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Daoust Vukovich LLP successful in dismissing Home purchaser's claim for return of $135,000 deposit

Sep 6, 2018

In a recent decision of the Ontario Superior Court of Justice, Daoust Vukovich successfully brought a motion for summary judgment on behalf of a major land developer to retain nearly $135,000 in deposit funds.  In the action, a condominium purchaser sued for the return of his deposits after he failed to complete the purchase.  Both the purchaser and the developer brought motions for summary judgments and the court held that the developer was entitled to retain the deposits.

In Dar v. The Yards Corporation, 2018 ONSC 5043, an agreement of purchase and sale was signed for a condominium unit that was not yet constructed. The purchaser paid a total of $134,964.00 in deposits to the seller, but was unable to make the final payment. The seller had extended the payment deadline several times.  After the buyer failed to close, the seller terminated the agreement and kept the deposits.

The purchaser sought summary judgment in its favour and relief from forfeiture of the deposits. The seller sought summary judgment in its favour and full forfeiture of the deposits. The Court held that the seller had acted diligently, fairly and, to some extent, to its disadvantage in this case. The Court concluded that the seller could retain the deposits because to turn the seller’s indulgence into an equitable reason to grant relief from forfeiture would deprive the seller of its rights under the agreement.

The Facts

Mohammad Younas Dar (the “Purchaser”) entered into an agreement of purchase and sale (the “Agreement”) with The Yard Corporation (the “Seller”) for the purchase of a new condominium unit that was to be completed in the near future. The Purchaser resided in Pakistan and was purchasing the unit for his daughter. The Seller required a series of five deposits from the Purchaser which would amount to 35% of the purchase price of the unit. This particular percentage was requested by the Seller because the Purchaser was a non-resident.

The Purchaser failed to pay the last of the five deposits required by the Seller. The Seller had already allowed the Purchaser to pay the fourth deposit four-and-a-half months late, as a sign of good faith. Therefore, the Seller invoked the termination clause in the Agreement and retained the deposits that had been paid by the Purchaser.

The Purchaser argued that the forfeited deposits were out of proportion to the damages suffered by the Seller and that it was unconscionable for the Seller to retain the deposits. The Purchaser argued that the amount paid as deposits was grossly disproportionate, because he had to pay a higher amount as a non-resident, which amounted to a penalty. The Purchaser also argued that the agreement was unconscionable because there was an inequality of bargaining power between the parties and no extensions were granted for the payment of the fifth deposit.

In response, the Seller argued that the deposits should be forfeited in their entirety, as per the terms of the Agreement.  The ​Seller also pointed out that there was no clause in the Agreement that said that the deposits were not meant to be forfeited. In fact, a clause in the Agreement ​stipulated that forfeiture would occur in the event of a breach and that the forfeiture was not a penalty.

The Seller argued that the Purchaser was aware that foreign purchasers had to pay larger deposit amounts and that the Seller had given multiple extensions to the Purchaser as a sign of good faith.

In reply, the Purchaser argued that the Court should grant relief from forfeiture based on its equitable assessment of the case.

The Court granted summary judgment in favour of the Seller and ordered that it was entitled to retain the Purchaser’s deposits.

The Court held that the Seller was “very, very indulgent” of the Purchaser by allowing a substantial extension of time for payment of the fourth deposit. The Court also held that the Seller acted diligently, fairly and, to some extent, to its disadvantage in not terminating the Agreement earlier. The Court also stated that to grant the Purchaser relief from forfeiture would deprive the Seller of its rights under the Agreement, which would not be an equitable result.

It was also held that there was no basis to find that the Agreement was unconscionable. The deposits requested from the Purchaser as a non-resident were not commercially unreasonable and there was nothing shocking, oppressive or offensive about the Seller’s conduct.

The Takeaway

This case illustrates the court’s unwillingness to “reach into the handbag of equity” absent disproportionality and unconscionability. If given ample opportunity to cure a default under an agreement of purchase and sale, it is unlikely that a purchaser will be able to successfully argue that any deposits paid to the seller should be returned upon termination of the agreement.

Gasper Galati and Daniel Waldman of Daoust Vukovich LLP acted for the seller in this Action.

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