A buyer is obliged to complete the deal whether or not the deposit is paid, writes Bob Aaron.
If a buyer has a change of heart after signing a purchase agreement, but before paying the deposit, is the contract still binding?
That was the issue in a Superior Court case decided by Justice Susan Vella last month. The dispute centred on the purchase of a house on Golfview Dr., in Collingwood, in 2021.
[Pollard v. Perry, 2022 ONSC 5168 (CanLII), https://canlii.ca/t/js08b]
During a period in which the real estate market was very hot, Jaye Perry signed an unconditional agreement to purchase the property from Douglas Pollard for $1,050,000 — a $100,000 bump over the $950,000 listing price.
The only competing offer received by Pollard at the time was for $950,000.
The following day, Perry decided that she could not pay the purchase price. Through her real estate agent, she requested an extension of the closing date, a price reduction of $100,000 and an amendment of the contract to make it conditional on financing.
Pollard refused to accept the proposed changes, and Perry failed to pay the deposit. Since Perry’s refusal amounted in law to a repudiation of the contract, Pollard terminated the deal and placed the home back on the market.
The house was re-listed for $1,100,000, and then $995,000.
After exposure to the market for almost two months, the property was resold for $910,000, a significant reduction from the price Perry had agreed to pay.
Pollard brought the case to court last month on what is known as a summary judgment motion, which is a request to have the dispute resolved based on agreed-upon facts, without the need for a trial.
In court, Perry did not deny liability for breaching the contract. Instead, she argued that fairness and equity should not require her to pay $140,000 in damages because she promptly disclosed her inability to close the transaction, and Pollard failed to mitigate his damages by not leaving the property on the market for a longer period of time
After hearing arguments, Justice Vella ruled that since liability was admitted and the facts were not in dispute, the case was an appropriate one for determination without the need for a full trial.
In her decision, the judge wrote: “Pollard is entitled to the shortfall in the original sale price realized as a result of Ms. Perry’s repudiation of the (agreement).”
She awarded the seller damages of $140,866.11, including carrying charges, plus costs of $20,000. It was an expensive lesson for a buyer who changed her mind after signing a purchase agreement.
There are several useful lessons that can be taken from this case:
- Once an offer is signed, it is binding whether or not the deposit is paid.
- Submitting an unconditional offer is always a big risk.
- Becoming emotionally involved in a purchase and paying over the asking price is also
- A buyer breaching the terms of a contract will be personally liable for all losses and costs
sustained by a seller.
- When a transaction starts to go sideways, it is always a good idea to bring a litigation
lawyer on board at the earliest possible opportunity.
- Buyer’s remorse can be very expensive.