Executive Summary: Key Legal and Evidentiary Issues

• Central dispute concerns whether a 2001 “area bank” agreement between Ville de Sainte-Julie and Promotions M.G. Larochelle Inc. extinguished an existing restitution debt and created a new contractual obligation through novation.

• Characterization of the City’s obligation as one with a suspensive term tied to future cadastral operations, rather than a conditional obligation, determined whether the obligation became exigible.

• The court found that both parties treated future cadastral operations and development as certain, resulting in an obligation with an indeterminate term that required judicial fixation.

• Restitution of prestations was held inapplicable after novation; the applicable remedial framework was performance by equivalence, with damages based on the value of the land credit in the area bank.

• The term of the City’s obligation was fixed at December 15, 2015, which was the date of Laroda’s demand letter and the date when the obligation became exigible.

• Ville de Sainte-Julie’s appeal was dismissed and Investissements Laroda Inc.’s cross-appeal allowed in part, with the City ordered to pay the market value, as of December 15, 2015, of 26,705.78 m² of bulk land free of park fees, and the case remanded to the Superior Court to determine that value, with costs to Laroda throughout, including expert fees.

Facts and background
The dispute arises from real estate development projects carried out in the 1990s on the territory of Ville de Sainte-Julie by Promotions M.G. Larochelle Inc. Under the Act respecting land use planning and development and the City’s subdivision by-law, Larochelle was required to transfer 10% of the total area of its projects to the City for the purposes of parks, playgrounds or green spaces, or to pay an equivalent sum. After these developments had been completed, the City and Larochelle assessed the area of land that had actually been transferred and determined that Larochelle had transferred 3,898.27 m² more than it was required to transfer for park purposes. The City stated that it was unable to return this excess land or reimburse its value. During the same period, the City expressed interest in a further 45,615 m² parcel of land owned by Larochelle, half of which was buildable, in order to complete certain public amenities, including a bicycle path, but indicated it did not have the means to purchase the land and asked Larochelle to finance it.

Agreement and creation of the area bank
To address both the excess transfer and the City’s wish to acquire and finance the additional parcel, the parties negotiated an agreement. On February 19, 2001, Promotions M.G. Larochelle Inc. and Ville de Sainte-Julie entered into a written agreement drafted by the City. Under that agreement, Larochelle undertook to transfer 45,615 m², of which 22,807.5 m² was applicable to the protocol, in addition to park areas already transferred. Taking into account the previously transferred excess of 3,898.27 m², the agreement provided that the City acknowledged that Larochelle had created a bank of 26,705.78 m². A municipal council resolution approving the agreement stated that it would create a bank for the purposes of parks or playgrounds for future approvals of cadastral operations. The mechanism was that this land area bank would be applied in compensation for future park fees to be paid to the City in connection with cadastral operations allowing for new real estate developments. At the time, Larochelle itself did not own land that could be developed on the City’s territory, but its subsidiary, Investissements Laroda Inc., owned lots in an agricultural zone in the “Du Moulin” sector with an area of 143,000 m². It was expected that Laroda could use part of the 26,705.78 m² land bank for a future cadastral operation on the lots it owned.

Failure of anticipated developments and recourse to the courts
Because Laroda’s land in the Du Moulin sector lay in an agricultural zone, an application for exclusion from the agricultural zone had to be made to the Commission de protection du territoire agricole du Québec. In February 2003, the City filed a first application for exclusion, which was denied in 2004. A second application filed in 2008 was also refused, and that refusal was confirmed by the Administrative Tribunal of Québec in 2011. Despite these refusals, the parties continued to discuss the land bank and ways of making its use possible. In 2012, the Communauté métropolitaine de Montréal adopted the Metropolitan Land Use and Development Plan, which limited development in agricultural zones for at least 10 years and restricted Laroda’s ability to file an application for approval of a cadastral operation. After the adoption of that plan, Laroda tried to acquire other parcels of land within the City’s urbanization perimeter so that it could use the bank, but its attempts failed. During this period, the City used the transferred land for public purposes and, in 2010, sold part of it for the construction of a childcare centre. On December 15, 2015, Laroda sent a demand letter to the City complaining of the impossibility of applying the 26,705.78 m² in the bank and asking the City to finalize the matter by presenting a monetary offer. When discussions did not lead to a resolution, Laroda filed an originating application on December 13, 2018, in the Quebec Superior Court, asking the court to fix the term of the obligation and to award compensatory damages.

