Deposit AND Damages on the Breach of an Agreement of Purchase and Sale


By
Evelyn Perez Youssoufian
February 5, 2019

My last post postulated whether a Court could order that a Vendor not only retain the deposit from a breaching buyer, but that the Vendor also be entitled to their damages over and above the deposit. Up until now courts have either ordered the deposit forfeit with no need to prove damages, or have credited the deposit to the amount of damages suffered by a Vendor due to the Purchaser’s breach.

Late last year, a Judge of the Superior Court of Justice ordered the Vendor be entitled to keep both. Although under appeal, in Azzarello v. Shawqi, Justice Nishikawa found the Plaintiffs were entitled to the deposit, and to damages caused by the Purchaser’s breach.

The Plaintiffs, Mark Azzarello and Eliza Azzarello, entered into an Agreement of Purchase and Sale (the “Agreement”) with the Defendant, Ahmed Sabri Shawqi, for their home at 3111 Seabright Drive, Mississauga, Ontario (the “Property”). The Defendants failed to close. The Plaintiffs served a Statement of Claim and then brought a motion for summary judgment against the Defendant for breach of contract and repudiation of the Agreement.

The Judge found the Plaintiffs were entitled to their damages of the difference in sale price and their carrying costs of: municipal taxes; utilities; insurance premiums; interest on first and second mortgages; interest on bridge loans; staging; legal fees for a total of $308,688.31.

She then turned her mind to the $75,000 deposit to Re/Max which was “to be held in trust pending completion or other termination of this Agreement and to be credited towards the Purpose Price on completion.” This is very similar wording to all other Agreements of Purchase and Sale. Her Honour analysed and relied upon caselaw dealing with forfeiture of deposits that stood for the following:

  1. where the sale of land does not close due to a default by the purchaser, the vendor is entitled to the deposit without having to prove actual damages: De Palma v Runnymede Iron & Steel Co., 1949 CanLII 73 (ON CA) at 8.
  2. the purpose of the forfeiture of a deposit is compensation to the disappointed 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”: Baker v Wynter (2006), 49 RPR (4th) 134 (ON SC) at para 35, citing Leading Investments Ltd. v New Forest Investments Ltd., [1986] SCR 70 at 86-87.
  3. the court must decide whether the parties intended an advance payment to be partial payment or a deposit to be forfeited in the event of non-completion of the transaction: Mikhalenia v Drakhshan, 2015 ONSC 1048 at para 32.
  4. the use of the word “deposit” has been interpreted as indicating that the payment was intended to be forfeited in the event of a breach: Mikhalenia, at paras 32 and 35; Iyer v Pleasant Developments Inc., (2006) 210 OAC 90 (Div Ct) at para 8.
  5. where deposits were are paid to secure the performance of the agreement of purchase and sale and as a result of the default by the respondents in completing the transaction, the applicant is entitled to have those funds paid over to it from the trust account where they presently sit: River Oaks Convenience Plaza Inc. v Al-Qauasmi, 2009 CarswellOnt 91 (SCJ) at paras 17-18.

Her Honour found that where the Agreement is silent on the forfeiture of the deposit in the event of the purchaser’s default, the silence weighs in favour of an interpretation the deposit is to be forfeited.

Based on the above and the facts of that case Her Honour found that because the Defendant failed to complete the transaction, the Plaintiffs are entitled to the $75,000.00 deposit over and above their damages.

In total, the Plaintiffs were awarded $383,688.31 plus pre-judgment and post-judgment interest and costs.

It will be interesting to see how the Court of Appeal treats this case once it is before then.