2019 QCCA 536, 2019 QCCA 536

6983499 Canada inc. c. Gagné 2019 QCCA 536 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026801-175 (500-17-084286-148) MINUTES OF THE HEARING DATE: March 26, 2019 CORAM: THE HONOURABLE nicholas kasirer , J.A. manon savard , J.A. claudine roy , J.A. APPELLANT COUNSEL 6983499 Canada inc. 1061 Saint-Alexandre S.E.C. m tre Howard Schnitzer RESPONDENT COUNSEL Michel Gagné Suzanne Pelletier Mtre Alain Gutkin (Laframboise Gutkin s.e.n.c.) On appeal from a judgment rendered on April 21, 2017, by the Honourable Justice Carole Hallée of the Superior Court, District of Montreal.

DESCRIPTION : Sale - Divided co-ownership unit - Delivery - Deficiency in surface area. Clerk: Stephane Robinson Courtroom: Antonio-Lamer (RC.14) HEARING 13:59 Commencement of the hearing. Identification of counsel. 14:00 Introductive commentary by the Court. 14:01 Submissions by Mtre Schnitzer. 14:36 Suspension of the hearing. 14:44 Resumption of the hearing. 14:44 Justice Kasirer informs Mtre Gutkin that it will not be necessary for him to be heard by the Court. 14:44 BY THE COURT: Judgment – See page 3. 14:44 Conclusion of the hearing. (

s) Stephane Robinson Clerk BY THE COURT JUDGMENT [ 1 ] 6983499 Canada inc. and 1061 Saint-Alexandre s.e.c. have appealed a judgment of the Superior Court, District of Montreal (the Honourable Carole Hallée) [1] , rendered on April 21, 2017, that condemned them solidarily to pay Michel Gagné and Suzanne Pelletier an amount of $113,000, with interest at the legal rate and the additional indemnity provided by law calculated from the date of the notice of default of September 14, 2011.

The amount awarded at trial represents a reduction in the sale price of a condominium purchased by the respondents following the appellants’ breach, as vendors, of their obligation to deliver the surface area specified in the contract. *** [ 2 ] The trial judge held that the appellants had failed to deliver just less than 12% of the square footage promised: she determined that an area of 2,904 square feet had been specified in the contract, whereas an area of 2,557.5 square feet was delivered. [ 3 ] The appellants’ representative said at trial that he had explained to the respondents that the reference to the area of the unit in the promise of sale was to gross square footage, not net square footage.

The respondent buyer Gagné testified that no such explanation had been given. The judge preferred Mr. Gagné’s testimony on this point to that of the appellants, finding it to be “more credible” (para. [34] of her reasons). [ 4 ] The judge also held that, in the circumstances, the clause of the promise of sale which stated that the price would remain the same in the event of a divergence in the area specified did not relieve the appellants for the shortfall in square footage. She was of the view that the clause was ambiguous.

The judge concluded that it did not contain sufficient information to allow a reasonable person, in the respondents’ circumstances, to understand that upon delivery the area would be reduced by 346 square feet without any change in price (para. [64]). [ 5 ] While respondent Gagné had read the contract and even amended some of its terms, the judge decided that the respondents were not responsible for the shortfall based on the doctrine of inexcusable error. She wrote as well that while Mr. Gagné was a lawyer,

he was not aware of the concepts of net and gross surface area (para. [58]). [ 6 ] In fixing the amount of the reduction in price, the judge relied on the assessment in the respondents’ expert report, which she characterized as a non-arbitrary and complete estimate of the value associated with the deficit in square footage at the time of sale. The appellants did not file a separate expert report at trial.

The judge was aware of the fact that the respondents had subsequently resold the condominium for an amount higher than that which they had originally paid but she indicated that, in the circumstances, this did not give rise to an improper enrichment to them at the expense of the appellants. *** [ 7 ] On appeal, the judge’s finding that the appellants breached their contractual obligation to deliver the promised area for the condominium is not contested. In the appellants’ view, however, the judge was mistaken to hold that the respondents had shown that the breach had any impact on the price of sale.

