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Deposit - Basic Nature. Benedetto v. 2453912 Ontario Inc.
In Benedetto v. 2453912 Ontario Inc. (Ont CA, 2019) the Court of Appeal addresses the law of deposits in an interaction with some corporate law:(1) The law with respect to deposits
[5] Where a payer (usually the purchaser) gives a vendor a deposit to secure the performance of a contract for purchase and sale of real estate, the deposit is forfeit if the purchaser refuses to close the transaction, unless the parties bargained to the contrary: see Howe v. Smith (1884), 27 Ch. D. 89 (C.A.); March Bothers & Wells v. Banton (1911), 1911 CanLII 74 (SCC), 45 S.C.R. 338. In Howe v. Smith, Fry L.J. stated at p. 101:Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract. [6] The deposit stands as security for the purchaser’s performance of the contract. The prospect of its forfeiture provides an incentive for the purchaser to complete the purchase. Should the purchaser not complete, the forfeiture of the deposit compensates the vendor for lost opportunity in having taken the property off the market in the interim, as well as the loss in bargaining power resulting from the vendor having revealed to the market the price at which the vendor had been willing to sell: H.W. Liebig Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 S.C.R. 70, at pp. 86-87.
[7] The motion judge provided a helpful summary of the law: a deposit is not part of the contract of purchase and sale, but “stands on its own as an ‘ancient invention of the law designed to motivate contracting parties to carry through with their bargains’, ‘something which binds the contract and guarantees its performance’, and is an ‘earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract’”: see Tang v. Zhang, 2013 BCCA 52, 41 B.C.L.R. (5th) 69; Comonsents Inc. v. Hetherington Welch Design Ltd., 2006 CanLII 33779 (Ont. S.C.); Howe v. Smith. . Brampton Worship Centre v. Montgomery
In Brampton Worship Centre v. Montgomery (Div Court, 2022) the Divisional Court considered an application for a return of a deposit by a real estate purchaser who failed to close, here on purposive grounds. After hearing the appellant's arguments the court accepted the application judge's reasoning:[10] The agreement of purchase and sale provided for the disposition of the deposit upon completion of the agreement – if the agreement were completed, the deposit would be credited to the purchase price. However, the agreement did not provide for disposition of the deposit, in the event the appellant repudiated the agreement.
[11] The application judge cited Azzarello v. Shawqi, 2019 ONCA 820, at paras. 42-45, to the effect that in the absence of an agreement to the contrary, where a purchaser repudiates the agreement by failing to complete the transaction, the deposit is forfeited without proof of any damage suffered by the vendor, subject to relief from forfeiture. Based upon this law, she held that Montgomery was entitled to keep the deposit. . Ching v. Pier 27 Toronto Inc.
In Ching v. Pier 27 Toronto Inc. (Ont CA, 2021) the Court of Appeal commented on the law of deposits:[67] In Azzarello v. Shawqi, 2019 ONCA 820, 439 D.L.R. (4th) 127, at para. 45, leave to appeal refused, [2019] S.C.C.A. No. 521, Feldman J.A. briefly summarized the law relating to repudiation and real estate deposits stating:It is well-established by case law that when a purchaser repudiates the agreement and fails to close the transaction, the deposit is forfeited, without proof of any damage suffered by the vendor: see Tang v. Zhang, 2013 BCCA 52, 359 D.L.R. (4th) 104, at para. 30, approved by this court in Redstone Enterprises Ltd., v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374. Where the vendor suffers no loss, the vendor may nevertheless retain the deposit, subject to relief from forfeiture. . Grandeur Homes Inc. v Zeng
In Grandeur Homes Inc. v Zeng (Div Ct, 2021) the Divisional Court noted the true nature of deposits:[21] A true deposit is an ancient invention of the law designed to motivate contracting parties to carry through with their bargains. Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and is not dependant on proof of damages by the other party. If the contract is performed, the deposit is applied to the purchase price: Tang v. Zhang, 2013 BCCA 52 at ¶30, cited in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282 at ¶20. See also: Aylward v. Rebuild Response Group Inc., 2018 ONSC 4800, paras. 66-74, aff'd 2020 ONCA 62.
. Rahbar v. Parvizi
In Rahbar v. Parvizi (Ont CA, 2023) the Court of Appeal considered the rationale for forfeiture of a deposit (here of an APS deposit):[50] A rationale for forfeiture of a deposit is the need to provide an incentive for the purchaser to complete the purchase: Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149, 86 B.L.R. (5th) 1, at para. 6. “It is [also] recompense to [the vendor] for the fact that his property was taken off the market for a time as well as for his loss of bargaining power resulting from the revelation of an amount that he would be prepared to accept”: HW Liebig Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 S.C.R. 70, at para. 33; see also Benedetto, at paras. 5-7. . Aylward v. Rebuild Response Group Inc.
