Is a Deposit a Requirement for a Valid Contract?


Is a Deposit a Requirement for a Valid Contract?


A valid contract in Ontario requires either:

1) consideration, or

2) a seal.

All standard form OREA contracts are drafted “under seal” so they would be enforceable without consideration. It is the seal that makes an irrevocable offer actually “irrevocable”, otherwise, the offeror could withdraw the offer at any time prior to acceptance.

When it comes to consideration, a Court will not question the amount, hence, many standard form contracts include the expression “in consideration of the sum of two dollars and such other valuable consideration…”.

A deposit is consideration, so is a promise for a promise, and so is any forbearance or indulgence. Money is just very easy to prove. So, if there was no deposit, there would still be a contract. There would still be consideration and there would still be a seal.

The Seller should have the deposit as large as possible, and at least theoretically, the Buyer would want the deposit to be as small as possible. However, if the deposit is high, the Buyer might be able to negotiate a better purchase price.

Brian Madigan LL.B., Broker

Comments 5

  1. Hi Brian,
    Thank you very much for your guidance.
    An earnest money deposit tells a seller that the buyer is serious about closing. It recommends having a deposit of at least 20% of the prospective property’s purchase price.

  2. Hi Brian,

    What if the buyer doesn’t send the deposit within 24 hours? Is the seller able to enter into another contract for sale without a signed mutual release?

    1. Post
  3. Thanks Brian!
    If the seal is removed from the offer, my understanding is that the offer can be revoked at anytime. If the Seller accepts the offer, is it still legal and binding or only once the deposit is delivered? In other words, is the deposit the needed consideration to form a binding agreement when there is no seal?

    1. Post

      There is a contract once there is “acceptance” (seals or no seals).
      There is consideration: being a promise for a promise.
      The deposit is simply a term of the contract, unrelated to contract formation.

Leave a Reply

Your email address will not be published. Required fields are marked *