All their arguments on appeal pertain to the trial judge’s determination of the reduction of price, which the appellants state as a single question: “Given the facts of the case, did the Superior Court err in awarding respondents a reduction in price of $113,000 under

article 1737 C.C.Q .?”. [ 8 ] More specifically, they allege a series of errors the judge is said to have made relating to (

i) her choice to rely on the respondents’ expert report, and in particular an inherently inapplicable, arbitrary and mechanical “rule of three” formula to determine the reduction in price; (ii) her failure to recognize that the respondents suffered no real prejudice; and (iii) her supposed omission to take into account “all the relevant circumstances / toutes les circonstances appropriées ” as required by

article 1604 C.C.Q. and, by extension,

article 1737 C.C.Q. , in assessing the proportional reduction of the respondents’ obligation to pay the sale price. [ 9 ] Before considering these matters in turn, the Court notes that the determination of the quantum of the reduction in price in like circumstances raises questions of fact and mixed questions of fact and law. The authorities cited by both parties emphasize that these matters are best viewed as resting with what Rochon, J.A. aptly described in one case as the “ pouvoir souverain d’appréciation du juge de première instance ”. [2] As such, they are deserving deference on appeal.

Only the demonstration of a palpable and overriding error, or a plain indication that the judge acted arbitrarily, would allow this Court to disturb the reduction in the sale price impugned by the appellants here. [3] (

i) Did the trial judge mistakenly apply an arbitrary “rule of three” formula to determine the reduction in price, in particular by relying on errors in the expert report? [ 10 ] The judge stated plainly her view that the $113,000 reduction in price proposed by the expert was not simply a mechanical “rule of three” (para. [86]).

The appellants say she was mistaken: the purely mathematical method she chose was inapplicable to the calculation of the reduction of the sale price here because it produced an arbitrary result without regard to the value associated with the deficiency in question. [ 11 ] Before examining the question, the law on point – well-settled – bears recalling. [ 12 ] Where the vendor is bound to deliver the area specified in the contract and fails to do so, the buyer may obtain a reduction in price (article 1737 C.C.Q .).

This rule is generally understood to be a particular application of the principle allowing a creditor to obtain, in the event of certain instances of non-performance by his or her debtor, “the proportional reduction of the correlative obligation / la réduction proportionnelle de l’obligation corrélative ” alluded to in

article 1604 C.C.Q . [4] The authorities are in agreement in emphasizing, in the words of authors Lluelles and Moore, that the reduction of a correlative obligation is “ une sanction distincte des dommages et intérêts ”. [5] They explain further: 2944. Les dommages : sanction alternative en cas d’impasse ou comme complément d’indemnité. Si la réduction de l’obligation s’avère difficile à prononcer, le juge doit plutôt emprunter le canal des dommages et intérêts (art. 1604 al. 3).

Cette instruction du législateur ne doit pas nous faire conclure que le Code procède à une sorte d’osmose de la réduction et des dommages. Certes, il le fait à propos de la victime de certains vices du consentement (dol, menace, lésion), à l’article 1407 qui prévoit que la « réduction de son obligation » doit être « équivalente aux dommages-intérêts qu’il eût été justifié de réclamer ». Cette assimilation, déjà contestable en ce qui concerne les vices du consentement, n’est pas reproduite à l’article 1604.

Il n’y a donc pas lieu de déterminer le droit à la réduction – ni de configurer son montant – en fonction des règles visant les dommages et intérêts.

Rappelons, cependant, que la réduction d’une obligation peut s’accompagner de l’octroi de dommages et intérêts pour le préjudice – distinct du déficit de valeur – déjà occasionné par le manquement ( cf . art 1590 al. 2). [6] [ 13 ] It is also well-established that in assessing the reduction in price, a judge should guard against using an arbitrary measure and be mindful that the proportional reduction of the correlative obligation should not serve to enrich the creditor – in this case the buyers who were deprived of the 346 square feet of surface area in the condominium purchased. [7] Furthermore, the appellants rightly observe that

article 1604, para. 3 C.C.Q. provides that all the relevant circumstances are to be taken into consideration in fixing the reduction. [ 14 ] Did the trial judge err by fixing the amount of $113,000 in the reduction of the sale price in an arbitrary manner? [ 15 ] She made no such error. [ 16 ] First, the judge did not simply fix the amount of reduction in price as a proportional discount of the original price based on the shortfall in square footage, without regard to other factors.

