2015 QCCQ 4880, 2015 QCCQ 4880

Chen c. Li 2015 QCCQ 4880 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-136018-126 DATE: May 7, 2015 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ XIAO ZHU CHEN […]Brossard, Qc […] and LI LIU […]Ville Saint-Laurent, Qc […] Plaintiffs v.

HONG BO LI 3212, Paul-Contant Ville Saint-Laurent, Qc H4K 2G9 and PING LIU […] Ville Saint-Laurent, Qc […] Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiffs sue the Defendants for reimbursement of $ 7,000, an amount they paid to the Defendants in consideration of obtaining the Defendants’ rights under a preliminary contract to purchase a condominium unit from a condo developer 9181-5712 Québec Inc. [ 2 ] Another couple, Zhao, Ming and Wang, Rui, had signed a “Preliminary contract and guarantee contract (condominium)” with

9181-5712 Québec Inc. (“Québec Inc.”), on or about January 22, 2011 (P-9). The immoveable is described as being built on lot number 1449591 and the unit to be purchased is described as Phase II #206, Bourgogne, LaSalle, Les Condominiums Monaco. The contract price is $ 217,103.

At the time they entered into this contract, Zhao and Wang made a deposit of $ 10,855 by cheque dated February 1, 2011 (D-2, p.2) and signed a Down payment attestation. [ 3 ] In order to purchase the rights held by Zhao and Wang to acquire the unit, which was not yet built, the Defendants, Hong Bo Li and Ping Liu, paid the amount of the deposit, $ 10,855 to Zhao and Wang, as evidenced by a note written on a photocopy of the check and the Down payment attestation (P-6): “this amount is paid and transferred to Mrs Ping Liu and Mr Hong Bo Li, at 17-July-2011.

Add one indoor parking in the new contract”. [ 4 ] Having thus obtained the value of the deposit held by Québec Inc., Hong Bo Li and Ping Liu entered into a contract with Québec Inc., called a Bilateral Promise to Purchase and Sell (the “Preliminary Contract”).

On the cover-page of this contract, there is a manuscript note reading: “this is transferred to Chen, Xiao Zhu Chen Li, Liu”, and the signatures of the Plaintiffs and the Defendants, with the date March 6, 2012 appear in the margin. [ 5 ] The page is crossed with a diagonal line on which is written “Transferred March 6 / 12”. [ 6 ] This contract provided for the purchase of the condominium unit that had been previously promised to Zhao, Ming and Wang, Rui for the initial price of $217,103.

The price was increased to $ 241,252.70 because of the addition of a parking space. [ 7 ] The Defendants, however, paid not only the deposit made by the first purchasers, but an additional amount of $ 4,300, as consideration for the purchase of the rights from Zhao and Wang. [ 8 ] Hong Bo Li and Ping Liu made to Québec Inc. two additional payments of $ 11,080 each on July 25 and August 25, 2011, so that the total on deposit held by Québec Inc. was now $ 33,015. [ 9 ] For reasons that are not relevant to this case, the Defendants Hong Bo Li and Ping Liu decided not to acquire the immoveable, and arranged to transfer their rights to the Plaintiffs. [ 10 ] Thus, when the Plaintiffs agreed to acquire the Defendants’ rights, the total deposit of $ 33,015 was credited to the Plaintiffs, and a new Bilateral Promise to Purchase and Sell was entered into directly between the Plaintiffs and Québec Inc. [ 11 ] In order to acquire these rights to the deposit, and to enter into a new contract with Québec inc., the Plaintiffs paid to the Defendants, in addition to the total deposit of $ 33,015, an additional amount of $ 7,897, for a total of $ 40,912.

This payment was made by a cheque dated March 6, 2012 (P-2). [ 12 ] Essentially, the Plaintiffs claim the surplus they paid to the Defendants, $ 7,897, but they reduced that claim to $ 7,000 to avail themselves of the limit of the Small Claims Division as it stood prior to January 1, 2015. [ 13 ] At the hearing, the Plaintiffs sought the permission of the Court to amend their claim to $ 15,000, the current limit of the Small Claims Division since January 1 of this year. The Court took that request under advisement. [ 14 ] As things turned out, the project never proceeded.

