Executive Summary: Key Legal and Evidentiary Issues

• Characterisation of the “non-refundable” $50,000 deposit and whether clause 6.10 of the second promise to purchase operated as a true penal (liquidated damages) clause limiting the seller’s recovery.
• Distinction between the buyers’ contractual obligations toward the seller (9180-3676 Québec inc.) and their separate obligations toward the lender (Financière Castleton ltée) under the financing engagement letter.
• Causation and remoteness of damages: whether unpaid municipal taxes and ongoing hypothecary interest after the failed sale were “direct and immediate” consequences of AK inc.’s refusal to complete the transaction.
• Personal civil liability of director-shareholder Alain Geresse Nkana: whether his conduct created a separate extracontractual fault distinct from that of AK inc. justifying a solidary judgment in favour of 9180-3676 Québec inc.
• Proof of fault and liability under the first and second promises to purchase, including non-disclosure of non-resident tax status and the buyers’ handling of the financing process.
• Assessment and appellate review of moral damages awarded to Nessim Awad personally for stress, reputational concerns, and the wrongful threat of a professional complaint.

Facts of the case

9180-3676 Québec inc. (9180) owned five heavily mortgaged residential units, encumbered in favour of Caisse Desjardins and Financière Castleton ltée (Castleton). Facing financial difficulties and unable to sell the units on the market, 9180 became the subject of hypothecary proceedings by Castleton, which sought sale under judicial control.
On 16 February 2016, Société civile immobilière & AK inc. (AK inc.) and its sole shareholder/director, Alain Geresse Nkana, signed a first promise to purchase the units (the “first promise”). This promise was conditional on payment of a $50,000 deposit and the buyers obtaining financing equal to 75% of the purchase price. Shortly afterward, on 22 February 2016, 9180 and Awad consented to a judgment in the Castleton hypothecary proceedings. That judgment condemned them to pay more than $1.67 million and ordered a judicial sale of the units by private contract, expressly providing that Castleton accepted a sale to Nkana and AK inc. in accordance with the first promise. The judgment also stated that if the sale did not occur, the $50,000 deposit would be applied to reduce 9180’s debt to Castleton.
The buyers failed to secure the necessary bank financing, largely because Mr. Nkana was a non-resident for tax purposes and had not disclosed this status at the outset. As a result, the first promise did not lead to a completed sale. This initial failure set the stage for a second attempt to salvage the transaction under court-controlled sale procedures.

The second promise to purchase and the deposit clauses

On 10 December 2016, AK inc. and the bailiff in charge of the judicial sale of the five units executed a second promise to purchase (the “second promise”). This second promise was again conditional on financing, on the payment of a $50,000 non-refundable deposit, and on signing the deed of sale by 28 February 2017. The parties agreed that the deposit under the second promise would come from the $50,000 already held by the notary under the first promise.
The second promise contained a key default clause, clause 6.10. It stipulated that if the buyer’s mortgage application was accepted, or the buyer failed to notify the seller in time of its inability to obtain financing, and the buyer then refused to sign the deed of sale for reasons not attributable to the seller, the deposit would be retained “à titre de dommages-intérêts” by the seller, without limiting the seller’s other recourses. On its face, this wording raised the question whether the clause should be characterised as a penal clause (liquidated damages clause) fixing the seller’s compensation at $50,000, or as a minimum damages provision leaving room for additional losses.
The day before signing this second promise, Mr. Nkana and AK inc. had obtained financing approval from Castleton for approximately $1.86 million. That financing was recorded in a letter of engagement of 9 December 2016. Under that engagement, the borrowers had to pay a $50,000 deposit to Castleton. The letter expressly stipulated that if the sale closed, the deposit would be credited to the purchase price, but if the transaction did not close “for any reason not attributable to the lender,” the deposit would become non-refundable and would not limit Castleton’s rights to claim further damages.
On 29 December 2016, the second promise was formally modified in two ways. First, it was agreed that AK inc. alone would be the purchaser. Second, and critically for the later litigation, the parties aligned the contract with the Castleton financing terms by providing that, notwithstanding any contrary clause, the $50,000 deposit would be remitted to Castleton and would be non-refundable, in accordance with Castleton’s engagement letter. This modification effectively shifted the beneficiary of the “non-refundable” deposit from 9180 to Castleton, while leaving 9180 still dependent on a successful sale to reduce its indebtedness.

