Canada: Offer To Purchase/Promise Of Sale: What Are Your Remedies Against A Recalcitrant Co-Contractor?

Last Updated: October 17 2018
Article by Aurore Dangel

An offer to purchase an immovable property is as crucial a step in the purchase process for the seller as it is for the buyer. It involves the buyer obtaining access to the property and the seller turning it over. As such, the signature of an offer to purchase indicates, in principle, the willingness of both parties to make the sale materialize.

Yet, even with a signed offer signed, one of the parties — either the seller or the buyer — could be overcome by doubt and may ultimately no longer want to buy or sell the immovable property that is the subject of the offer. However, it is important to be aware of the fact that the signature of an offer to purchase is not risk-free. In fact, Québec contract law is subject to the principle of keeping one's word and exercising good faith in one's undertakings.1 It is therefore possible for the party aggrieved by this change of heart to initiate certain remedies that are worth highlighting.

In Québec, there are two main remedies that are used in this type of situation. First, the reluctant party can be forced to sell or purchase, when certain conditions (set out below in more detail) are met. This is the remedy referred to as the action in conveyance of title (I).

Second, it is also possible to ask for monetary compensation for the inconveniences and damages suffered when one party to the offer refuses to proceed with the sale or purchase of the immovable. It is then a matter of seeking compensatory damages (II).

(I) Actions in conveyance of title: The forced performance of the sale or purchase

The basis of an action in conveyance of title is found in the very notion of the offer to contract, as defined in article 1396 of the Civil Code of Québec. The Civil Code of Québec provides that such an offer, when accepted, requires its beneficiary to enter into the contract.

The corollary of this obligation is found in article 1712 of the Civil Code of Québec, which provides that "Failure by the promisor, whether seller or buyer, to execute title entitles the beneficiary of the promise to obtain a judgment in lieu thereof." Therefore, in the specific case of a co-contractor's refusal to finalize the sale or purchase of a property, the other co-contractor can obtain a judgment that orders "the transfer of title," i.e., effectively transferring the property from the seller to the buyer. This forced performance is also called "specific" performance because it ultimately consists in compelling the recalcitrant co-contractor to fulfil the agreement in accordance with the terms agreed upon in the offer, despite a co-contractor's change of heart.

However, to obtain such a judgment, it must be established, above all, that a valid and enforceable promise of sale exists: the person who seeks to force the sale must demonstrate that an offer was entered into and that its conditions were met.

Once this preliminary condition is met, it is established in the jurisprudence that four conditions must be met if one hopes to obtain a forced sale.2 These are:

  • to send a formal demand to the recalcitrant party to finalize the sale;
  • to present an act of sale consistent with the promise;
  • to offer and deposit the price of sale indicated in the promise;
  • to bring an action in conveyance of title within a reasonable time.

These conditions have been the subject of a broad and liberal interpretation – the strict formalism that was once applied has given way to creativity and flexibility.3

Accordingly, a formal demand is not always required, since bringing an action in conveyance of title can, in itself, amount to sufficient demand.4 The need for a draft act of sale consistent with the promise has also been made more lenient. The court, adopting a flexible approach, could, for example, order the correction of minor errors, provided that they do not call the parties' consent into question.5

As for the offer and the deposit of the price of sale by the plaintiff who seeks to obtain the transfer of title, they can be tendered in currency, by cheque made to the order of the creditor and certified by a financial establishment conducting business in Québec, or by way of an irrevocable and unconditional undertaking, for an indefinite term, by a financial institution conducting business in Québec, to pay to the creditor the amount tendered.6

Finally, the condition regarding the reasonable time in which the action must be brought was established to enable co-contractors who refuse to abide by their obligations to quickly know whether they will be bound before the courts to buy or sell the immovable.

When all of the conditions are met, the judgment that allows an action in conveyance of title has the effect of transferring the ownership of the immovable from the seller to the buyer, in accordance with the terms that were set out in the offer to purchase and in the act of sale filed in support of the action in conveyance of title. This remedy is therefore very effective and ensures the stability of contracts entered into between two parties. This is a remedy for which each case is decided on its own merits and the court is careful to review all of the circumstances surrounding the signature of the offer as well as the use of the conveyance of title remedy.

But whether or not the action in conveyance of title is allowed, it is always possible to seek damages, either alternatively or concurrently.

(II) The claim for damages: Performance by equivalence

The failure to finalize the sale creates many inconveniences and damages for the aggrieved co-contractor. This is why co-contractors who refuse to abide by their contractual obligations are liable for the moral or material injury that they cause to their co-contractors.7

In fact, many injuries can result from the refusal to realize the offer to purchase. This could include: the payment of notary's fees, banking fees, the time spent to obtain a bank guarantee, loss of profit, inconveniences related to moving, or the expenses incurred to maintain the immovable while waiting for the sale to materialize.

The damages have a compensatory purpose, intended to repair the injury suffered, and therefore must not be intended to enrich the person seeking them. As such, they compensate only for loss sustained and the person's loss of profit8 and, in contractual matters, only those that were foreseen or that were foreseeable at the time that the obligation was contracted are payable. Furthermore, these damages cannot result from the intentional fault or gross negligence of the person that seeks them.

Finally, the action for damages should be brought within a maximum of three years, this delay starts running on the day that the moral or material injury appears for the first time,9 failing which the right of claim will be lost.

Conclusion

Signing an offer to purchase or a promise of sale is not a meaningless act of no consequence. In fact, it is a formal undertaking by both the seller and the buyer to finalize the transaction, the terms of which were agreed upon and consented to in the offer. Therefore, one co-contractor's failure to fulfil his/her contractual obligations can expose him/her to liability. Consequently, he/her may be forced to finalize the sale through an action in conveyance of title. Also, the co-contractor could be bound to pay damages to the aggrieved co-contractor to cover the injury suffered, as a result of his/her recalcitrant behaviour.

Footnotes

1 Houlachi c. Bray, 1997 CanLII 10151 (QCCA).

2 Théberge c. Duquette, 2007 QCCA 42 (CanLII).

3 Houlachi c. Bray, 1997 CanLII 10151 (QCCA).

4 Habitations Germat inc. c. Giove, 2010 QCCA 611 (CanLII).

5 Ferme Pierre Laflamme et Fils c. Laflamme, 2014 QCCS 2941 (CanLII).

6 Article 1574 of the Civil Code of Québec.

7 Article 1458 of the Civil Code of Québec.

8 Article 1611 of the Civil Code of Québec.

9 Article 2925 and 2926 of the Civil Code of Québec.

Read the original article on GowlingWLG.com

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