The developers initially contacted the Plaintiffs in October 2012, informing them that the condo they had purchased was no longer part of the project because of architectural changes. There is a letter dated October 3, 2012 (P-4), and written on a sheet of paper that does not have any letter-head. [ 15 ] The business card of Gilles Tremblay, directeur des ventes of Projet Bois des Caryers, is stapled to the document.

The letter, written without prejudice, reads as follows: With reference to condo #206 phase 2 of the Monaco condo building of the project BOIS DES CARYERS, we have been advise [sic] by you that you wish to cancel.

Please be advise [sic] that a cheque will be remitted to you on October 31st 2012 no later that November15th 2012 in the amount of $ 33,015. [ 16 ] There is a signature below this text, which is typed “Bois Des Caryers” and then a note: The reason for cancelling is part due to the fact that the type of condos as purchased is now changed by the builder due to various reasons and the new designed condos (size) does not suit our budget ect. [sic] [ 17 ] The authorship of the document is not clear, but what is clear, is that the Plaintiffs got the message that the developer had no intention to transfer to them a unit resembling the one that they had agreed to purchase and, to cut their losses, the Plaintiffs decided to accept a promise of the reimbursement of the deposits. [ 18 ] The Plaintiffs’ financial loss is therefore of the sum of the two amounts, $ 16,507.50 and $ 7,897, paid to the Defendants to acquire the rights, a total of $ 24,404.50. [ 19 ] At the time of the events, however, the Plaintiffs put the Defendants in default only for the amount of $ 7,897 i.e. the amount they paid in addition to the deposit to acquire the Defendants’ rights (P-1). [ 20 ] On June 21, 2013, Bois des Caryers sent yet another letter to the Plaintiffs, stating:

This letter is to advise you that we are accepting your request to cancel your bilateral offer to purchase that you have signed with our company. By accepting this agreement, you waiver [sic] your rights to maintain your reservation for the above-mentioned condo and your contract becomes null and void.

We are issuing you the full and complete refund of your deposit, and this signed agreement is a formal acquittal effective this July 31 2013, which will release Bois des Caryers of all responsibility towards you. [ 21 ] Later, in December 2012, the Plaintiffs signed a document submitted to them on Bois des Caryers letter head. It reads as an acceptance by the developers of their request to cancel and the Plaintiffs sign below the text: “I accept the following and agree to fully cancel my contract”.

The document mentions an immediate reimbursement of 50 % of the total deposit, the other 50 % to be refunded on April 30, 2013. [ 22 ] The Plaintiffs signed the document after the inscription “I accept the following and agree to fully cancel my contract” (P-7). [ 23 ] The Plaintiffs did in fact receive two cheques in the amount of $ 16,507.50 each. [ 24 ] The first cheque was honoured but, when the Plaintiffs presented the second cheque to the bank on which it was drawn, they were informed that the account had been closed. [ 25 ] The Plaintiffs, along with other promising purchasers whose rights were affected by the developers’ disappearance, have made criminal complaints concerning those involved in Québec Inc. [ 26 ] The Plaintiffs, therefore, hold the Defendants responsible for the fact that the condominium unit was never built, first under the pretext that the design of the building had been changed, and in reality, because the developers absconded with funds and never started building the project. [ 27 ] The Plaintiffs’ declaration states: “The Plaintiff is suing the Defendant for the following reasons: the Defendant must to [sic] reimburse the Plaintiff this amount for a specific condominium unit failed [sic] to deliver”.

The action taken implies that the Defendants stand in the shoes of the developers, and transfer not only the developers’ promise to build, but, also give their own promise that the developer will build. [ 28 ] It is worthwhile mentioning that the Defendants had no knowledge that the developers would renege on its obligations, when they transferred their interests to the Plaintiffs.

