The sale of real estate assets usually starts with a preliminary
contract, more specifically, a promise to purchase signed by the
seller and the purchaser, which sets out most of the terms and
conditions of the deed of sale to be entered into. However, it may
happen that an owner will go back on his word and choose to sell to
a third party whose offer for the assets is more favourable.
If the owner sells his property to the third party purchaser,
what are the remedies of the original purchaser? Can he or she seek
to have the sale to the third party voided? Can he or she claim
damages from the third party?
In a judgment issued on September 8, 2011, the Quebec Superior
Court considered the case of a company (GLS) that had signed a
promise to sell assets to a purchaser (Midbec) and, a few days
later, sold them to a third party purchaser (Reliable) under more
favourable terms. Midbec instituted an action for damages against
GLS and Reliable solidarily. As GLS had gone bankrupt, only a
judgment ordering Reliable to pay damages could compensate Midbec
for the harm it suffered.
Reliable invoked the absence of a legal relationship between
itself and Midbec since Reliable was not a party to the first
promise to purchase, which, moreover, its representatives had not
read. In addition, Reliable considered that there had been no
complicity or collusion between itself and GLS and that,
accordingly, it was not in bad faith within the meaning of section
1397 of the Civil Code of Québec, which reads as
follows: "A contract (the sale to Reliable)
made in violation of a promise to contract (the GLS/Midbec
promise to purchase) may be set up against the beneficiary of
the promise (Midbec), but without affecting his remedy for
damages against the promisor (GLS) and the person
(Reliable) having contracted in bad faith with the
(The text in italics has been added and is not part of the
The evidence showed that in fact, although Reliable's
representatives had not seen the promise to purchase entered into
between GLS and Midbec, Reliable knew of its existence and was even
aware of some issues of concern for GLS. It also made sure to
remedy such issues in its own promise to purchase and, at the
request of GLS, agreed not to sue GLS in the event that Midbec
instituted proceedings. The parties closed the transaction quickly
to avoid being prevented from doing so by proceedings instituted by
The Court came to the conclusion that Reliable had acted with
full knowledge of the situation and that the facts were sufficient
to demonstrate its bad faith. Reliable was ordered to pay Midbec,
for loss of profit, an amount of $784,703 in damages with interest
at the legal rate plus the additional indemnity.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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