impact of the Agosti decision.
In 2013, the BC Court of Appeal heard the Tang appeal and, in the context of that appeal, concluded that Agosti had been wrongly decided4. The Court of Appeal reaffirmed that where a buyer fails to complete the transaction, the "absolutely forfeited" language of Section 12 results in the deposit being forfeited regardless of whether or not the seller has suffered any damages as a result of the buyer's breach. The addition of the words "non-refundable" adds emphasis to that position.
The Court of Appeal concluded that the term "on account of damages" did not, as was implied in Agosti, mean "because of damages" but meant that the deposit would be "counted toward" such damages. If the seller has suffered actual damages, the amount of the deposit is applied toward those damages. If the seller has not suffered any actual damages, the amount of the deposit, and no more, is forfeited to the seller.
Nothing in this decision alters the responsibility of brokerages which hold deposits as stakeholders under the Real Estate Services Act. When holding a deposit as a stakeholder, the deposit cannot be released to either party without the consent of both parties (regardless of the language in Section 12). If the buyer refuses to provide that consent, the seller will be forced to commence a BC Supreme Court action to have the deposit "absolutely forfeited" to the seller, at which time the brokerage may pay the deposit into court.
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