ISSUES [ 29 ] The result of this case depends upon the nature of the contract between the Plaintiffs and the Defendants, and the degree to which, because of the nature of that contract the Defendants guarantee that the third party with whom the Plaintiffs dealt, would actually honour its obligations. [ 30 ] The Defendants contests the claim stating that: “It is the [sic] 9181-5712 Québec Inc. which has a contract with the Plaintiff, should be responsible for the delivery of the condominium unit, not the Defendant.

The $7,000 which the Plaintiff claimed is not the amount for the transfer”. [ 31 ] At trial, this written defence was supplemented with Defendants’ strong insistence that they, the Defendants, did not transfer a condominium unit, they transferred the right to acquire the deposit they had made with the developer, and to continue the process, in their place, to acquire the condominium unit as eventually built. [ 32 ] To resolve this case, the Court must determine: 1) Are the Defendants responsible to the Plaintiffs for the failure of Québec Inc. to honour the contractual promise to deliver the finished condominium unit according to the contracts? 2) If so, are the Plaintiffs’ rights affected by the dealings between them and Québec Inc. at the time of the cancellation of the contract? 3) What amounts are the Plaintiffs entitled to claim from the Defendants; are they limited to the amount of their demand letter or can they claim the full amount of their financial loss? 4) Can the Court permit an amendment to increase the amount of this action to the new maximum of $ 15,000?

ANALYSIS Nature of the preliminary contract [ 33 ] According to

article 1396 CCQ, an offer to contract constitutes a promise to enter into the proposed contract: 1396. An offer to contract made to a determinate person constitutes a promise to enter into the proposed contract from the moment that the offeree clearly indicates to the offeror that he intends to consider the offer and reply to it within a reasonable time or within the time stated therein. A mere promise is not equivalent to the proposed contract; however, where the beneficiary of the promise accepts the promise or takes up his option, both he and the promisor are bound to enter into the contract, unless the beneficiary decides to enter into the contract immediately.

[ 34 ] A bilateral promise does not amount to a proposed contract. Precisely, a promise to sale is not equivalent to sale when the promise is not made with delivery and actual possession (art. 1710 a contrario ). [1] Nevertheless, a bilateral promise binds both the offeree and the offeror to enter into the contract (1396 para 2) when the beneficiary of the promise accepts the promise. [ 35 ] When the promisor/offeror fails to execute the deed, the offeree can exercise an action for the transfer of title: 1712.

Failure by the promisor, whether seller or buyer, to execute the deed entitles the beneficiary of the promise to obtain a judgment in lieu thereof. [ 36 ] In the present case, the Plaintiffs cannot, as a practical matter, exercise such a recourse against Québec inc., because it has disappeared. [ 37 ] Special rules regarding bilateral promises to purchase apply with regards to the sale of a planned residential immovable. Pursuant to

article 1785 CCQ, [2] the sale of a planned residential immovable by the promoter to a person who acquires the immovable must be preceded by a preliminary contract in which the offeror promises to buy the immovable, “whether or not the sale includes the transfer to him of the seller’s rights over the land”. [3] [ 38 ]

Article 1786 CCQ enumerates the information that must be included in a preliminary contract: the name and address of the seller and or the promisor; the work to be performed; the sale price; the date of delivery; the real rights affecting the immovable; any useful information pertaining to the features of the immovable, as well as the terms and conditions of the revision, when the sale is subject to review: 1786.

In addition to the name and address of the seller and of the promisor, the work to be performed, the sale price, the date of delivery and the real rights charging the immovable, the preliminary contract shall contain any useful information pertaining to the characteristics of the immovable and, where the sale price is subject to review, the terms and conditions of review. [ 39 ] Where the preliminary contract provides for an indemnity in case of exercise of the right of withdrawal, the indemnity may not exceed 0.5% of the agreed sale price. [ 40 ] The Bilateral Promise to Purchase and Sell between the Plaintiffs and Québec Inc. contains all of the essential information mentioned above: both the seller and the buyers’ names and addresses, the work to be performed (the development of a residential project in the district of Angrignon, likely to include approximately 80 condominium units [4] ) and the delivery date (“closing date”). [5] [ 41 ] In sum, the effects of the preliminary contract are thereof the following: the developer/promisor is bound by the obligation to enter into the contract agreed upon by the parties, at the date stipulated in the bilateral promise.

