Canada: What Are The Applicable Time Limits When A Promise To Purchase Is Withdrawn?

This article is a modified version of a commentary co-authored with Me Émile Marcoux and originally published by Éditions Yvon Blais in April 2020 (EYB2020REP2929).

What to do when the buyer or seller of a property withdraws after the offer to purchase has been accepted? One can pursue the matter in court to force the recalcitrant party to close the sale. This procedure, known as an "action in passing of title", must be instituted within a reasonable period of time.

In recent years, the notion of reasonable time has been a central concern of various actors in the justice system. There is no universal time limit for filing a lawsuit. While the prescriptive period is usually three years in civil matters (Art. 2925 C.C.Q.), this is not always the case. For an action in passing of title, the reasonable time period criterion is derived from case law.

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In David v. Gosselin,¹ 35 months elapsed between the time the promisor-buyers notified the sellers of their intention to revoke the promise to purchase and the sellers' submission of an application for passing of title.

The court held that the plaintiffs had not acted with due diligence. It concluded that through their inaction and the re-listing of the residence, the applicants had implicitly waived their right to pass title. Indeed, their conduct did not give any indication of their willingness to initiate legal action to force the sale.

Commentary: This decision is in line with case law regarding the passing of title, which requires that legal action be initiated within a reasonable time so that each party knows where it stands.²

The reasonableness of the time period is assessed according to one of the following two criteria:

• the time elapsed between the time when one of the parties expresses its refusal to pass title and the time when legal action is initiated;
• the behaviour of the beneficiary of the promise who has initiated the action in passing of title.

Of these two criteria, the case law makes it clear that the behaviour of the beneficiary of the promise is paramount³. The subjective process of assessing this makes the case law somewhat unpredictable. On the one hand, the courts have already considered periods of less than one month to be reasonable⁴. On the other hand, periods of 28⁵ and 48⁶ months were deemed unreasonable on other occasions.

At this point in time, it is difficult to predict the outcome of an action in passing of title, due to the subjective evaluation of the concept of a reasonable time period. For example, the beneficiary of a promise who allows several months to elapse-between the time the promisor informs them of their intention not to pass title and the time they initiate proceedings-could see their claim upheld if they demonstrate to the court that they behaved diligently, especially in communicating to the other party that they are required to pass title. On the other hand, the beneficiary of a promise who allows only a few months to elapse between the time the promisor informed them of their intention not to pass title and the initiation of proceedings could see their claim dismissed if they did not behave diligently, leading the court to conclude that they had lost interest.

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An action in passing of title must be brought within a reasonable period of time. The assessment of the reasonableness of this time period is subjective, in that the court must determine whether the plaintiff conducted him or herself diligently, and cannot simply consider the passage of time as the sole criterion in its evaluation.

Some have been exploring this further and questioning the subjectivity of the analysis. In the opinion of Justices St-Pierre, Hogue and Roy, identifying a prescriptive period beyond which an action in passing of title would be inadmissible would provide better protection for the litigant against "the weakening of property rights and the potential inequity that could result"⁷. Indeed, the purpose of the reasonable time criterion was to ensure that contracting parties who refuse to comply would know quickly whether they will be taken to court⁸. From this point of view, the idea of a period of extinctive prescription beyond which the promisor who has refused to perform could not be sued, deserves consideration.

Footnotes

1 2019 QCCS 5502.

2 4207602 Canada Inc. v. 9139-4882 Québec Inc., EYB 2018-295642 (CA), para. 66.

3 Toutant v. Montreuil (Estate of), EYB 2014-246278 (CS), para. 82.

4 Construction Voyer Inc. v. Investissements Monit inc./Monit Investments Inc., EYB 2020-339426 (CS) and Théberge v. Durette, 2007 EYB 2007-112304 (CA).

5 Blais v. Couillard, EYB 2005-91306 (CS).

6 4207602 Canada Inc. v. 9139-4882 Québec Inc. EYB 2018-295642 (CA).

7 4207602 Canada Inc. v. 9139-4882 Québec Inc. EYB 2018-295642 (CA), para. 63.

8 Toutant v. Montreuil (Estate of), EYB 2014-246278 (CS), para. 80.

Originally published June 1, 2020.

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