ABSTRACT
The deposit is a very old common law device for securing the performance of a contract. Ubiquitous in real estate transactions, deposits are also routinely used in other commercial contexts. Despite its antiquity, the law of deposits has not worked itself entirely free of difficulty. In this paper I examine a seldom-noticed puzzle at the heart of the law of deposits. Deposits exhibit two apparently contradictory properties. The first is that they are forfeitable upon a default by the depositor, whether or not that default has caused the other party to suffer a loss. The second is that a forfeited deposit must be brought into account against damages payable by the defaulting party when the default causes a loss. I argue that if deposits are forfeitable irrespective of loss, there are good reasons to think that they should not be brought into account against damages. It seems contradictory that deposits exhibit both of these properties. The contradiction may only be apparent, but it is apparent enough to demand an explanation to resolve it. This is the puzzle. I examine three cases (one Canadian, two English) for possible solutions to the puzzle and find all three of them wanting.
Pratt, Michael Gordon, Why Are Deposits Deducted from Damages? (August 15, 2024), Queen’s University Faculty of Law Legal Studies Research Paper Series.
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