In Aylward v. Rebuild Response Group Inc. (Ont CA, 2020) the Court of Appeal states this with respect to the law of deposit:[4] The law relating to deposits was set out generally by this court in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, which the trial judge cited at para. 70 of the decision. At para. 20 of Redstone, this court quoted with approval Tang v. Zhang, 2013 BCCA 52, 359 D.L.R. (4th) 104, where Newbury J.A. noted, at para. 30, that:A true deposit is an ancient invention of the law designed to motivate contracting parties to carry through with their bargains. Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and this is not dependent on proof of damages by the other party. If the contract is performed, the deposit is applied to the purchase price [.] . Azzarello v. Shawqi
In Azzarello v. Shawqi (Ont CA, 2019) the Court of Appeal commented as follows on the law of deposits:[44] Where the vendor breaches the agreement, the deposit is returned to the purchaser. If the purchaser has suffered damages as a result of the vendor’s default, the purchaser may also sue to recover those damages or in an appropriate case, may sue for specific performance of the agreement.
[45] It is well-established by case law that when a purchaser repudiates the agreement and fails to close the transaction, the deposit is forfeited, without proof of any damage suffered by the vendor: see Tang v. Zhang, 2013 BCCA 52 (CanLII), 359 D.L.R. (4th) 104, at para. 30, approved by this court in Redstone Enterprises Ltd., v. Simple Technology Inc., 2017 ONCA 282 (CanLII), 137 O.R. (3d) 374. Where the vendor suffers no loss, the vendor may nevertheless retain the deposit, subject to relief from forfeiture.
[46] This court recently restated the law regarding why a deposit is forfeited in Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149 (CanLII), 86 B.L.R. (5th) 1, at paras. 5-7:Where a payer (usually the purchaser) gives a vendor a deposit to secure the performance of a contract for purchase and sale of real estate, the deposit is forfeit if the purchaser refuses to close the transaction, unless the parties bargained to the contrary: see Howe v. Smith (1884), 27 Ch. D. 89 (C.A.); March Bothers & Wells v. Banton (1911), 1911 CanLII 74 (SCC), 45 S.C.R. 338. In Howe v. Smith, Fry L.J. stated at p. 101:Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract. The deposit stands as security for the purchaser’s performance of the contract. The prospect of its forfeiture provides an incentive for the purchaser to complete the purchase. Should the purchaser not complete, the forfeiture of the deposit compensates the vendor for lost opportunity in having taken the property off the market in the interim, as well as the loss in bargaining power resulting from the vendor having revealed to the market the price at which the vendor had been willing to sell: H.W. Liebig Co. v. Leading Investments Ltd., 1986 CanLII 45 (SCC), [1986] 1 S.C.R. 70, at pp. 86-87.
The motion judge provided a helpful summary of the law: a deposit is not part of the contract of purchase and sale, but “stands on its own as an ‘ancient invention of the law designed to motivate contracting parties to carry through with their bargains’, ‘something which binds the contract and guarantees its performance’, and is an ‘earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract’”: see Tang v. Zhang, 2013 BCCA 52 (CanLII), 41 B.C.L.R. (5th) 69; Comonsents Inc. v. Hetherington Welch Design Ltd., 2006 CanLII 33779 (Ont. S.C.); Howe v. Smith. [47] However, forfeiture is always subject to the equitable remedy of relief from forfeiture. Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that: “[a] court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.” In Stockloser v. Johnson, [1954] 1 Q.B. 476 (C.A.), the English Court of Appeal set out the two pronged test that has been followed in Ontario for applying the relief from forfeiture provision: 1) whether the forfeited deposit was out of all proportion to the damages suffered; and 2) whether it would be unconscionable for the seller to retain the deposit: Redstone at para. 15.
[48] Up to this point, I have discussed what happens to the deposit when the agreement is completed, when the vendor defaults and when the purchaser defaults but the vendor suffers no damage. The issue in this case arose when the vendor did suffer a loss because of the purchaser’s breach; in that case, is the deposit treated as part payment and credited toward the damages, or is it retained in addition to the damages, subject to relief from forfeiture?