Had she done this, the amount of the reduction in price would have been different. [8] In this sense, the method was not a “rule of three” applied without attention to context. [ 17 ] Second, the expert’s report set out explicitly the method for calculating the proposed reduction in price associated with the shortfall as one based on a “comparative method”, at an evaluation date of December 1, 2011, roughly two months after the date of the sale. The judge correctly understood that the method employed did not reflect a purely mathematical formula.

Instead, the expert’s proposal determined the relative value of the square footage in question by taking into account, inter alia , the configuration of the unit, the market for similarly sized units within the same residential sector, the prevailing economic conditions at the time of the sale, as well

as discounting for factors particular to the unit, including the parking spots associated with the unit and the fact that the buyer had paid separately for interior design work.

The judge understood as well that, as was appropriate, the expert’s assessment was made to coincide as closely as possible with the date of the original sale of the condominium. [ 18 ] While it is true that the judge did follow the expert’s proposal to multiply an amount per square foot by the number of square feet lacking, the appellants are therefore wrong to suggest that this was an exercise that can properly be compared to an arbitrary “rule of three”.

In point of fact, the market value of the unit in question, calculated per square foot, was established contextually based on units in the region of a similar size, using this comparative method so that the total amount would in fact not be inappropriately arbitrary. [ 19 ] Finally, the judge satisfactorily explained why she relied on this expert evidence.

In the circumstances, no basis has been shown for this Court to intervene on the matter. (ii) Did the judge fail to recognize that the respondents suffered no real prejudice? [ 20 ] The appellants submit that the respondents suffered no real prejudice as a result of the shortfall in surface area delivered, such that the judge’s award of $113,000 served to enrich the respondents in the circumstances, which is not the purpose of articles 1604 and 1737 C.C.Q.

They submit two main arguments to this end. [ 21 ] Firstly, the appellants say that they delivered the exact physical unit promised to the buyers and that the latter suffered no loss of use or of enjoyment as a result of the discrepancy. [ 22 ] This argument is without merit. [ 23 ] The trial judge clearly held that the unit delivered was not, from the point of view of its surface area, the unit that was promised. It was not, to use the appellants’ phrase, the same “physical unit” that was spoken to in the contract.

The appellants seek, by this argument, to attack indirectly the judge’s finding that the contract was breached in the circumstances without showing, as they must, a palpable and overriding error. [ 24 ] Moreover, the respondents’ action was taken for a reduction in price and not for damages relating to a loss of use or enjoyment of the property. The appellants misapprehend the law as it relates to the reduction of correlative obligations in sale by suggesting that a claim for reduction in price is equivalent to a claim in damages.

They cite cases out of context where damages were sought, either in addition to or in the place of a reduction in sale price based on allegations of fraud or lesion, which is not the case here. [ 25 ] As to the second argument – the fact that the respondents later sold the unit for $1,250,000 and thus secured a “profit” notwithstanding the discrepancy –, this submission is also without merit. [ 26 ] In the circumstances of this case, the subsequent sale of the unit in 2017 is not relevant to determining whether, when they initially purchased the condominium in 2011, the respondents overpaid for the surface area delivered by the appellants. [ 27 ] The assessment of the reduction in price for failure to deliver the promised surface area pursuant to

article 1737 C.C.Q. is to be undertaken as of the time of the initial sale. [9] The law is usefully stated by Bachand J. in 9192-5982 Québec inc. v. 90673 Canada inc .: [10] [26] La défenderesse a de plus tenté une preuve concernant le fait que la propriété ait maintenant de beaucoup augmenté de valeur, suite à l'érection d'une maison. Cela n'a pas d'incidence sur la décision que doit prendre le Tribunal. En matière de diminution de prix de vente, le Tribunal se pose la question suivante: combien aurait payé l'acheteur s'il avait connu la véritable situation au moment de la vente, comme il la connaît maintenant?

Il s'agit donc d'une photo de la situation qui existait au moment de la vente. [ 28 ] It is true that in Turgeon v. Germain Pelletier Ltée , [11] Fish, J.A. (as he then was), decided for the Court that where the difference in price at resale was not markedly different from the original price, only a small reduction in price for a shortfall in surface area would be awarded.