Failure to do so entitles the beneficiary of the promise to obtain a judgement. Since the developers have disappeared, the Plaintiffs are suing the Defendants, who are a third party to the agreement. However, the failure of the promisor to deliver the immovable may not be set up against the Defendants. [ 42 ] When they transferred their rights under the preliminary contract entered into with Québec inc., the Defendants had no knowledge of the fact that Québec Inc. would fail to deliver the immoveable as promised. [ 43 ] The preliminary contract gives rights against a business that is no longer active and solvent.

The contract is now in the hands of the Plaintiffs, but it is no practical benefit to them. It becomes necessary to examine the nature and effects of the contract between the Plaintiffs and the Defendants. [ 44 ] Although the Defendants assigned their claim to the Plaintiffs without any warranty, they legally guaranteed that the claim existed and that it was owed to them, since the assignment was by onerous title. [6] Hence, the question becomes one of determining the extent of their guarantee that Québec Inc. would honour its obligations. Nature of the contract between the Plaintiffs and the Defendants a .

Assignment of rights [ 45 ] The acquisition of the Defendants’ rights in the promise to purchase constitutes an assignment of right : 1637. A creditor may assign to a third person all or part of a claim or a right of action which he has against his debtor.

He may not, however, make an assignment that is injurious to the rights of the debtor or that renders his obligation more onerous. [ 46 ] Because the Defendants received from the Plaintiffs a surplus of $ 7,987 for the transfer of the Promise to Purchase, the assignment, clearly, was by onerous title. [ 47 ] Where the assignment is by onerous title, the assignor guarantees that the claim: 1) exists and 2) is owed to him, even if the assignment is made without warranty.

This requirement does not apply where the assignee has acquired a claim or a right of action at his own risk or knew of the uncertain nature of the claim at the time of the assignment: 1639. Where the assignment is by onerous title, the assignor warrants that the claim exists and is owed to him, even if the assignment is made without warranty, unless the assignee has acquired it at his own risk or knew of the uncertain nature of the claim at the time of the assignment. [ 48 ] Hence, in the case at hand, the assignment was made with a legal guarantee.

As Professors Luelles and Moore explain in their work called Droit des obligations, 2nd ed., a legal guarantee binds the parties, even in the absence of such clause in the contract:

3185 […] Cette garantie – parce que légale – n’exige aucune mention au contrat. […]. [7] For their part, authors Baudouin and Jobin explain the content of a legal warranty provided for in

article 1639 CCQ in the following terms: 961 – Contenu de la garantie légale – […] Le cédant est simplement garant de la validité juridique de la créance (par exemple, qu’elle n’est entachée de nullité) et de sa disponibilité à être cédée (par exemple, qu’elle n’a pas déjà été antérieurement cédée), ce qui s’étend également aux accessoires de la créance. [8] [notes omitted] [ 49 ] Pursuant to

article 1639 CCQ, the only limits of such warranty are the following: where the assignee acquired the claim at his own risk; or where he or she knew of the uncertain nature of the claim at the time of the assignment at the time of the assignment. [ 50 ] At the time of the assignment, Québec Inc.’s bilateral obligation by virtue of the Promise to Purchase and Sell between Québec Inc. and the Defendants was definitive: to build the proposed unit.

Therefore, it cannot be said that the Plaintiffs acquired the claim at their own risk or knew of the uncertain nature of the claim. [ 51 ] Though the assignment is with warranty, this is a warranty of the certainty of the claim, but not of the solvency of the party against whom the claim can be enforced. In other words, the rights against the developer are certain, but this is not a guarantee that, as a practical matter, the project will actually proceed. It is a warranty about the legal validity of the right, not of the actual result. b .

