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Posted on April 1, 2019 | Posted in Lawyers' Issues, Real Estate

The real estate market in the GTA tanked in the spring/summer of 2017. Consequently, some purchasers were unable or unwilling to close their agreements of purchase and sale: unable because financing was reduced or they could not sell their own houses or unwilling because prices had dropped and they could not countenance an immediate loss. A flurry of legal actions arose, coming to fruition over the last year. We will discuss two decisions now and two decisions in our next newsletter.

An old rusty property sale sign.


Benedetto v. 2453912 Ontario Inc. 2018 ONSC 4524 is a decision arising out of a summary judgment motion.

A purchaser signed an agreement for 3 properties with an aggregate purchase price of $7 million, noting that he was signing in trust for a corporation to be incorporated and without any personal liability. The deposit was $100,000. The purchaser then decided he did not wish to complete the transaction and requested the return of his deposit. Not surprisingly, the vendor declined. The purchaser then commenced an action for the return of his deposit. The vendor did not counterclaim for damages, presumably because of the statement in the agreement noting that the purchaser was not personally liable. The vendor, however, claimed the deposit.

The purchaser’s position was unusual. He did not raise issues with title to the properties or technical defences regarding the vendor’s conduct or any of the other myriad defences we have seen. Instead, he argued that the deposit was not really a deposit. This argument depended on the function of a deposit and the interaction between a deposit and section 21(4) of the Business Corporations Act.


Section 21(4) allows a person who enters into a contract on behalf of a corporation to be incorporated to avoid personal liability if other aspects of the section are followed.

The purchaser therefore argued that the “deposit” could not be forfeited – because it was his money and he was not personally liable under the contact.

The Supreme Court of Canada has described a deposit in an agreement of purchase and sale as a “recompense to [the 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.”

The judge held that a deposit is an “ancient invention of the law designed to motivate contracting parties to carry through with their bargain.”

He further noted the following:

  • A deposit is not related to damages. It is a sum of money to signify formation of the contract. It is not a pre-incorporation contract to which a purchaser could be “bound” to its obligations or otherwise exposed to personal liability under the contract. Instead, a deposit is a payment to secure performance.
  • When a pre-incorporation contract is entered into with an express provision that the purchaser acts in the name of or on behalf of a corporation to be incorporated, without personal liability, the deposit remains the property of the vendor if the purchaser fails to close the agreement of purchase and sale.
  • Section 21(4) does not vitiate a deposit upon the purchaser’s breach. Rather, it prevents a purchaser who complies with the provision from being “bound” by the contract, and, as such, no claim for damages can be brought against such a purchaser seeking personal liability under a failed agreement of purchase and sale. The Vendor in the present action makes no such claim for damages.

The judge properly held that the purchaser forfeited his deposit. The purchaser’s use of a pre-incorporation contract and expressions of “without personal liability” may have saved him from damages for the contract breach, but not from the loss of his deposit.



Miller v. Wang 2018 ONSC 7668 involved another purchaser, another breach, and another motion for summary judgment.

The purchaser’s lawyer informed the vendors’ lawyer that the purchaser would not complete the agreement on the closing date and advised the vendors to re-list the property. The vendors did exactly that, but the market had crashed. After reductions to the asking price, the house finally re-sold 3 months later for a sale price of $201,000 less than the original sale price of $851,000. In this case, the vendors were not satisfied with the deposit, they wanted damages.

The purchaser put forward a number of defences, some mundane and some not:

  • The vendors did not tender – mundane.
  • The vendors did not mitigate their damages – mundane.
  • The vendors created a false bidding war to artificially inflate the sale price by misrepresenting to the purchaser’s agent that the vendors had received 6 offers – unusual but possible.
  • The vendors were unjustly enriched because the original sale price exceeded the listing price – novel.


The judge was not enamoured with the defences, noting:

  • When the purchaser repudiated the agreement, tender became unnecessary.
  • The vendors had explained why the ultimate sale price was lower. The purchaser claimed the vendors should have adduced expert evidence. The judge stated that the purchaser had the onus to demonstrate a failure to mitigate and had adduced no evidence to that effect.
  • The vendors had indeed received 6 other offers. Accordingly, they made no false representations and no evidence existed of a “false” bidding war. It was a real bidding war and the purchaser won that war – but was unhappy with the cost of the prize.
  • Similarly, the vendors were not unjustly enriched. The purchaser decided, on her own, to offer more than the listing price knowing that the vendors had multiple offers.


The purchaser had commenced a third party action against her agent, claiming that the agent had given her bad advice, pressured her into putting forward her offer, and breached the agent’s fiduciary duty to her.

The purchaser requested that the vendors’ judgment against her be stayed pending the outcome of the third party action.

The judge had the discretion to allow that stay after considering the following factors:

1. How closely connected are the main and third party actions?

2. Is there a risk of inconsistent findings in the third party claim?

3. Is the third party claim meritorious or has it been brought for tactical reasons?

4. Have the plaintiffs’ actions in the main action been influenced by improper motives?

5. What is the potential prejudice to the successful party on the motion for summary judgment if a stay is granted?

The judge held that, although the main action and third party actions arose out of the same transaction, the issues were different so that inconsistent findings were unlikely. The judge was unable to determine the strength of the purchaser’s claims against the agent, but noted that the vendors’ action had certainly not been influenced by improper motives.

Finally, the judge held that the vendors could be prejudiced by the delay if the purchaser’s financial position deteriorated over the period of the stay and that the vendors were innocent of any wrongdoing and ought not to be forced to wait to collect their damages after the purchaser’s clear breach of the agreement.

The judge refused to stay the judgment.


Image courtesy of Grafixar.

Jonathan Speigel


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


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