Generally speaking, if a buyer breaches a contract for the purchase of real estate and the seller accepts the buyer’s refusal to perform the contract (as known as “repudiation”), an innocent seller is entitled to retain the deposit paid by the buyer under a contract of purchase and sale. But what happens when a buyer breaches a contract before the deposit is due and payable? Is the seller still entitled to the deposit if the transaction collapses due to the buyer’s breach?
In a recent decision, the British Columbia Court of Appeal confirmed that a seller is entitled to an unpaid deposit owing under a contract of purchase and sale for real estate, even if the repudiation of the contract is accepted by the innocent party. In its decision in Argo Ventures v. Choi 1, the Court confirmed that a seller can sue for the unpaid deposit even after it has accepted the repudiation of the contract due to the buyer’s breach or default.
The facts of the case are as follows: In the summer of 2016, the buyers entered into a contract to purchase a property in Port Coquitlam, British Columbia for approximately $6,500,000, with an initial non-refundable deposit of $300,000 due within ten business days. The buyers decided not to complete the purchase, despite there being a binding contract, and failed to provide the deposit within ten business days of acceptance (as set out in the contract). The buyers breached the contract (by stating that they would not complete the purchase) before the date the deposit was due. The seller accepted the buyers’ repudiation of the contract for failure to pay the deposit on time, thereby terminating the contract, and the seller commenced an action for the amount of the unpaid deposit.
On January 25, 2019 the Supreme Court of British Columbia awarded a judgment against the buyers in the amount of $300,000, plus pre-judgment interest and costs. The buyers did not dispute that the deposit was owing on a certain date and that it was unpaid, rather at trial they put forward a defence of non est factum, stating they were unaware of the changes that were made in the counteroffer which were initialed by them. The defence of non est factum was unsuccessful with the Supreme Court as the judge found that the buyers’ mistaken belief regarding the revisions in the counteroffer, as initialed by them, was due to their own carelessness.
On appeal, the buyers stated that the trial judge erred in its decision and they put forward a new argument that the unpaid deposit was not owing and due, as it was forfeited on the repudiation of the contract. The buyers’ argument had two main aspects:
- The deposit was not owing on the date they repudiated the contract (i.e., the repudiation of the contract occurred before the deposit was due); and
- The deposit could not be forfeited to the seller because it was never paid.
On the first point, the court refused the buyers’ argument and relied on the principles set out in Vanvic Enterprises Ltd. v. Mack 2, which state that “where the seller’s right to a non-refundable deposit has accrued before it accepts the buyer’s repudiation, the seller can sue for an amount equal to the unpaid deposit”3.
On the second point, the court refused the buyers’ argument noting that the trial judge did not order the forfeiting of the deposit, but rather an award in damages or debt in an amount equal to the deposit.
Through its decision in Argo Ventures v. Choi, the Court reviewed some important aspects of the law regarding deposits as summarized below:
- Deposits cannot be excessive or unconscionable, and that deposits are an exception to the usual rule against penalties.4
- Even where the seller does not suffer any damages, the deposit is still forfeitable if the buyer is in default or breaches the contract.5
- A seller can still sue for an unpaid deposit owing, even after it has accepted the buyer’s repudiation of the contract.6
A seller can claim an award for either damages or debt for an unpaid deposit owing.7 The Court, through its decision in Argo Ventures v. Choi, has confirmed that regardless of when a deposit is due and payable, an innocent seller will be entitled to the deposit (or a sum equal to the deposit) under a contract for real estate if the buyer breaches the contract (and such repudiation is accepted by the seller), even if the breach by the buyer occurs before the deposit was due and payable. In addition to retaining, or claiming an award for, the deposit, a seller may also sue for any damages suffered that exceed the amount of the deposit. Licensees should always advise their clients to seek independent legal advice for any matters related to breach of contract.