Failure of the second transaction and ensuing losses

As the 28 February 2017 closing date approached, Mr. Nkana informed the notary acting for Castleton that AK inc. could not meet the deadline. The notary offered an extension of the closing date to 31 March 2017, on condition that AK inc. pay an additional $50,000 deposit. The buyers neither paid this second deposit nor completed the transaction, citing AK inc.’s financial incapacity. Castleton subsequently confirmed that it would keep the original $50,000 deposit due to the buyers’ default.
Because the second promise again failed, the five units were ultimately sold under judicial control for an amount lower than the price stipulated in the second promise and insufficient to clear all of 9180’s debts. 9180 also continued to incur municipal taxes and hypothecary interest on the loans it had used to acquire and hold the units. Meanwhile, Mr. Awad’s own residence, pledged as security, was sold under judicial control, causing him significant personal and financial stress.
On 8 March 2018, 9180 and Mr. Awad sent a formal demand to AK inc. and Mr. Nkana claiming $812,426.21. They then brought an action in March 2018 seeking contractual and extracontractual damages, while the defendants counterclaimed in June 2018.

The trial judgment: liability findings and damages

After a four-day trial, the Superior Court found that AK inc.’s refusal to sign the deed of sale under the second promise was wrongful and that this refusal directly caused 9180 losses. The judge rejected the buyers’ argument that the $50,000 non-refundable deposit, as framed in clause 6.10 and the subsequent modification, constituted a penal clause limiting 9180’s damages to that amount. Instead, the trial judge held that 9180 could claim the difference between the price in the second promise and the lower proceeds realized on the eventual judicial sale, less the $50,000 deposit already retained and applied to reduce 9180’s debt.
On this basis, the Superior Court awarded 9180 a net amount representing that price difference (calculated at $170,400 less the $50,000 deposit, for $120,400) plus substantial additional sums for municipal taxes and hypothecary interest that 9180 had paid after 28 February 2017. The trial court considered these carrying costs to be direct and immediate consequences of AK inc.’s failure to complete the agreed sale.
The trial judge also made important findings on civil liability. Regarding the first promise, she faulted Mr. Nkana and AK inc. for failing to disclose his non-resident tax status, which significantly hampered the financing process. For the second promise, she described their conduct as careless and nonchalant in managing the financing necessary to close the sale, concluding they had either never truly intended to perform or had changed their minds, leading to the collapse of the transaction.
In terms of personal liability, the trial court held that AK inc. was contractually liable to 9180 under the second promise and that AK inc. had also committed an extracontractual fault toward Mr. Awad. It further concluded that Mr. Nkana, as sole director and shareholder, bore personal extracontractual liability both to 9180 and to Mr. Awad, on the theory that he was at the origin of false representations, had refused to sign, and had personally participated in AK inc.’s wrongful conduct.
Finally, the trial court awarded $10,000 in moral damages to Mr. Awad. This sum compensated the anxiety, stress and reputational harm associated with the failed transaction, the loss of his home as guarantor, and particularly a threat by Mr. Nkana to file a professional complaint against him. The total monetary award at first instance in favour of the plaintiffs was $358,640.21 to 9180 plus $10,000 to Mr. Awad, together with legal interest and the additional indemnity under article 1619 of the Civil Code of Québec.

