In a real estate transaction, we are often asked, “if the Buyer breached, can I keep the deposit?” The recent case of Ambroziewicz v. Zhang addresses this.
Facts:
In this case, the plaintiff, Anne Ambroziewicz, (“Seller”) agreed to sell a residence in Vancouver to the defendant, Hongxia Zhang (“Buyer”) for $2,950,000.00
The Buyer provided a $150,000.00 deposit to secure the transaction. Four (4) days prior to the sale closing, the Buyer asked to delay the completion of the sale until she became a permanent resident of Canada. In doing so, she sought to avoid a provincial “foreign buyers tax” applicable to sales of property to foreign nationals. The Seller did not agree to extend the contract.
The Buyer’s lawyer confirmed with the seller’s notary that the Buyer would not complete the sale on the date required by the agreement.
When the completion date came and passed, the Seller sought that the deposit be released to her. The Seller was able to sell the property to another buyer and so elected not to pursue the Buyer for any damages in excess of the deposit.
Despite this, the Buyer refused to authorize the release of the deposit and litigation ensued. The Buyer claimed that she did not breach the contract, but was rather unable to complete it as anticipated, because she was not allowed into the country as a result of the Covid-19 pandemic. She also claimed that she was not advised by her realtor that the tax would apply to her.
An application for summary judgment was brought under Rule 9-6 of the Rules of Court.
The Law:
The Court nicely summarized the critical considerations regarding whether the deposit was to be released to the Seller:
1. Whether a deposit or other payment made to a seller in advance of the completion of a purchase is forfeited to the seller upon the buyer’s repudiation of the contract, is a matter of contractual intention;
2. Where the parties use the word “deposit” to describe such a payment, that word should in the absence of a contrary provision be given its normal meaning in law;
3. 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 dependent on proof of damages by the other party. If the contract is performed, the deposit is applied to the purchase price;
4. The deposit constitutes an exception to the usual rule that a sum subject to forfeiture on the breach of a contract is an unlawful penalty unless it represents a genuine pre-estimate of damages. However, where the deposit is of such an amount that the seller’s retention of it would be penal or unconscionable, the court may relieve against forfeiture, as codified by the Law and Equity Act;
5. A contractual term that a deposit will be forfeited “on account of damages” on the buyer’s failure to complete does not alter the nature of a deposit but may be construed to mean that if damages are proven, the deposit will be applied against (“on account of”) them. If no damages are shown, the deposit is nevertheless forfeitable, subject always to the expression of a contrary intention.
The Court determined that neither legal doctrine of “force majeure” nor “frustration” applied to this case, and the deposit was rightfully forfeited. The court ordered the Buyer to pay the Seller the $150,000 deposit, along with pre-judgment interest and all accrued interest. The court also ordered the Buyer to pay the costs of the action.
Summary:
It is important for parties in a contract to understand their obligations and fulfill them promptly. If a party fails to do so, they may be found to have breached the contract and be required to pay damages. In many cases, where there is a loss as a result of the breach, this can end up being an amount in excess of the deposit.
We note that procedurally, this matter did not require a full trial, as the Court was able to resolve the issue with the settled law in this area, and in a Rule 9-6 Application.
Our firm has assisted numerous clients with issues relating to the breach of a contract when purchasing property.