Novation [ 52 ] On another level, the formation of this new Bilateral Promise to Purchase and Sell entered into directly between the Plaintiffs and Quebec Inc., can be seen as a novation between the two parties and Québec inc. According to

article 1660 CCQ: 1660. Novation is effected where the debtor contracts towards his creditor a new debt which is substituted for the former debt, which is extinguished, or where a new debtor is substituted for the former debtor, who is discharged by the creditor; in such a case, novation may be effected without the consent of the former debtor.

Novation is also effected where, by the effect of a new contract, a new creditor is substituted for the former creditor, towards whom the debtor is discharged. [ 53 ] The relationship is bilateral, so the intended purchaser of the condo unit to be built can be seen as the debtor of the obligation to pay the price and take delivery. The novation takes the Defendants out of the legal relationship, replacing them with the Plaintiffs.

Through the novation, the Plaintiffs have rights against Québec inc., not against the Defendants. [ 54 ] The Defendants were discharged by the creditor and their obligation was extinguished.

Article 1671 CCQ enumerates novation as one of the causes of extinction of obligations. c . Effects of the cancelation agreement [ 55 ] Apart from the preceding considerations, can the Defendants be held liable for Québec Inc.’s failure to honour its promise, when the Plaintiffs themselves released Québec Inc. of its obligations by consenting to cancel the Bilateral Promise to Purchase and Sell and accepting payment of the deposit made? [ 56 ] The Bilateral Promise to Purchase and Sell was cancelled by Québec Inc. on October 3, 2012.

Québec Inc. cancelled the contract entered into with the Plantiffs by offering to remit to them the amount deposited for the purchase of the immovable, $33 015,00. [9] The Plaintiffs, by accepting the payment of $16 507,50 on December 2012 and June 21, 2013, accepted to cancel the Bilateral Promise to Purchase and Sell and thereby released Québec inc. from any liabilities arising from the Bilateral Promise. [10] The cheque of $16, 507.50 by Québec Inc. was in fact cashed in on July 31, 2013. [ 57 ] By both signing the cancellation agreement and cashing in the cheques offered by Québec Inc. as payment for their failure to develop the promised immovable, a release in the sense of

article 1687 CCQ took place, which in turn resulted in liberating Québec Inc. from its obligations under the Bilateral Promise.

Article 1687 CCQ states: 1687. Release takes place where the creditor releases his debtor from his obligation. Release is complete, unless it is stipulated to be partial. [ 58 ] As a result of that liberation, the Plaintiffs cannot invoke the Bilateral promise as a claim against the Defendants for the prejudices they suffered. Their claim is only a claim for the amount of the second cheque, and that claim is against Quebec Inc. only. d .

Conclusion as to the Plaintiffs’ rights against the Defendants [ 59 ] A bilateral promise does not constitute a transfer of ownership. [11] Hence, the Defendants did not “fail to deliver that which [the Plaintiffs purchased from them], that is, the right to purchase a specific condominium at a specific price”, [12] contrary to the Plaintiffs’ claim. [ 60 ] Although the Defendants legally guaranteed to the Plaintiffs the existence of the claim and the fact that it was owed to them, they did not guarantee the solvency of the developer. [ 61 ] What's more, the Plaintiffs released Québec inc. from its obligations by agreeing to cancel the Bilateral Promise to Purchase and Sell and from by accepting the return of the deposit.

The nature of the claim then became linked to Québec Inc.’s failure to pay the

remaining amount of the deposit, as opposed to its failure to build the immoveable. This was a financial risk accepted by the Plaintiffs, with no involvement on the part of the Defendants. Effects of the letter of demand [ 62 ] In their letter of demand addressed to the Defendants, the Plaintiffs claim the payment of the surplus paid to the Defendants for the acquisition of the Defendants’ rights under the Bilateral Agreement to Purchase and Sell entered into with Québec inc.

