Legal Blog

Deposit Forfeiture

Benedetto v. 2453912 Ontario Inc. 2018 Ont SCJ

A purchaser signed an agreement noting that he was signing in trust for a corporation to be incorporated and without any personal liability. The purchaser paid a $100,000 deposit. The purchaser then decided he did not wish to complete the transaction and requested the return of his deposit. The vendor declined. The purchaser sued and the court held for the vendor. Although the clause in the agreement and section 21(4) of the Business Corporations Act allow an individual to enter into a pre-incorporation contract without being personally liable, a deposit is not a pre-incorporation contract. It stands on its own as an ancient invention of the law designed to motivate contracting parties to carry through with their bargains, something that binds the contract and guarantees its performance. The purchaser would not have been liable for damages exceeding the deposit, but did lose the deposit.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.