The British Columbia Court of Appeal has re-examined the caselaw
which deals with the forfeiture of deposits in real estate
transactions. In Tang v. Zhang1, Madam Justice
Newbury found that where a buyer has paid a "deposit"
that the contract states is to be forfeited to the seller "on
account of damages" and fails to complete a purchase as
required, the buyer is effectively repudiating the contract, and in
such circumstances, it is not necessary for the vendor to prove
that it has suffered a loss in order to retain the deposit.
In this case, the vendors entered into a standard real estate
contract to sell a residential property. The buyer paid a
deposit of $100,000.00, but failed to complete the transaction. The
vendors were successful in finding another buyer and sold the
property for a higher price, and thus did not suffer any damages.
Nevertheless, the vendors sought to retain the full amount of the
deposit, and took the position that the deposit was non-refundable
and had been forfeited to them. The buyer sought a return of the
deposit, arguing that the vendors had not suffered any damages as a
result of its failure to complete the transaction.
Until recently, the law on forfeiture of deposits has been
subject to two conflicting authorities. The first is Williamson
Pacific Developments2, where the Court followed the
general rule that a deposit is a guarantee of completion, and that
it is ordinarily forfeited where the purchaser fails to close the
sale. The Court affirmed that the vendor was entitled to the
deposit, regardless of damages.
The second is the case of Agosti v.
Winter3, where the judge arrived at an
opposite result. In that case, the British Columbia Court of Appeal
did not accept that the vendors had an unconditional right to the
deposit. The Court held that the vendor is entitled to claim the
deposit on account of its damages, and only to the extent of those
In this case, as in Agosti, the language of the
contract did not state that the deposit was
"non-refundable". Accordingly, the trial judge applied
Agosti and held that the buyer was entitled to the return of the
The Decision of the Appeal Court
The vendor appealed and took the position that the deposit was
absolutely forfeited even without proof of damages. The respondent
buyer argued that the language in the agreement which provided that
the deposit was "on account of damages", was limiting
language, meaning the deposit was to be applied only
The Court decided a true deposit was designed to motivate
contracting parties to carry through with their bargains.
Consistent with its purpose, a deposit was generally forfeited by a
buyer who repudiated a contract, and was not dependent on proof of
damages by the other party. Further, a contractual term that a
deposit was to be forfeited "on account of damages" on
the buyer's failure to complete did not alter the nature of a
deposit but could be construed to mean that if damages were proven
the deposit would be applied against them. If no damages were
shown, the deposit was nevertheless forfeit. The Court allowed the
appeal and concluded that Agosti was no longer good
The Court did caution that the question of whether a deposit is
forfeited remains a matter of contractual interpretation.
Therefore, the exact language in the agreement is critical to the
treatment of a deposit in a real estate transaction.
1 2013 BCCA 52
2 1997 BCJ No. 1109
3 2009 BCCA 490
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).