2018 QCCQ 4525, 2018 QCCQ 4525

Avakyan Property Development Inc. c. 7167440 Canada inc. 2018 QCCQ 4525 COURT OF QUÉBEC Small Claims Division CANADA PROVINCE OF QUÉBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-32-155437-173 DATE: June 28, 2018 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ AVAKYAN PROPERTY DEVELOPMENT INC. Plaintiff v. 7167440 CANADA INC. and INFORMATION INTÉGRÉE VERTEX (I2V) INC.

Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiff, Avakyan Property Development Inc. (“Avakyan”) which operates an information technology business under the name “searchreputation.net” sues the Defendants 7167440 Canada Inc. and Information Intégrée Vertex (i2v) Inc., for the reimbursement of $ 7,088.22, an amount that Avakyan paid to i2v as 50 % of the price agreed upon for the development of an application that would be used by Avakyan in its online marketing. [ 2 ] Avakyan asserts that the Defendants failed to deliver the application in a timely manner and that they admitted their inability to do so.

Avakyan treats the Defendants as being in default and seeks the restitution of the progress payments made. [ 3 ] The Defendants take the position that it is 7167440 Canada Inc. doing business under the name Information Intégrée Vertex (i2v) Inc. that has a contractual relationship with Avakyan. [ 4 ] 7167440 Canada Inc. denies having defaulted under the contract and claims, by way of a cross-demand payment of an additional progress payment equal to the extent of the work completed as well as an amount for additional work done outside the scope of the initial contract, for a total of $ 8,731.93. [ 5 ] It asserts that it always provided the services required in a timely manner and that Avakyan terminated the contract by making unrealistic demands in the final stages of the project.

Issues [ 6 ] To resolve this conflict, the Court must determine: 1 . With which Defendant(

s) was the contract formed? 2 . Was (were) the Defendant(

s) in default of their obligations to a serious degree such that the Plaintiff was entitled to the resolution of the contract and the reimbursement of the payments made to date? 3 . Or, Is the Defendant 7167440 Canada Inc. entitled to additional payments under the contract commensurate with the work done up until the time the services ceased? Facts [ 7 ] The proposal, prepared by i2v, and signed by the parties on the approval page on April 18 and 19, 2016 called for the development of a mobile application and an administrative web interface developed and then launched and supported for 30 days after the launch.

The 30 days was to start after the client’s beta tests with real users. [ 8 ] The name i2v is associated with the corporation known as 7167440 Canada Inc. in its registration. It is an error to use i2v Inc. as a name: there is no corporation having that name. The directors of 7167440 Canada Inc. have another corporation having the name Information Intégrée Vertex (i2v) Inc. The Plaintiff, wondering whether it is dealing with i2v i.e. 7167440 Canada Inc. or Information Intégrée Vertex (i2v) Inc. sues both.

[ 9 ] The invoices it paid identify the provider of services as 7167440 Canada Inc. by using the caption “i2v Inc. (operating name of 7167440 Canada Inc.). [ 10 ] The proposal stipulates a price of $ 12,330.00 plus tax. Payment terms are stipulated: • Deposit – 25% • Alpha – 25% (50% complete) • Beta delivery – 25% (75% complete) • Final delivery – 25% [ 11 ] Under the heading

Schedule is the phrase: “A project of this size may take an average of 6-8 weeks; an ETA will be established at project kickoff”. [ 12 ] It would appear that the “launch” means the initiation of the start of the client’s beta tests, synonymous with “Beta delivery” a stage that was not reached.

The payments made totalling $ 7,088.22 (inclusive of tax) correspond to the 50% complete stage though the Plaintiff asserts that it paid before the Alpha stage. [ 13 ] On April 25, 2016 one of i2v’s directors, Mike Dimirjian, wrote to Avakyan’s president Herman Tumurcuoglu setting out the approximate ETAs of the phases: Development Apha-3rd week of May, Development Beta-3rd week of June and Development Final End of June. [ 14 ] After the project commenced, it took much longer to progress through the first phase than had been anticipated.

An invoice for 25% was sent out by i2v on April 19, 2016 and a second invoice, claiming 50% completion on June 23, 2016.

Avakyan paid each invoice within a few days of receipt [1] . [ 15 ] The delay in the development resulted from a number of factors, some of them technical, others relating to changes in the work and unanswered questions, particularly about the option of incorporating paypall into the application. [ 16 ] On July 19, 2016, unhappy with the situation, Herman Tumurcuoglu suggests it might be time to stop, turn over the code and get the work finished elsewhere [2] . [ 17 ] By September 2016, the project is still ongoing however.

The completion of the Alpha stage has been billed and paid but the parties’ exchanges show that things are bogged down. Still, the spirit is collaborative and neither party puts the other in default. [ 18 ] Herman Tumurcuoglu writes to Mike Dimirjian: Hi mike please note that as we enter the fall we will not be able to test the app. It is a shame that you proposed early June as a delivery date and we do not even have a alpha version yet [3] . [ 19 ] The parties plan a meeting to talk things over “to see where we are with the project”, in the words of Mr. Tumurcuoglu. [ 20 ] Again the work continues.