But in that case, the Court was faced with an absence of adequate proof for the determination of the reduction of the obligation, in particular an absence of expert evidence. [12] In this appeal, the expert’s report provided the judge with palpable evidence that the difference in value between the unit promised and the unit delivered was considerable. The result is that proof was made that the respondents paid too much for the unit at the time of the initial purchase.

This overpayment was not expunged at resale. [ 29 ] In any event, it is open to question whether the respondents garnered a profit at the moment of resale. They invested $350,000 in renovations in the unit beyond the $1M of the initial sale price. Even if that kind of investment does not always yield a dollar-for- dollar return, it is still relevant when one considers that the unit, when purchased, was only partially finished.

More importantly, by reason of the overpayment at the time of sale, the respondents were effectively deprived of a part of their return when they resold the unit because of the contractual fault of the appellants at the time of the initial sale. [ 30 ] In the circumstances, the judge was not mistaken to decide that the reduction in price of $113,000 did not amount to an enrichment of the respondents at the appellants’ expense. (iii) Did the judge fail to take into account “all the relevant circumstances / toutes les circonstances appropriées ”, as required by

article 1604 C.C.Q. , in assessing the proportional reduction of the respondents’ obligation to pay the sale price? [ 31 ] The appellants raise a series of circumstances that, in their view, the judge failed to consider as she was required to do pursuant to

article 1604, para. 3 C.C.Q. in determining the reduction of the sale price. In addition to the factors relating to the resale of the unit and the absence of loss treated above, the appellants argue that the judge neglected to consider the fact that the respondents purchased the unit for reasons other than its surface area, and that the respondent Gagné was at fault by reason of his omission to inform himself as to the true dimensions of the surface area. [ 32 ] It is of course true that the surface area was not the buyers’ sole consideration in choosing the unit in 2011. They sought out, for

example, an older building rather than a new construction, and wanted a condominium close to Mr. Gagné’s place of work. [ 33 ] But contrary to what the appellants argue, the judge did not fail to take into account the relevant circumstances as required by articles 1604 and 1737 C.C.Q . In fact, the proximity to Mr.

Gagné’s work and the respondents’ preference for an older building were part of the considerations in the evaluation proposed in the expert’s report. [ 34 ] Importantly, the respondents made plain to the appellants early in their dealings – this fact is not contested – that they sought a residence with at least 2,700 square feet to accommodate their family. The judge was certainly entitled on the evidence to conclude that this justified a reduction in price when the unit was found to be 2,557.5 square feet. She accepted Mr.

Gagné’s testimony that he and his spouse did not want to buy a condominium with less square footage than what they had in their previous residence: paras [6], [7], [46] and [47] of her reasons. [ 35 ] As for the alleged contributory negligence of Mr. Gagné, the findings of fact in first instance and the strict standard of review preclude an intervention on appeal here. [ 36 ] The judge interpreted the clause treating possible discrepancies in surface area as ambiguous and, mindful that Mr. Gagné is a lawyer, decided that the

interpretation proposed by the appellants was not a reasonable one. No palpable or overriding error has been shown. [ 37 ] Moreover, the judge committed no reviewable error in deciding that, as a lawyer, Mr. Gagné was not at fault for failing to inquire further as to the amount of net square footage in the unit. In this case, as a matter of fact, the judge found that Mr. Gagné had clearly stated to the vendors prior to the purchase that he and his spouse sought a minimum of 2,700 square feet to properly accommodate their family. It was reasonable for Mr.

Gagné to rely on the fact that, in proposing the fusion of two units to accommodate him as a buyer, the appellants were undertaking that the combined surface area would meet his minimum needs. It is fair to read the judgment as holding that Mr. Gagné was not negligent in inquiring further before signing the promise of sale. Again here, no reviewable error has been shown. [ 38 ] In sum, none of the appellants’ arguments has merit. [ 39 ] FOR THESE REASONS , the Court: [ 40 ] DISMISSES the appeal, with legal costs against the appellants. nicholas kasirer, J.A. manon savard, J.A. claudine roy, J.A.