Deposit Too Large to be Forfeited
On occasion, a deposit can be too large. Then, it becomes something of a penalty if it’s lost. The Court has the right to grant “relief from forfeiture” when it’s simply too large.
How does this happen?
The Ontario Court of Appeal just looked at a case Scicluna v. Solstice on 23 February 2018.
Valeria Scicluna advanced $293,685 towards the purchase of a condominium unit. When it came time to close, she was unable to pay the remaining $78,315 because she had lost her job. Therefore, she was in breach of the agreement of purchase and sale.
The vendor, Solstice Two Limited (“Solstice”), resold the unit for $435,000, significantly more than Ms. Scicluna had been obliged to pay.
Solstice wanted all $293,685, plus the additional profit it had made on the resale.
The application judge decided that Solstice’s demand for complete forfeiture was grossly disproportionate, and granted Ms. Scicluna relief from forfeiture.
So, it went on appeal to the Ontario Court of Appeal.
The case is really just a little more complicated because Scicluna went bankrupt, and there were actually three parties before the Court looking for the money, Solstice, Scicluna, and the Trustee in Bankruptcy.
The application judge gave the money to Keven Thatcher and Associates Ltd. (“KTL”), the trustee in bankruptcy appointed when Ms. Scicluna made an assignment in bankruptcy shortly after losing her job and this was upheld by the Court of Appeal.
The situation goes back to 2008, almost 10 years before the decision of the Court of Appeal. That’s a long time “in litigation”.
In April 2008, Ms. Scicluna entered into an agreement to purchase a condominium from Solstice. The initial closing date was to be more than two years later, in September 2010. In the interim, Ms. Scicluna lived in the condominium.
Solstice was entitled to unilaterally declare the APS terminated:
“whereupon all deposit monies theretofore paid, together with all monies paid for any extras or charges to the Unit, shall be retained by the Vendor as its liquidated damages, and not as a penalty…”
The Court said:
“In finding against Solstice, I do not accept Ms. Scicluna’s contention that the deposit was not forfeited. That is a difficult argument for Ms. Scicluna to make given that she breached the terms of the APS that provided for forfeiture in the event of breach – especially in light of the fact that Solstice had advised Ms. Scicluna that a failure to close would result in forfeiture, and that the funds were already under Solstice’s control.”
Note: remember here, Scicluna needs to present a rather novel argument such that the forfeiture never took place, there was no value, it was processed through bankruptcy, then she was discharged, and then later, the money became available, otherwise her Trustee in Bankruptcy would be entitled to the money.
The Court stated further:
“In my view, even though the deposit was forfeited, the application judge was entitled to grant relief from forfeiture, notwithstanding that s. 98 of the Courts of Justice Act, R.S.O. 1990. c. C.43 was not formally advanced by Ms. Scicluna.”
“It was implicit in the application below that Ms. Scicluna was seeking relief from forfeiture. Ms. Scicluna was suing for the return of the deposit that Solstice claimed was forfeited. A judge has a broad discretion under s. 98 to grant such relief.”
The “appropriate questions to consider” in deciding whether to award relief from forfeiture were identified in Liscumb v. Provenzano (1985), , 51 O.R. (2d) 129 at p. 137 (S.C.), affirmed (1985), 55 O.R. (2d) 404 (C.A.), by McKinlay J. :
- first, was the conduct of the plaintiff reasonable in the circumstances;
- second, was the object of the right of forfeiture essentially to secure the payment of money; and
third, was there a substantial disparity between the value of the property forfeited and the damage caused the vendor by the breach?
And, here’s a full summary by the Court:
“ Indeed, in this case the “substantial disparity between the value of the property forfeited and the damage caused [to Solstice] by the breach” is so manifest and so grossly disproportionate that relief from forfeiture is patently a correct result.
This can be said with confidence even without evidence particularizing the actual cost to Solstice of Ms. Scicluna’s failure to close. This is not a case of an ordinary deposit.
In the unusual circumstances of this case, Ms. Scicluna had advanced close to 80% of the total purchase price, $293,685 on a purchase price of $372,000.
To compound this, Solstice was able to sell the same property that Ms. Scicluna had almost entirely paid for to another purchaser for $435,000.
Even before the $263,685 that Solstice claims as forfeited money, it has, in pocket, $93,000 more than it would have had if Ms. Scicluna had closed on the APS.
This is because of the $30,000 forfeited deposit that Solstice retains under the application judge’s order, and the $63,000 net difference between the condominium’s original sale price and subsequent resale price.
Whatever expenses Solstice may have incurred because of Ms. Scicluna’s failure to close, it is obvious that Solstice is not in a net loss position.
If Solstice’s forfeiture claim is accepted, it would have a grossly disproportionate windfall. I would not disturb the application judge’s finding on this issue.”
This case is somewhat more complicated because of the bankruptcy. However, let’s stick to the real estate issues.
The full purchase price was $372,000. With a condominium under construction over an extended period of time, a purchaser will frequently make progressive payments over time. Unfortunately, under a Builder’s one sided agreement, all payments became further deposits and all deposits are forfeited if you can’t make the last payment. The sum of $293,685 had been paid to date. That amounted to 78.94% of the purchase price.
That percentage was considered to be “a grossly disproportionate windfall”.
So, the Buyer was relieved from forfeiture which was the usual remedy.
The ultimate question naturally has to be:
“how high does the deposit have to be before the relief from forfeiture remedy will kick in?”
Brian Madigan LL.B., Broker