FORFEITURE OF DEPOSIT
Section 12 of the standard Contract of Purchase and Sale provides that unless the balance of the purchase price is paid on the completion date "the Seller may, at the Seller's option, terminate this Contract, and, in such event, the amount paid by the Buyer will be absolutely forfeited to the Seller…on account of damages without prejudice to the Seller's other remedies."
Following a line of authority first established by the BC Court of Appeal in 19971, Section 12 was generally interpreted as requiring the deposit to be forfeited to the seller where the buyer failed to complete, irrespective of whether or not the seller had suffered any actual damages.
However, in 2009 another BC Court of Appeal decision2, which did not consider the earlier decision, cast doubt on that interpretation. In the more recent case, the court held that the proper construction of Section 12 was that if the sale doesn't complete, the deposit is not automatically forfeited to the seller; rather the seller is entitled to claim the monies paid as a deposit on account of damages. If the damages are less than the amount of the deposit, the seller is not entitled to the excess but it is returned to the buyer.
The apparently conflicting views in these two BC Court of Appeal cases were considered in a recent BC Supreme Court decision3 where a seller, who had not suffered any actual damages, sought to retain the deposit as a result of the buyer's failure to complete. The court considered the two BC Court of Appeal cases and was able to reconcile the apparently conflicting decisions.
In the 1997 decision, the Contract of Purchase and Sale contained language providing that, in the case of the buyer's failure to complete the deposit would be non-refundable and absolutely forfeited to the seller. The more recent 2009 decision considered the current language of Section 12 which merely states that the deposit is absolutely forfeited.
The court concluded that the two decisions were not irreconcilable. It found that in the earlier case, the contract contained the language "non-refundable" and that language, together with the phrase "absolutely forfeited", was enough to show that the deposit was payable to the seller in full without proof of damages. Whereas in the latter case, the mere presence of only the phrase "absolutely forfeited" was not sufficient.
Following the reasoning in this most recent BC Supreme Court decision, the operative portion of Section 12 of the standard Contract of Purchase and Sale will be amended in June 2012 to read:
"…the amount paid by the Buyer will be non-refundable and absolutely forfeited to the Seller."
The addition of this language should resolve any possible ambiguity and once again provides that where a buyer fails to complete, the deposit will be forfeited to the seller without proof of damages.