Non-Refundable Deposits #52

Apr 01, 1984

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By Gerry Neely
B.A. LL.B.

There appears to be an increasing use in interim agreements of phrases such as "non-refundable deposit", "at which time a firm contract exists" or "upon which this contract shall be binding upon the parties". The use of these phrases suggests that the licensee hopes that certain legal consequences will flow from the phrases themselves, rather than from the facts relating to the interim agreement. However, their use may create the uncertainty which they are apparently intended to avoid.

For example, what does the term "non-refundable deposit" mean in a conditional offer to purchase which is subject to, say, financing? If that phrase were not present in the conditional offer to purchase and if the financing could not be obtained in spite of the purchaser's best efforts, all parties would have understood that the purchaser would be entitled to the return of the deposit. If the deposit is stated to be non-refundable, does that mean that the vendor has more rights than would otherwise have been the case? The answer if litigated must be no, so why introduce this element of uncertainty? Undoubtedly there are appropriate instances where one can refer to a non-refundable deposit, as in an option to purchase or perhaps for emphasis in an unconditional accepted offer to purchase, to make the purchaser aware of the consequences of his default. Except in the instance of an option, the disposition of the deposit would have been the same regardless of whether or not the words "non-refundable" appeared.

In one case which had unfortunate consequences for a woman who, with her husband, had removed a condition as to financing contained in their offer to purchase, this clause followed the "subject to financing" clause:

"Deposit to be increased to $5,000,00 within 48 hours of #1 subject removal (at which time a firm contract exists)."

When the financing was arranged, the vendor agreed to waive the requirement that the deposit was to be increased to $5,000.00. Five days prior to closing, the husband and wife separated and, on the date fixed for closing, the husband cancelled the mortgage approval given to the husband and the wife. The wife's income was insufficient to enable her to obtain the mortgage and as a result default judgment was obtained against the husband. The wife defended on two grounds, the first of which was that the words in brackets in the above clause meant that there was no contract in existence between the parties because a firm contract could only arise when the deposit was increased. In the alternative, the words meant that all the purchasers had was an option.

The judge had no difficulty in rejecting these arguments, stating that all the bracketted words meant was that the contract would be absolute in accordance with its terms when the condition relating to financing was removed. The point, however, in discussing this case is that the words in brackets were clearly superfluous since the removal of the condition concerning financing and the increase in the deposit or its waiver, meant that a firm contract then existed. The addition of the words merely gave the defendant the opportunity to raise a legal argument which had the vendors been less firm in their resolve, might have led them not to sue.

The second defence was that the husband's breach relieved the wife from liability. The court looked at the law of partnership to conclude that the husband and wife's liability was a joint and several liability and each was liable for the acts or omissions of the other partner for acts done or not done within the general scope of their relationship. Once again, we have a situation where the question is who of two innocent parties, the vendors or the defendant wife, should bear the loss. It is reasonable that the Court should decide that the wife should bear the loss because if anyone could be aware of any problems that might arise with her husband, it would be she and not the vendors.

Damages were awarded in the amount of $46,109.00, an amount which included the sum of $8,109.00 required to be paid by the vendors to buy down a second mortgage.1

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