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 1

  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.

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