On November 22, 2016, afraid that the app has become obsolete because of the passage of time, Mr. Tumurcuoglu sets a firm deadline for the completion of the project: […] If you do not believe you can get this project delivered to us now (at a loss on your other projects), I would ask you to stop the project and refund us the entire amount please. I have to stress for the last time December 6 will be the last HARD HARD deadline for searchreputation.net. We cannot be alpha testing this in May, it will be a complete waist.

So bottom line, If you think a deliver before this date is impossible, just stop and and settle this out please [4] . [Text reproduced as written] [ 21 ] However, the December 6 deadline passes and the project continues. On December Mr. Dimirjian requests a meeting. At this time in the sequence of events the developer who had been working on the project from day to day has left to take up a position in another business. Vahé Zambakdjian, one of the two directors of i2v has become personally involved. Mr. Dimirjian states in an email to Mr.

Tumurcuoglu that i2v can continue to try to resolve the remaining issues, but that it cannot commit to an ETA. He offers to collaborate if Mr. Tumurcuoglu wishes to transfer the project to a new developer. He states that i2v has lost money on the project and that the problems stem from Avakyan’s failure to adequately collaborate in the project by putting a resource person in charge on its end. [ 22 ] Still, on December 13, Mr. Tumurcuoglu does not terminate the project, although he complains that he had offered to work over the weekend with i2v to terminate the project.

He complains that detailed options have not been provided. [ 23 ] Finally on that same day Mike Dimirjian writes to Mr. Tumurcuoglu to resiliate the contract. He does not clearly assign blame to either party, but he cites a gap in communication and concludes that to continue the project would be unproductive and damaging going forward. [ 24 ] On December 16, Avakyan’s lawyer sends a letter claiming the reimbursement of the amount paid, $7,088.22 Analysis

[ 25 ] Turning to the first of the three issues set out above, while it would appear from the billing that the Defendants believe that 7167440 Canada Inc. is the contracting party, the use of the expression i2v Inc., which is different because of the addition of “Inc.” to the registered name of 7167440 Canada Inc., creates confusion, because it looks like an abbreviation of Information Intégrée Vertex (i2v) Inc., as though i2v is a division of that corporation.

The proposal is more unclear about the identity of the provider of services than the billing. [ 26 ] A party in the position of Avakyan could consider that either of the two Defendants was its co-contracting party, or both together. Both corporations are controlled by the same individuals and both use variants of the same name.

Both will be considered as proper Defendants in this case. [ 27 ] The second two issues depend upon principles of resolution of contracts at the instance of one party because of the default of the other, and also on the specific rules pertaining to the resiliation of contracts of service or enterprise. [ 28 ] The claim of Avakyan, although expressed more simply in the rather informal procedure of the Small Claims Division, is really a claim for resolution of the contract and restitution of the amounts paid, pursuant to the following articles of the Civil Code of Quebec : 1590.

An obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay.

Where the debtor fails to perform his obligation without justification on his part and he is in default, the creditor may, without prejudice to his right to the performance of the obligation in whole or in part by equivalence, (1) force specific performance of the obligation; (2) obtain, in the case of a contractual obligation, the resolution or resiliation of the contract or the reduction of his own correlative obligation; (3) take any other measure provided by law to enforce his right to the performance of the obligation. 1594.

A debtor may be in default for failing to perform the obligation owing to the terms of the contract itself, when it contains a stipulation that the mere lapse of time for performing it will have that effect. A debtor may also be put in default by an extrajudicial demand to perform the obligation addressed to him by his creditor, a judicial application filed against him or the sole operation of law. 1604.

Where the creditor does not avail himself of the right to force the specific performance of the contractual obligation of the debtor in cases which admit of it, he is entitled either to the resolution of the contract , or to its resiliation in the case of a contract of successive performance.

However and notwithstanding any stipulation to the contrary, he is not entitled to resolution or resiliation of the contract if the default of the debtor is of minor importance, unless, in the case of an obligation of successive performance, the default occurs repeatedly, but he is then entitled to a proportional reduction of his correlative obligation. All the relevant circumstances are taken into consideration in assessing the proportional reduction of the correlative obligation. If the obligation cannot be reduced, the creditor is entitled to damages only. 1605.

A contract may be resolved or resiliated without judicial action where the debtor is in default by operation of law for failing to perform his obligation or where he has failed to perform it within the time set in the demand putting him in default. 1606. A contract which is resolved is deemed never to have existed; each party is, in such a case, bound to restore to the other the prestations he has already received.

A contract which is resiliated ceases to exist, but only for the future. [ 29 ] Applied to the present case, the theory of the Plaintiff would be that Avakyan put i2v in default to complete the contract of enterprise within a reasonable time; i2v failed to do so within that time; the contract was resolved, is deemed never to have existed, and the payment received must be restituted. [ 30 ] In the Court’s view this case does not succeed because Avakyan did not make a clear default and it did not establish what would constitute a reasonable time. [ 31 ] The contract did not have a strict time for performance.