[49] In Dobson v. Winton & Robbins Ltd., 1959 CanLII 19 (SCC), [1959] S.C.R. 775, where the purchaser defaulted and the vendor eventually resold the land for $5000 less than the agreed price, the Supreme Court stated at para. 14, without discussion:[t]he measure of damages in this case is the difference between the price provided for in the first contract, $75,000, and the price provided for in the second contract, $70,000. Counsel for the appellant admits that against the difference of $5,000 must be credited the deposit of $4,000; (Mayne on Damages, 11th ed., p. 234; 29 Hals., 2nd ed., p. 378). The same proposition is stated in Victor Di Castri, The Law of Vendor and Purchaser, 3rd ed. (Toronto: Thomson Reuters, 2016), vol. 2 at p. 17-25, in discussing when a deposit is recoverable by a defaulting purchaser: “[w]here the land is sold at a loss, [the vendor] is entitled to recover that loss, less the amount of the deposit.”
[50] The issue of the treatment of the deposit where the vendor suffers a loss arose squarely in the recent summary judgment decision, Bang v. Sebastian, 2018 ONSC 6226 (CanLII), aff’d 2019 ONCA 501.[1] There, two deposits were paid totaling $35,000, on substantially identical language as in the agreement of purchase and sale in this case. Counsel for the vendor submitted that the deposit should be forfeited without crediting it to the damages for the loss, on the basis of the case law referred to above that says that the deposit is not just part payment but is held as security and is forfeited on breach of the agreement.
[51] The judge in that case rejected the vendor’s argument. He pointed out that the vendor could point to no case where the deposit was forfeited without crediting it toward the damages, although there were a number of cases where the opposite had occurred: Goldstein; Blonski v. Jarmakowicz and Kowalski, 1957 CanLII 426 (ON SC), 9 D.L.R. (2d) 66 (Ont. Supreme Court, High Court of Justice); and Dobson.
[52] He found that the result was dictated by the wording of the agreement of purchase and sale, at paras. 69 and 71:Real estate transactions routinely involve the payment of deposits. The proper application of the deposit in circumstances where the purchaser fails to complete the transaction is governed by the parties’ agreement. Here, the wording of the Agreement of Purchase and Sale states expressly that the deposit is to be “credited towards the purchase price” on completion of the transaction.
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I find that the wording of the deposit term in the Agreement of Purchase and Sale clearly and unambiguously reflects the parties’ intention that the deposit would be applied as a credit to the payment obligation owed by the purchaser defendant to the vendor plaintiffs on completion of the transaction. There is no difference to the use of the deposit in the event of termination of the agreement as opposed to its successful completion. Rather, it was intended to be applied as a credit to the obligation owed by the purchaser to the vendors: whatever form that obligation might take. I conclude that the $35,000 paid by the purchaser defendant is to be paid to the vendor plaintiffs and credited against the damages that they have proven [53] I agree with this analysis. While the agreement only specifically calls for the deposit to be credited to the purchase price on completion of the agreement, the measure of damages is based on the difference between the purchase price and the lesser amount that the property sold for after the purchaser’s default. In other words, it is based on the vendor receiving the purchase price that was bargained for. One can infer that the intent of the parties was that the deposit be applied to the purchase price whether received on completion or as damages.
[54] I also agree that the cases discussed above, including Benedetto, where the deposit is forfeited because it is not just part payment but also a security mechanism to incentivize the purchaser to complete the transaction, explain why the deposit is forfeited when the vendor suffers no loss. The respondents point to one sentence in the Benedetto decision where the court states that “a forfeited deposit does not constitute damages for breach of contract but stands as security for the performance of the contract”: at para. 14. That statement is part of the explanation for the forfeiture of the deposit where there is no loss. However, where there is a loss, the deposit is treated as part payment for the damages suffered as a result of the loss. . Brown v. Godfrey
In Brown v. Godfrey (Div Ct, 2006) the court commented that forfeiture of deposit on breach is allowable even where not expressly required by the contract:[11] In this case, the Respondent originally sought to recover the deposit of $5,000, as well as damages of $5,000 for the remaining amount to be paid as a further deposit. While the express word “forfeiture” is not used in the claim, it is clear from the pleading as well as the evidence that the Respondent sought the forfeiture of the deposit held by the broker, plus the further deposit owing by the Appellants.
[12] According to Allied Canadian Acquisition Corporation v. 1012689 Ontario Limited, [2002] O.J. No. 289 (S.C.J.), a decision of Pitt J. relied on by the trial judge, forfeiture is not available with respect to deposit monies that have not been paid. However, a vendor may retain a deposit when a purchaser repudiates the contract, provided it is not unconscionable to do so. He may do so even if the deposit is greater than actual damages (De Palma v. Runnymede Iron & Steel Co., 1949 CanLII 73 (ON CA), [1950] 1 D.L.R. 557 (Ont. C.A.)). In the alternative, the vendor has a right to sue for damages for breach of contract and apply the deposit to the amount awarded, if the damages are greater than the deposit.
