Brown v. Godfrey, 2006 CanLII 16540 (ON SCDC)
In Brown v. Godfrey, the Ontario Divisional Court considered the consequences of a purchaser repudiating an Agreement of Purchase and Sale for a residential property and, specifically, whether the vendor was entitled to keep the deposit.
The purchasers, Lee and Fiona Godfrey, entered into an agreement to purchase the vendor Andrew Brown’s home. They paid a $5,000 deposit and were required to pay a further $5,000 deposit. Before closing, the purchasers advised that they would not proceed with the transaction and failed to provide the additional deposit.
The Vendor was ultimately able to resell the property at approximately the original purchase price but commenced an action in Small Claims Court seeking:
- $5,000 in damages for breach of contract, representing the additional deposit that was never paid; and
- Return of the $5,000 deposit held by the real estate broker.
The broker had paid the deposit into Court and was released from the action.
The Small Claims Court awarded the Vendor $8,723.07, which included:
- $2,066 for a deficiency relating to the sale of a boat included in the transaction;
- $1,088.64 for legal advice obtained regarding the dispute;
- $568.43 for bridge financing costs; and
- $5,000 for mental distress.
The purchasers appealed.
Divisional Court Decision
The Divisional Court found that the Trial Judge had made errors in awarding certain damages.
Mental Distress Damages
The Court held that damages for mental distress were not available because:
- They had not been properly pleaded; and
- A real estate purchase agreement is not the type of contract where damages for loss of peace of mind are normally recoverable.
The Court noted that damages for mental distress are generally limited to contracts where peace of mind is a significant part of what was purchased, such as vacation contracts, or where such damages were specifically contemplated by the parties.
A failed home purchase agreement did not fall into that category.
Legal Fees
The Court also removed the award for legal fees incurred in anticipation of litigation. Those costs were considered part of the Court process and governed by the applicable procedural rules, rather than damages flowing from the breach of contract.
What Happened to the Deposit?
The key issue on appeal was the $5,000 deposit.
The vendor argued that the deposit should be forfeited because the purchasers had repudiated the Agreement of Purchase and Sale.
The Divisional Court agreed.
The Court held that:
- A deposit is different from a simple payment on account.
- A deposit is intended to secure performance of the contract.
- Where a purchaser repudiates the agreement, a vendor may generally retain the deposit unless doing so would be unconscionable.
- A vendor does not need to prove actual damages equal to the amount of the deposit in order to retain it.
The Court stated:
“Given that a deposit was made, it is subject to forfeiture because of the Appellants’ repudiation of the agreement, even if there is no express reference to forfeiture in the agreement.”
The Court also confirmed that a vendor cannot claim forfeiture of a deposit that was never paid. Since the purchasers had only paid the first $5,000 deposit, only that amount was available for forfeiture. The additional $5,000 deposit that was never paid could not be claimed as forfeited.
Final Result
The Divisional Court allowed the appeal and reduced the judgment.
Instead of the original award of $8,723.07, the vendor received:
- $5,000, representing the forfeited deposit, payable from the funds paid into court; and
- Costs increased from $150 to $210.
The purchasers were not required to pay the additional $5,000 deposit that they never delivered.
Key Real Estate Lesson
Brown v. Godfrey confirms an important principle in Ontario real estate transactions:
A purchaser who breaches an Agreement of Purchase and Sale may lose their deposit, even where the vendor’s actual financial loss is less than the deposit amount.
However:
- Only a deposit actually paid can generally be forfeited.
- A vendor cannot treat an unpaid deposit obligation as if it were money already held.
- The deposit must be a genuine deposit intended to secure performance, not merely an instalment payment.
The case remains a useful authority for understanding the difference between deposit forfeiture and damages for breach of an Agreement of Purchase and Sale.
COMMENT
It is noteworthy that this case deals with the deposit paid and then forfeited. However, the additional unpaid deposit can be claimed as damages. In this case, it wasn’t, but likely that was an oversight.
Brian Madigan LL.B., Broker