Deposits in Consumer Transactions

From Clicklaw Wikibooks
This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Alison Ward in August 2018.

A deposit, a payment made by a purchaser as confirmation of a contract, is typically forfeited to the seller if the purchaser refuses to carry through with the transaction. But there are exceptions.

Client problems

  • Client paid a deposit in a consumer transaction and wants to know how to get it back after deciding not to complete the transaction.

  • Client has paid a deposit and now wants out of a transaction, but the seller refuses to return the deposit.

  • Client paid a deposit for goods, but the seller goes out of business without delivering the goods.


Summary of the law

Image via www.istockphoto.com

This section provides a brief outline of the common law of deposits as it applies to consumer transactions. Deposits in other transactions, such as residential tenancies and purchases of land, are not included in this discussion.

Basically, a deposit is a payment made by a purchaser, usually at the seller’s request, as confirmation of a contract. It is paid before the seller fulfills some or all of their part of the contract. Consumers are asked for deposits in a variety of situations where the seller must take some action, such as ordering or manufacturing a product, or providing a service requiring some preparation.

In common law, deposits are forfeited to the seller if the consumer refuses to carry through with the transaction. For example, if the consumer agrees to buy a car and gives a deposit in exchange for the seller’s promise of delivery within two weeks, the consumer cannot get out of the agreement simply because they change their mind (see the section on Opting Out and Cooling-off Periods). The law says, in general, that the seller can keep the deposit as compensation for the consumer breaching the contract (that is, wanting out of the deal without a legal excuse).

Exceptions to the rule allowing the seller to keep the deposit

However, there are some exceptions to this general rule:

  • If the deposit is too steep: The seller cannot keep a deposit disproportional to the value of the loss they will suffer if the consumer backs out of the transaction. For example, a court might find that a seller who keeps a deposit of 50% of the price of a new car is being unfair to the consumer. The dealer may have spent time and money to order the car, but it is likely the car could be sold to someone else to recoup that expense. If the consumer went to court over the matter, a judge would probably order that at least some of that 50% be paid back.

  • If the seller breaches the agreement: The consumer is generally entitled to get their money back if the seller breaches the agreement. For example, if the seller cannot deliver a product, or cannot deliver it within a reasonable time as promised, the consumer is probably entitled to call off the deal and have the deposit returned. If the seller delivers an unsatisfactory product, the consumer is also entitled to have the deposit returned.

  • If the seller promised a refund: The consumer may be entitled to a refund of the deposit if the deposit was given to a seller with an advertised policy of giving refunds, regardless of the reason.


Buyers’ liens under the Sale of Goods Act

Under section 75 of the Sale of Goods Act, consumers have certain lien rights (a lien allows a person’s property to be kept until a debt is paid) for deposits paid to sellers. This is an important protection in cases where businesses take a deposit for some or all of the purchase price for goods and then go out of business before delivering the goods.

The lien rights arise in situations where the consumer enters a sales contract for a product that the seller usually sells in the course of its business. These rights give consumers a claim for the amount of the deposit against the assets of the business, including all the goods and the bank accounts of the business. Most importantly, consumer claims that comply with the terms of section 75 rank ahead of claims of creditors with security interests under the Personal Property Security Act (see the sections on Types of Lenders and Creditors and Security Agreements).

Information gathering

Gather information from the client and from any documents the client has. Be particularly careful about getting full details of the various promises made by the seller for the time of delivery and the quality of the product.

Solving the problem

Before approaching the seller, decide whether the consumer has grounds to ask for some or all of a deposit back. Was the amount paid unfair in relation to the losses of the seller? Has the seller breached the agreement? Are there any other grounds for justifying the consumer getting out of the agreement?

Besides buyer lien rights under the Sale of Goods Act, a consumer may be able to get a refund from their credit card issuer if the deposit was charged to the credit card and the goods or services were not delivered (see the section on Credit Cards).

If the consumer wants out of the transaction, and has no legal grounds to ask, it may be difficult to get the seller to agree to any kind of refund. In general, deposits are taken specifically to secure buyer performance.

Some alternatives to consider include:

  • negotiating a return of part of the deposit, or

  • having the consumer take some other good or service instead of the good or service in the initial contract.

Related topics and materials

See the other sections on making a purchase:

See related sections:


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