Legal issues regarding novation, term, and remedy
At first instance, the Superior Court held that, with respect to the excess 3,898.27 m², the agreement was in the nature of a transaction whose purpose was to prevent a future dispute and that this transaction automatically effected novation by a change in debt under article 1660 of the Civil Code of Québec, extinguishing the City’s prior obligation to return the excess area. The judge found that the agreement created an area bank to be used only at the time of future cadastral operations of Larochelle or its subsidiaries and characterized the City’s obligation as conditional on the approval of such cadastral operations, which she treated as a future and uncertain event that had not occurred. On this basis, she held that the City was released from its obligations. In the alternative, she indicated that if the obligation were considered one with a term, that term would have to be fixed at the latest in 2012, after the failure of the exclusion applications and the adoption of the Metropolitan Land Use and Development Plan, and that an action brought in December 2018 would then be prescribed. The Court of Appeal took a different view. It held that the trial judge erred in law by finding that the agreement, as a transaction, had automatically effected novation. In the Court of Appeal’s opinion, the parties’ goal had not been to extinguish the City’s obligation but to delay when performance would be exigible, so the City’s obligation was subject to a term, not to a condition. The Court of Appeal also found that the City’s obligation was still not exigible in 2011 and that Laroda’s action was not prescribed. It then applied the restitution of prestations regime and held that the City had to return the excess area received, fixing the amount at $287,458.51 based on the value of 26,705.78 m² as listed on the municipal roll for 2001.

The court’s analysis of contractual characterization
On further appeal, the court first examined whether novation had been effected in respect of the City’s pre-existing obligation resulting from the excess 3,898.27 m² of land received. It concluded that novation by a change in debt had occurred. The excess transfer originally fell under the restitution of prestations regime as a receipt of a payment not due, but the agreement formalized an area bank that combined this excess with the additional area to be financed and transformed the initial obligation into a new contractual obligation. The court found that the parties intended to extinguish the City’s prior debt relating to the excess land and to replace it with a new debt based on the area bank mechanism, creating a distinct obligational relationship governed by the agreement. The new debt represented a total of 26,705.78 m², made up of the former 3,898.27 m² and 22,807.5 m² of the newly transferred parcel, and the former restitution debt was treated as having lost its individuality within this new arrangement. Turning to the nature of the obligation under the agreement, the court held that it was not conditional but an obligation with a suspensive term. It noted that the parties intended compensation for the credited area to depend on future cadastral operations and that they were convinced those operations would take place. Both parties shared a common vision regarding future real estate developments and an impending use of the area bank. The court therefore concluded that the obligation arose immediately but that its exigibility was suspended until the occurrence of future cadastral operations, which the parties considered certain even though the timing was unknown.

Fixing the term and determining the monetary remedy
The court then considered how to fix the term, given that the agreement did not specify when the contemplated cadastral operations would occur and that the bank was not limited to development in the Du Moulin sector alone. It held that the area bank could be used for future approvals of cadastral operations generally on the City’s territory and that the term could not be tied solely to a single project. The evidence showed that the bank might have been used in several ways: following exclusion of Laroda’s agricultural land, through acquisition by Larochelle or its subsidiaries of land in the white zone, or through a transfer to Larochelle or its subsidiaries of land acquired by the City, including as a result of expropriation. The court found that article 1512 of the Civil Code of Québec applied. It noted that the parties had agreed on a term by reference to a future and certain event, but had left the determination of its timing to themselves, that the occurrence of the term depended in part on their conduct, and that, after a reasonable time, no term had been determined. The court observed that fourteen years had elapsed between the signing of the agreement and the demand letter and that no cadastral operation had taken place despite the parties’ efforts. Applying article 1512, and considering the nature of the obligation, the situation of the parties and the circumstances, the court fixed the term at December 15, 2015, the date of Laroda’s demand letter, and held that the City’s obligation became exigible on that date. Because Laroda instituted its proceedings on December 13, 2018, the court held that the action was not prescribed. On the question of remedy, the court rejected the application of the restitution of prestations regime. It emphasized that novation had extinguished the prior restitution debt and that none of the scenarios in which restitution of prestations applies were present: the City was not bound to return property received without right or in error, there was no annulment of the agreement, and performance had not become impossible by reason of superior force. The court instead turned to the performance by equivalence regime, which gives a creditor the right to damages for injury caused by the debtor’s failure to comply with its obligation. It found that the injury sustained by Laroda lay in being deprived of the value of the land transferred to the City, which used the land and even sold part of it without having to pay anything to acquire it. The court therefore held that Laroda was entitled to monetary compensation equivalent to the market value of 26,705.78 m² of bulk land free of park fees on the territory of Ville de Sainte-Julie as of December 15, 2015, the date when the term was fixed and the obligation became exigible. Because the evidence did not make it possible to determine this market value as of December 15, 2015, the court ordered that the case be remanded to the Superior Court so that a finding could be made on this question.

Ruling and overall outcome
In its disposition, the court dismissed the appeal and allowed the cross-appeal in part. It declared that the City’s obligation under the agreement is one with a suspensive term, fixed the term at December 15, 2015, and ordered Ville de Sainte-Julie to pay Investissements Laroda Inc. the market value, as of December 15, 2015, of 26,705.78 m² of bulk land free of park fees on the City’s territory. The case was remanded to the Quebec Superior Court solely on the question of determining this market value as of December 15, 2015. The court awarded costs to Investissements Laroda Inc. throughout, including expert fees.