Appeal issues: deposit clause, damages and director’s liability

AK inc. and Mr. Nkana appealed, challenging both the scope of the damages and aspects of the liability analysis. First, they argued that the deposit clause, particularly the reference in clause 6.10 to the $50,000 being retained “à titre de dommages-intérêts” and the description of the deposit as “non remboursable” in the modification of 29 December 2016 and in clause 9 of Castleton’s engagement letter, meant the amount had been agreed as liquidated damages within the meaning of article 1622 C.C.Q. On that reading, 9180 could not collect both the deposit and additional damages.
The Court of Appeal rejected this characterisation. It considered that the 29 December 2016 modification had changed the structure of the parties’ obligations: the $50,000 deposit was now clearly for the benefit of Castleton and governed by the lender’s engagement letter, not a fixed indemnity for 9180. The buyers’ contractual obligations toward Castleton (including the risk of losing the deposit) were distinct from their obligations toward 9180 under the promise to purchase. Since the deposit ultimately went to reduce 9180’s debt to Castleton and was not contractually earmarked as full and final damages to 9180, the appellate court held that 9180 remained entitled to ordinary contractual damages against AK inc. for the failed sale, subject only to avoiding double recovery.
Second, the appellants disputed the award of ongoing municipal taxes and hypothecary interest as direct damages. The Court of Appeal agreed with them on this point. It reasoned that interest on 9180’s original loans was tied to financing it had obtained before the promises to purchase and that 9180 had also generated rental income from the properties during that time, which helped reduce its debt. In this context, awarding those interest payments as damages risked overcompensating 9180, given that article 1617 C.C.Q. already provides that damages for delay in paying a sum of money are normally indemnified by moratory interest, and because the interest payments were too remote from AK inc.’s failure to sign the deed of sale. The same logic applied to property taxes, which allowed 9180 to retain and rent the properties pending their eventual sale.

Director’s personal liability and moral damages

The appeal also raised the question of Mr. Nkana’s personal liability. The Court of Appeal reaffirmed the general principle that corporate administrators are not, by default, personally liable for the corporation’s contractual breaches. Personal liability may arise only where the director has given a personal guarantee, used the corporate personality to mask fraud or abuse, personally committed an independent extracontractual fault, or actively participated in a separate tortious act distinct from the company’s contractual non-performance.
In this case, the appellate court acknowledged that AK inc. had committed an extracontractual fault toward Mr. Awad and that Mr. Nkana had actively participated in that conduct. It therefore upheld the finding that AK inc. was extracontractually liable to Mr. Awad and that Mr. Nkana’s conduct justified maintaining the $10,000 moral damages award in Mr. Awad’s favour. The quantum of those moral damages fell within the trial judge’s discretion, and the appellants failed to show any reviewable error.
However, the Court of Appeal held that the trial judge had not properly identified any independent, distinct extracontractual fault by Mr. Nkana specifically vis-à-vis 9180, separate from AK inc.’s contractual breach. Allegations that he was reluctant to engage, acted in bad faith or negligently during the process, or made misrepresentations overlapped entirely with AK inc.’s own conduct as purchaser. The only distinct wrongful act—the threat to file a professional complaint—was relevant to Mr. Awad’s personal prejudice, not to 9180’s financial losses. Accordingly, the appellate court set aside the solidary condemnation against Mr. Nkana in favour of 9180 and left AK inc. as the sole defendant responsible for the contractual damages owed to the company.

Final outcome and total amount awarded

The Court of Appeal allowed the appeal in part. It removed the sums representing municipal taxes and hypothecary interest from the award to 9180, finding them too remote to be “direct and immediate” contractual damages, and it overturned Mr. Nkana’s personal liability toward 9180 for those amounts. It nonetheless confirmed AK inc.’s contractual responsibility for the failed second promise and upheld the finding of extracontractual fault toward Mr. Awad, including the $10,000 in moral damages.
In the dispositive portion of its judgment, the appellate court replaced the trial paragraph on quantum with an order condemning only AK inc. to pay 9180 the reduced amount of $120,400, together with legal interest and the additional indemnity under article 1619 C.C.Q. from 8 March 2018, the date of the formal demand. It confirmed the separate award of $10,000 in moral damages to Mr. Awad and ordered that there be no costs in appeal. Overall, the successful parties remain 9180-3676 Québec inc. and Nessim Awad, who together obtain a total principal recovery of $130,400 (that is, $120,400 for 9180 and $10,000 for Mr. Awad), with the exact total including interest and additional indemnity not quantified in the judgment.