[13] The Respondent began this case seeking the recovery of the deposit monies. While the agreement of purchase and sale does not expressly say that the monies will be forfeited if the purchaser breaches, the $5,000 is called a deposit, and it is clear that its purpose was to secure performance of the agreement. Given that a deposit was made, it is subject to forfeiture because of the Appellants’ repudiation of the agreement, even if there is no express reference to forfeiture in the agreement. Therefore, the Respondent is entitled to claim this amount from the $5,000 paid into court by the broker, even if his actual damages are less than the deposit. In the circumstances of this case, there are no grounds for the Appellants to seek relief from forfeiture. . Pleasant Developments Inc. v. Iyer
In Pleasant Developments Inc. v. Iyer (Div Ct, 2006) the Divisional Court held that a deposit towards the purchase of a home may be retained by the vendor on breach by purchaser unless expressly agreed otherwise:(i) Was it necessary for the Appellant to prove damages in order to forfeit the Respondents’ deposit?
[6] The trial judge found that the wording of the Agreement of Purchase and Sale was insufficient in the circumstances of this case to forfeit the Respondents’ deposit without proof of the Appellant’s damages. In my view, the trial judge erred in coming to such a conclusion.
[7] The law is clear that a deposit may be forfeited without proof of damages. See DePalma v. Runnymede Iron & Steel Co. 1949 CanLII 73 (ON CA), [1950] 1 D.L.R 557. In other words even in the case where the vendor resells at a purchase price that is high enough to compensate for any loss from the first sale, the vendor may nevertheless retain the deposit. See Perell and Engell, Remedies and the Sale of Land, 2nd ed at p. 186.
[8] While I accept that the language of the contract is not by itself determinative, the use of the word “deposit” will imply that the payment is intended for forfeiture upon the purchaser’s breach. See Perell and Engell, supra, at p. 187. The common law position is that if the agreement is silent and the purchaser defaults, the deposit, by it very nature is forfeited to the vendor. See Salavatore et al, Agreement of Purchase and Sale (Toronto: Butterworths, 1996) at p. 61.
[9] In my view, there can be little doubt that the $10,000 paid by the Respondents in respect of the Agreement of Purchase and Sale was a deposit. The Agreement refers to the money as a deposit. There is nothing in the Agreement to suggest that the deposit is to be returned to the Respondents upon default. Unless an agreement indicates an intention that the deposit is not to be forfeited, the vendor has an implied right to retain it. The Agreement of Purchase and Sale was not completed by reason of the Respondents’ default and in such circumstances a true deposit is lost. See Morris v. Cam-Nest Developments Ltd. (1988), 1988 CanLII 4604 (ON SC), 64 O.R. (2d) 475 (Ont. H.C.J. ) at p. 491.
[10] Based on all the circumstances, I am satisfied that the $10,000 paid by the Respondents was intended to be a deposit in the strict sense of an earnest or guaranty to bind the purchaser to the transaction. In my view, the deposit was forfeited upon the default of the Respondents. In these circumstances it was not necessary for the Appellant to prove damages in order to forfeit the Respondents’ deposit and the trial judge erred in so concluding. . Cassandro v. Glass
In Cassandro v. Glass (Ont CA, 2019) the Court of Appeal commented on the law of deposits:[57] I do not accept Mr. Glass’ argument that he is entitled to credit for the remaining $13,500. His argument is inconsistent with the law of deposit. As this court recently held in Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149, 86 B.L.R. (5th) 1, at para. 7 (citations omitted), a deposit is not part of the contract to which it is attached but instead “stands on its own as an ancient invention of the law designed to motivate contracting parties to carry through with their bargains.” If the contract is not performed, the payee is not obligated to return the deposit to the payor: Benedetto, at para. 5. In this case, Mr. Glass would have understood when he paid the deposit that he would not get it back until the Site Plan Agreement was completed. Pursuant to the Oral Agreement with Mr. Cassandro, Mr. Glass was responsible for completing the Site Plan Agreement. He did not do so. He would only get the deposit back if he did. Mr. Glass cannot get his deposit back through the backdoor by crediting it from the damages he owes Mr. Cassandro. . Sundial Homes (Sharon) Limited v. Wei
In Sundial Homes (Sharon) Limited v. Wei (Ont CA, 2025) the Ontario Court of Appeal cites a definition of a 'deposit':[23] As earlier noted, the appellant held deposits of $140,050.80. Deposits are a deduction from the damages that are to be awarded: Azzarello v. Shawqi, 2019 ONCA 820, 439 D.L.R. (4th) 127, at paras. 49-55, and the authorities cited therein, leave to appeal refused, [2019] S.C.C.A. No. 521. Thus, when one is considering the damages that are actually in issue, one has to deduct the amount of the deposits. In this case, that left the additional damages being pursued very near the $100,000 limit.
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