Although they paid the Defendants the sum of $7,897 to acquire their rights to the deposit, the Plaintiff reduced their claim to $7,000, which was the maximum amount that could be claimed in actions involving Small Claims at the time they instituted their proceedings. [ 63 ] By choosing the judicial forum of Small Claims and suing the Defendants for $7000, the Plaintiffs really crystallised their action for that amount and chose not to sue for the rest of their financial loss: they did not even put the Defendants in default for this additional claim. Permission to amend [ 64 ] Pursuant to

article 199 CCP: 199. At any time before judgment, the parties may amend their pleadings without leave and as often as necessary provided the amendment is not useless or contrary to the ends of justice and does not result in an entirely new action or application having no connection with the original one.

An amendment may be made, for instance, to modify, correct or complete allegations or conclusions, to invoke new facts or to assert a right accrued since service of the motion to institute proceedings. [ 65 ] The issue relating to the right to amend a claim to the new limit of $15,000 of the Small Claims Division has been discussed in recent judgements. [ 66 ] The New Code of Civil Procedure that will come into force on January 1 2016 included this increase, but the Government decided, after enacting the new Code, to increase the limit one year prior to the new code coming into effect.

This was done by amendment to the existing Code of Civil Procedure, brought by Bill 14, coming into force on January 1, 2015. The maximum amount of $7, 000 provided in

article 953 CCP was changed to $15,000, increasing the limit of the Small Claims Division’s jurisdiction before the rest of the new code comes into effect. [ 67 ] There have been a number of cases that commenced before January 1, 2015 where parties initially reduced their claim to $7,000 to avail themselves of the small claims process, and were successful, after January 1, 2015, in obtaining leave to amend to increase the amount of the demand to a higher amount, up to the new maximum of $15,000. [ 68 ] There are also a number of cases where such leave was refused, and the jurisprudence of the Court of Quebec has developed different lines of reasoning - two schools of thought.

According to one view, the renunciation implied in the reduction is final, and, unless new facts have occurred, it is not possible to increase the claim. [ 69 ] As well, these judgments often take the view that the legislator never intended for the increase to apply to existing cases, whether or not the initial reduction was truly a renunciation of rights.

This is seen as a change of a jurisdictional nature, that is not intended to be retroactive unless the legislation specifically so provides, which it does not. [ 70 ] When one or both of these approaches is favoured, the judge will decide that the amendment sought is legally impossible. [ 71 ] Another equally serious line of jurisprudence takes the view that the reduction of a claim is not a renunciation, and that the legislator intended the increased limit to apply immediately, even to existing cases, more as a question of procedure than jurisdiction.

Some cases take a close look at the legislation analysing its wording very carefully to come to that conclusion. [ 72 ] Because there is no appeal from decisions of the Small Claims Division, the only recourse being judicial review before the Superior Court, rarely sought, it may take time before the question is determined in a way that clarifies the issue once and for all. [ 73 ] It would be open for the legislator to resolve the conflict through an amendment to the Code of Civil Procedure, but this has not yet been done.

CONCLUSIONS [ 74 ] In this case, because the analysis clearly establishes that the Plaintiff's case must fail, it would not be appropriate to give an opinion about the possibility to amend the claim to a higher amount. That will be a question to be determined in other cases, perhaps. BY THESE REASONS, THE COURT: DISMISSES the Plaintiffs’s action; CONDEMNS the Plaintiffs to pay the judicial fees of $ 152 to the Defendants.

__________________________________ DAVID L. CAMERON, J.C.Q. Date of hearing: January 6, 2015 [2] 1785. The sale of an existing or planned residential immovable by the builder or a developer to a natural person who acquires it to occupy it shall be preceded by a preliminary contract by which a person promises to buy the immovable, whether or not the sale includes the transfer to him of the seller's rights over the land. A stipulation that the promisor may withdraw his promise within 10 days after signing it shall be included in the preliminary contract.