CANCELLATION OF A PROMISE TO PURCHASE FOR NOT RESPECTING DELAYS

Promises to purchase real estate usually include delays for the prospective purchaser to satisfy certain conditions such as inspection of the property or providing proof of financing amongst others. Can the vendor cancel the accepted promise to purchase if the prospective purchaser does not respect a delay? This issue was dealt with by the Quebec Court of Appeal in Azimut Promoteur Immobilier Inc. -vs- Raymond Gauthier et al. 2022 QCCA 1299. On November 26, 2019, the parties signed a promise to purchase an immovable property by no later than March 1, 2020 for the price of $1,225,000. The purchaser remitted a non-refundable deposit of $100,000 to be applied to the purchase price. On February 19, 2020 the parties signed a second agreement which provided inter alia that Purchaser would pay the additional sum of $100,000 as second non-refundable deposit by no later than March 31, 2020 and that the parties would consummate the sale no later than 30 days following the issuance of the certificate of authorization by the Minister of the Environment or at the option of the purchaser, the sale could be consummated prior to the issuance of the environmental certificate. The purchaser failed to pay the deposit that was due on March 31, 2020, which it claimed was due to inadvertence caused by the pandemic. Six months later in a letter dated September 15, 2020, the vendor informed the purchaser that it considered the accepted promise of purchase to be null and void as a result of the purchaser's default to remit the second deposit by March 31, 2020. The next day, purchaser remitted to vendor two cheques totaling $100,000 which the latter returned to the purchaser. After giving vendor prior notice to proceed with the sale, purchaser filed suit to order vendor to consummate the sale of the property failing which, the court would order the sale consummated without the vendor's consent. The vendor made a preliminary motion to dismiss the proceedings on the ground that the promise to purchase was null and void as a result of the purchaser's default to pay the deposit within the stipulated delay. The court in first instance granted the motion and dismissed the proceedings considering that the stipulated delay was mandatory and there was no allegation of bad faith on the part of the vendor nor any allegation that would question the strict character of the delay. In appeal, the decision of court of first instance was reversed on the basis of the legal principles hereinafter reviewed. In order to dismiss a case on a preliminary motion prior to a trial on the merits, the grounds for dismissal must be very clear and not leave any doubt. In the presence of any ambiguity, it is best not to dismiss a case prematurely but instead allow the parties the opportunity to be heard on the merits at a trial. For a delay to be considered strict and mandatory giving rise to the cancellation of the contract in the event of contravention, it must be clearly stated as such in the promise to purchase which was not so in the present case. In the face of ambiguity regarding the express terms of the promise to purchase, the court may look at the conduct of the parties to infer how they interpreted the strictness of the delay. In the present case which was decided on the basis of a preliminary motion there was nothing available to the court to provide it with insight in this regard. Moreover, the silence of the vendor during a period of almost 6 months following the expiry of the delay to pay the second deposit is arguably inconsistent with such delay being strict and mandatory. According to the Court of Appeal the case law was clear and consistent with respect to the foregoing. In the circumstances where there may be ambiguity regarding the strictness of a delay that is breached, the other party may give final written notice to the party in default to satisfy the condition within a certain additional delay failing which, the promise to purchase will be deemed to be cancelled and annulled for all legal purposes.

THE LEGAL OBLIGATION OF GOOD FAITH

In a recent judgment of the Quebec Superior Court, a tenant was authorized to annul a commercial lease with Développement Olymbec Inc. ("Olymbec") as a result of the latter's bad faith while negotiating the lease. (Canal Médical Inc. -vs- Développement Olymbec Inc., 2024 QCCS 2236). Canal Médical Inc. ("Canal") entered into a commercial lease with Olymbec to lease space to be used for the production of respiratory face masks. After signing the lease, Canal noticed the absence of mechanical ventilation in the premises. At the time of the intial visit to the premises, Olymbec confirmed that it would be feasible to install air conditioning in order to recycle warm air generated by Canal's production equipement at the latter's cost. Olymbec admits that it did not inform Canal that the premises had no ventilation system. Canal requested a second visit but Olymbec refused due to ongoing work being conducted there. After taking possession of the premises, Canal noticed that the ventilation grills were blocked. When Olymbec was asked whether it would be possible to unblock the grills in order to install air conditioning, Olymbec replied in the negative due to the structure of the building and that the blocked vents were not connected to the building's ventilation network. Thereafter, Canal was informed by CNESST that the absence of proper ventilation in the premises may contravene labour standards and it could be obliged to suspend its activities. Consent to a contract must be freely given. Article 1401 of the Quebec Civil Code provides that error provoked by deceit ("dol") vitiates consent if otherwise, the victim of deceit would not have agreed to the terms and conditions of the contract. Such deceit can result from the silence or reticence of the other party. Deceit consists of dishonest conduct resulting from false or misleading representations, silence, or reticence that leads or encourages the other contracting party to believe in the existence or inexistence of a fact that is a significant factor in the decision to agree to contractual terms or conditions. Furthermore, the law further provides that all rights must be exercised in good faith. No right may be exercised in a manner to hurt another or that is excessive or unreasonable. (Articles 6, 7 and 1375 Quebec Civil Code). In the course of negotiating a contract, the requirements of good faith include the obligation to provide the other party with information that he knows or is presumed to know is of a significant nature and that the other contracting party has no access to or is entitled to duly rely upon and trust the other party. The Court concluded that the omission by Olymbec to disclose the absence of ventilation in the premises was deceitful and provoked a material error on the part of Canal thereby justifying the annulment of the lease as well as a condemnation in damages. Olymbec argued that it had no legal obligation to inform Canal that the premises had no ventilation. The Court disagreed for the following reasons. Olymbec knew that the premises were deprived of proper ventilation and that the information was significant considering the intended use of the premises which was expressly confirmed in the lease. Olymbec argued further that the terms of the lease exculpated itself from the legal obligation to provide information. In particular, the lease included the usual clauses to the effect that the tenant accepts the premises in their current state and condition and that the tenant confirms that no representation was made that is not included in the lease. The Court found that Olymbec induced Canal to sign the lease in bad faith and could not rely on the terms of the lease to change the fact that Canal's consent was vitiated thereby giving rise to its annulment. The Court granted the annulment of the lease and damages including reimbursement of rent and certain compensatory damages. This case is an illustration of the crucial importance that good faith plays in contractual relations including the pre-contractual phase while the parties are negotiating terms and conditions as well as while performing their contractual obligations.