The expression used was ETA (estimated time of arrival) not a date of completion and the contract language used was such that no clear time limit was imposed. The

schedule was a hope of both parties and it depended to a large degree on their mutual availability at all times.

It was normal for Avakyan’s president and others to be away at various events, and occupied with other matters, and to take time to deal with various questions, but it was equally normal for the ETA to be revised from time to time without this constituting a default. [ 32 ] While Avakyan, at various stages complained about the passage of time, it only gave an ultimatum on November 22, 2016 for completion by December 6 and even then, did not treat this deadline as serious, offering to work with i2v over the weekend of December 10th. [ 33 ] The project was substantially advanced by that point: the parties were discussing the implementation of the Beta testing, which required scheduling, availability of personnel at Avakyan and coordination, while at the same time working out technical issues that were arising. [ 34 ] The evidence does not establish a clear default to meet a reasonable deadline to complete the work and it is also impossible, on the

evidence, to establish fault on one of the parties more than the other for the predicament of the project having been delayed. [ 35 ] Application development contracts are not like a sale of a specific standard object. A new application is a prototype that goes through various stages and is tested and revised in a Beta stage, then supported as problems arise in its implementation.

ETA is an apt term to use for timeframes. [ 36 ] It was a project the complexity of which the parties had not anticipated from a technical and logistical point of view, but neither party has established the fault of the other in that regard. [ 37 ] As a question of fact, the contract was resiliated by the contractor i2v. The rules of resiliation of contracts of service and enterprise are set out in the following articles of the Civil Code of Quebec : 2098.

A contract of enterprise or for services is a contract by which a person, the contractor or the provider of services, as the case may be, undertakes to another person, the client, to carry out physical or intellectual work or to supply a service, for a price which the client binds himself to pay to him. 2125. The client may unilaterally resiliate the contract even though the work or provision of service is already in progress. 2126.

The contractor or the provider of services may not resiliate the contract unilaterally except for a serious reason, and never at an inopportune moment; otherwise, he is bound to make reparation for injury caused to the client as a result of the resiliation. Where the contractor or the provider of services resiliates the contract, he is bound to do all that is immediately necessary to prevent any loss. 2129.

Upon resiliation of the contract, the client is bound to pay to the contractor or the provider of services, in proportion to the agreed price, the actual costs and expenses, the value of the work performed before the end of the contract or before the notice of resiliation and, as the case may be, the value of the property supplied, where it can be put into his hands and used by him. For his part, the contractor or the provider of services is bound to repay any advances he has received in excess of what he has earned.

In either case, each party is liable for any other injury that the other party may have suffered. [ 38 ] The rules of resiliation are asymmetric in the sense that the client may resiliate without any reason, while the contractor is responsible for injury resulting from the termination and must do what is immediately necessary to prevent any loss. [ 39 ] In a matter such as this one, where the work is intellectual, not physical, there was no immediate step to be taken to protect the work, as would be the case for example if, in the construction of a building, it was necessary to secure the uncompleted premises to prevent vandalism or damage because of the elements. [ 40 ] The contractor was ready and willing to turn over the work to a competitor, or even to collaborate to continue the contract by hiring a subcontractor, thus avoiding a resiliation, but at this point the client had simply decided to discard the project, on the basis that the product was not worth continuing.

I2v disagrees, believing that its work could have been completed and the final product would not have been obsolete.

The client has the burden of proving injury; it is not presumed by the mere fact of the resiliation. [ 41 ] The right to reimbursement of the contract price paid to date, at the 50% stage of the progress payments is therefore not presumed, as it may be in a case of resolution or nullity of contract. [ 42 ] The work done to date could have been used and completed and it was feasible for i2v to hand it over, in the form of the codes it had written up to that point and any documentation it had on hand.

The letter of demand made it clear, however that what was requested was not the work paid for to date, but the reimbursement of the payments made, as if it were a resolution of contract. [ 43 ] On the third question, i2v has not established that it should be paid any additional amounts for uncompleted work done up until the resiliation: That would have required in-depth explanations of that work and the degree to which the completion had been advanced from 50% to a higher degree of completion. That evidence was not offered. [ 44 ] In

summary then, the evidence does not establish default on the part of the i2v companies, therefore the contract was not terminated by the resolution resulting from their fault. Rather, the contract was resiliated by the contractor who must repair any damage occurring as a result of the resiliation. Avakyan has not established that i2v failed to safeguard the work in progress and to hand it over so that it could be completed.

Because it decided not to have the work completed, Avakyan did not establish that it would have been more expensive to complete it by another party. [ 45 ] Therefore, no prejudice resulting from the resiliation has been established. [ 46 ] The Defendant 7167440 Canada Inc. fails in its cross demand because it has not established a claim to an additional portion of the contract price. BY THESE REASONS, THE COURT: DISMISSES the application of Avakyan Property Development Inc. ; DISMISSES the claim of the Defendant 7167440 Canada Inc. made against Avakyan Property Development Inc.; THE WHOLE without costs.

__________________________________ David L. Cameron, J.C.Q. Dates of hearing: February 26, 2018 and March 5, 2018