Deposits and Consideration

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Question:

You are trying to explain to a new salesperson in your office the purpose of a deposit when negotiating the terms of the Agreement of Purchase and Sale.

Which of the following statements best describes the purpose of a deposit in the contracting process?

A )    If there is no deposit, there is no consideration and the contract is not binding.

B )    If there is no deposit, the irrevocable clause in the Agreement cannot be enforced.

C )    A large deposit guarantees payment of commission.

D )    According to contract law, the deposit is consideration and consideration is an important element of a contract.

Suggested Correct Answer: D

How come the deposit is consideration, it is a part of consideration and deposit can be zero as well. Explanation?

Answer:

This is somewhat problematic. The deposit is NOT Consideration. There are a good deal of misconceptions about this.

Also,

  1. is incorrect,
  2. is incorrect,
  3. is incorrect,
  4. is incorrect.

I wouldn’t worry about it too much. I’m not sure where that question came from, but whoever drafted it was in error.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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