No Deposit: The Seller’s Options!

What can the Seller do if the deposit is late or doesn’t arrive at all?

There are essentially two options:

  1. Affirm the transaction, waive the breach and elect to proceed with the transaction,
  2. Terminate the transaction, declare the breach is a fundamental term of the contract and consequently the Seller is discharged from any obligations.

The Seller would then be free to proceed to negotiate with another party.

The “do nothing” approach at some point turns into acquiescence and a condonation of bad behaviour. So, silence is not golden. If the Seller wishes to keep his options open, then it should be made clear that the late deposit is an issue. Placing the late deposit in the bank account without dispute, six months later in the transaction, will be taken as a waiver of the breach.

The Ontario Court of Appeal has determined:

  1. A late deposit is a breach of contract,
  2. That particular breach is a breach of an essential term of the contract,
  3. This breach gives rise to certain rights in favour of the Seller,
  4. The Seller may terminate the Agreement by declaration, ending any and all obligations under the contract that the Seller may have had.

This is the Loblaw’s “late deposit” case. The Trial Judge concluded:

Conclusion and Disposition

[23] In my view, the law applicable to this case is clear, as it ought to be. When Loblaw, albeit through inadvertence, failed to pay the deposit cheque within the time specified, it breached a term which the parties had agreed was essential to the contract. That made it a fundamental breach entitling the Vendors to treat the contract as discharged and releasing them from their obligations under it. The Vendors were under no obligation to assert their right to treat the contract as ended any earlier than they did. They did nothing to injure Loblaw or lead it to act against its interests by not asserting their right on the first day of default, and did nothing which in law or fact could fairly be construed as having waived or extended the time provision. By pure happenstance, another party came along at precisely the same time as Loblaw fell into breach, and the Vendors had to know what their right was in terms of dealing with the new party. The law entitled them to that in such circumstances.

[24] As a pure question of law, Loblaw’s claim against the defendants, based entirely on the agreement of purchase and sale of September 18, 2003, cannot succeed. On the undisputed facts, that agreement was discharged as a result of the breach of an essential term thereof by Loblaw, a breach that the Vendors did not waive, did not accept and which they were entitled to treat and did treat as discharging the agreement and ending any and all obligation they had under it.

This decision was made in 2005 by Mr. Justice Rutherford of the Superior Court of Justice, confirmed subsequently by the Ontario Court of Appeal later that year, and was quoted with approval by the Superior Court of Justice in 2015, which at the same time applied the new common law principle of “good faith and honesty” contained in the 2014 Supreme Court of Canada decision in Bhasin v. Hrynew.

Unless the same issue were later to advance to the Supreme Court of Canada in another case, the right to terminate for the late deposit is clear, and it is the law.

Brian Madigan LL.B., Broker

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