Buyer Backs Out: What Are the Damages?

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Today, let’s talk about a recent case law decision that highlights the rules of damages when a Buyer fails to close:

Gagliardi v. Al-Karawi, 2023 ONSC

Like most decisions about this topic - the Deposit is important.

If you feel like reading the whole case, you can click above, or you can read my summary and commentary here.

The facts of the case were pretty simple:

• APS accepted at $635,000 with a $40,000 deposit.
• The next morning, the Buyer backed out of the deal and never delivered the deposit.
• The Seller resold the property to another Buyer for $12,473 less.
• The Seller sued the first Buyer for breach of contract.

Here’s the big question:
Should the Buyer pay the $12,473 in actual damages or the full $40,000 deposit they agreed to?

The court ordered the Buyer to pay $40,000 to the Seller. 

The case law in Ontario is very clear when it comes to deposits:

"...when the sale does not proceed due to the fault of the buyer, it is all but impossible for the buyer to recover its deposit."

The Seller has the right to keep the deposit if the Buyer breaches the agreement, even if the deposit amount is higher than the Seller’s actual or expected losses.

In this case, the Seller was not able to recover the additional $12,473 in damages because the deposit amount of $40,000 was more.

"Where the seller sustains damages that are less than the deposit, the seller cannot recover damages beyond the amount of the forfeited deposit. Courts have consistently acted to avoid double recovery."

Essentially, a Seller can claim either the deposit or the actual damages, whichever is greater—but not both.

So, if the Seller had $60,000 in damages, they would likely have been able to recover that entire amount. 

Also remember, the Seller is not required to prove any damages to retain the deposit.

"Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and is not dependent on proof of damages by the other party."

Even where the Seller has incurred no loss at all, they are still entitled to the deposit.

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Moral of the story... deposits are important in real estate deals.

The establish the minimum amount the Seller is entitled to in the event of a default and are easier to enforce, as they require no proof of damages—only proof of the Buyer’s default.

Deposits are not just symbolic—they provide real protection for Sellers and accountability for Buyers.