Law Times

Page 4 August 6, 2018 • LAw times www.lawtimesnews.com 'We held our end of the bargain' Failed real estate deal clarifies role of deposits BY ANITA BALAKRISHNAN Law Times A n Ontario judge weighed in on a real estate dispute recently, deciding that a pro- spective buyer must forfeit his deposit after he pulled out of a deal, even though his pre- incorporation contract express- ly protected against personal liability. The Ontario Superior Court of Justice decision, Benedetto v. 2453912 Ontario Inc., was is- sued July 24 by Justice Benjamin Glustein, who ordered that the agent that was holding the de- posit, Re/Max West Realty Inc. Brokerage, release the deposit plus interest to 2453912 Ontario Inc. At the core of the case was whether the deposit was part of the pre-incorporation contract or whether the two were sepa- rate issues. Salvatore Benedetto, the pro- spective purchaser of the prop- erties, said the deposit was part of the pre-incorporation con- tract, which protected him from personal liability, according to the decision. The seller, 2453912 Ontario Inc., said in the decision that the deposit stands on its own in case the contract is never performed. In July 2017, Benedetto put down $100,000 from his per- sonal account in deposits on the $7-million purchase of three ad- jacent houses on Huron Street in Toronto, the decision said. Bene- detto never closed the agreement of purchase and sale of 661, 663 and 665 Huron Street, according to the decision. The agreement was signed "Salvatore Benedetto In Trust For A Company to be Incorpo- rated without any Personal li- abilities," according to the deci- sion. Benedetto didn't incorporate a company to adopt the pur- chase and sale agreement, and he decided in September 2017, two weeks before closing, that he would not proceed with the purchase. According to s. 21(4) of the Ontario Business Corporations Act, "If expressly so provided in the oral or written contract . . . a person who purported to act in the name of or on behalf of the corporation before it came into existence is not in any event bound by the contract or enti- tled to the benefits thereof." But 2453912 Ontario Inc., which was going to sell Bene- detto the Huron Street prop- erties, said that previous cases indicated that a deposit is "com- pensation for the vendor taking its property off the market for a time, as well as for the vendor's loss of bargaining power result- ing from the revelation of an amount that the vendor would be prepared to accept," the deci- sion said. Glustein concurred, writing that a deposit is "a sum of money to signify the formation of a con- tract." "It is not a pre-incorporation contract to which a purchaser could be 'bound' to its obliga- tions or otherwise exposed to personal liability under the con- tract. Instead, a deposit is a pay- ment to secure performance," Glustein said in the decision. "Consequently . . . the deposit re- mains the property of the vendor if the purchaser fails to close the agreement of purchase and sale." Jeremy Lum-Danson, an as- sociate at Ross Barristers PC, who represented 2453912 On- tario Inc., says the decision avoids a situation where the pro- spective buyer of a property can have their cake and eat it, too. "We gave something up — we stopped taking other offers, we took these properties off the market for a couple of months and we disclosed the price that we would sell these for. So, to say the contract is a nullity, in respect to the deposit, I said was ridiculous. "Things happen. We held our end of the bargain," Lum-Danson says. Shahzad Siddiqui, managing partner at Abrahams LLP, who represented Benedetto, says it was an interesting decision as nei- ther party raised the issue of the deposit as a pre-incorporation contract in the facta. Siddiqui says Benedetto has not decided whether the decision will be ap- pealed, but he noted that one of the cases cited by Glustein in the decision doesn't engage with the OBCA. "Justice Glustein agreed that my client did everything to pro- tect himself from liability," Sid- diqui says. The judge said in the decision that there was no case law pro- vided in which a party avoided personal liability by an express statement in a pre-incorporation contract. "I find that a deposit is not a pre-incorporation contract," Glustein said. "Rather, it stands on its own as an 'ancient invention of the law designed to motivate con- tracting parties to carry through with their bargains.'" Oliver Moore, senior associ- ate at Norton Rose Fulbright Canada LLP, says the judgment makes sense and manages to chart a course between two con- cepts in conf lict. "On one hand, the deposit isn't rendered meaningless, which would be an irrational outcome. And on the other hand, the provision of the OBCA isn't rendered meaning- less, which would obviously not be an acceptable outcome ei- ther," Moore says. LT NEWS NEWS NEWS Jeremy Lum-Danson says a recent Ontario Superior Court of Justice decision will help people or companies that are selling prop- erty. © 2018 Thomson Reuters Canada Limited 00251ZX-93309-NKP ATTRACT ENGAGE CONNECT WHAT IF YOUR FIRM COULD … connect with potential clients wherever they are through an integrated marketing strategy? FindLaw Complimentary Webinar Series Join our complimentary series on digital marketing and explore the latest tactics, strategies, and tools that will help develop and drive your firm's business. 2018 Upcoming Webinars July 25 Psychological Factors that Drive Website Success August 23 How to Future-Proof Your Law Firm September 27 Don't Let Your Brand Go to Waste October 25 10 Strategies for Growing Your Law Firm Visit lawyermarketing.findlaw.ca/webinars Participants may wish to use this program towards substantive Continuing Professional Development hours with the LSO. Attendance certificates available upon request. Carswell-93309_LT_Aug6_18.indd 1 2018-07-31 3:06 PM

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