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Facts and commercial background
Johnny Daou founded Dima Import-Export inc., operating under the brand Les Aliments Merci, a business selling grocery and bulk organic and natural products through several Montréal outlets and an integrated warehouse and head office on Albert-Hudon. Over the years, Dima expanded to six locations, including stores on Jean-Talon, Ontario, Maisonneuve, Masson, Albert-Hudon and a boutique named AlfaAlfa. Dima sourced some of its products from 3523462 Canada inc., known in the market as Délices de la Forêt, a wholesale food business led by Éric Fortin. Canada inc. had grown to a sizeable operation, with about 75 employees and more than $45 million in annual revenue at the time of the transaction. The parties had a long-standing commercial relationship and a friendly rapport; Canada inc. supplied Dima with between $300,000 and $400,000 of products annually. After years of informal discussions about a possible sale, the issue became concrete in late 2020 and early 2021, as Daou approached retirement and his son did not wish to take over the family business. Fortin explained to Daou that for a “simple” company like Dima, essentially based on inventory and goodwill, market practice was to value it at roughly three to five times annual profits, adjusted for factors like reputation, growth, ease of management, market position and synergies with the buyer’s operations. Because Daou lacked experience in buying or selling businesses, he relied on this guidance in framing the price discussions.
Due diligence and pre-closing developments
In January 2021, Canada inc. kicked off a formal due diligence process. Daou provided financial statements for the previous five years and signed a confidentiality agreement. On 21 January 2021, Fortin requested further details, including salary data, rent figures and financial statements for each store, all of which were supplied. The historical accounts showed average annual profits of about $300,000 since 2015, except for 2019, which was less profitable due to non-recurring costs tied to a change in the management IT system; Fortin accepted this explanation when he saw that sales volume had been maintained in 2019. An initial offer in early February 2021 proposed a price including $1.5 million for goodwill, later increased to $1.6 million for goodwill in a March 2021 letter of intent.
In parallel, Dima faced labour turbulence at its Masson store. The employees there had unionised in July 2020 and obtained a strike mandate in February 2021 after tense negotiations. They had staged a mock lockout, made negative online comments and sought to organise workers at other locations. Daou, inexperienced in labour relations and strikes, sought advice from Fortin, who was not alarmed and suggested using consultants and even considering closure. A general strike started on 18 March 2021, shutting the Masson store entirely and halting its revenue during the work stoppage. Negotiations continued and culminated in a collective agreement and return-to-work protocol on 21 April 2021; the store reopened on 20 May 2021. Daou then informed Fortin that the conflict was settled and that salary increases had been granted.
While this was unfolding, Fortin pushed to complete due diligence in time for a 1 May closing date. He emphasised that the 2020 financial statements were crucial for his financing. Dima’s financial statements for the year ended 30 November 2020 were provided in March 2021, and Daou’s IT consultants prepared a dedicated computer with full access to Dima’s ACCPAC system, delivered to Canada inc. on 24 March 2021. Daou also organised ACCPAC training for Fortin and his business partner, Vanessa Allard-Fortin, who identified specific items to review, including inventory transactions and links between inventory and store-level sales. Fortin and Allard-Fortin received extensive documentation (multi-year financials, interim results, payroll and rent details, store-level financials, accounts receivable and payable lists, inventory listings and management roles) and had remote, real-time access to Dima’s systems from March 2021 until closing. Fortin also visited the stores incognito as a customer, at Daou’s request, to avoid revealing the pending sale to employees.
The share purchase agreement and payment structure
On 4 July 2021, Canada inc. purchased all the shares of Dima under a share purchase agreement (the “Convention d’achat-vente d’actions”). The agreed price was $3,043,728, including $1,600,000 allocated to goodwill (achalandage). The payment terms provided for an immediate payment of $2,393,728, a holdback of $150,000 to secure post-closing adjustments and the costs of closing the AlfaAlfa store, and a residual balance of $500,000 to be paid in monthly instalments of $8,333.33 plus 4% interest over 60 months. Shortly after, on 8 July 2021, the parties amended the schedule so that the $500,000 balance would be paid by 48 monthly instalments of $8,333.33 plus 4% interest, starting in the second year, and a lump-sum payment of $100,000 at the end of the first year. Daou later pointed out a drafting error, clarifying that the $100,000 was due at the end of the first, not the last, year.
The Convention d’achat also contained a set of detailed representations, warranties and covenants by Daou. Among the most contested were the clauses that: (i) confirmed there were no obligations or commitments in the 30 November 2020 financial statements likely to have a material adverse effect on Dima that were not disclosed or should have been disclosed; (ii) assured that the closing financial statements would likewise not reveal undisclosed obligations with a material adverse effect; (iii) stated that since 30 November 2020 there had been no “changement défavorable important” in Dima’s financial situation compared with what was shown in the 2020 financials or otherwise disclosed in the agreement; (iv) specified that, except as shown in Dima’s books provided in due diligence, Dima had preserved its goodwill and reputation, acted reasonably to retain necessary employees and maintained good business relations with suppliers and customers; and (v) confirmed that Daou had not omitted any non-public fact likely to adversely affect Dima’s financial situation and that no representation in the agreement was false, incomplete or misleading. The agreement further included an indemnity and “hold harmless” undertaking whereby any loss suffered by Canada inc. due to inaccurate or false representations or failure to perform undertakings would be treated as a downward adjustment of the purchase price, and an express provision that Canada inc.’s due diligence would not limit or dilute Daou’s representations and warranties.
Post-closing changes and emerging disputes
After closing, the parties announced the change of ownership to employees and sought to reassure staff. AlfaAlfa was closed at Daou’s expense, in line with the agreement. Fortin quickly began assessing the Masson store’s performance post-reopening. Despite the end of the strike and the new collective agreement, he considered the June and July 2021 sales weak, perceived persistent employee dissatisfaction and resistance, and decided to close the Masson store permanently in early August 2021.
In November 2021, Fortin received closing financial statements for Dima covering the period from 30 November 2020 to 3 July 2021. He said these showed a “big surprise” in the form of under-performance in the months leading up to the sale. Additional financial statements were prepared for 4 July to 31 December 2021, as Canada inc. aligned Dima’s year-end to 31 December. As 2021 progressed, Fortin remained unhappy with Dima’s overall sales and profits and attributed the results to Daou’s alleged mismanagement of the Masson strike, claiming it had damaged all stores and overall sales.
On 7 April 2022, Canada inc. served a demand letter alleging that Daou had misrepresented Dima’s financial condition since the 30 November 2020 financials. Canada inc. claimed that sales after that date were materially lower, relying on the 3 July 2021 closing financials and monthly sales reports, and characterized the difference between 2020 and 2021 revenue as a “changement défavorable” giving rise to indemnification under clause 9.2 of the Convention d’achat.
Daou responded on 28 September 2022 with a demand letter for the first $100,000 instalment due on 31 July 2022 and for the monthly instalments due from 1 August 2022, which Canada inc. had failed to pay. Canada inc. issued a second demand on 29 November 2022, accusing Daou of concealing downward sales trends in the months before the sale and claiming financial losses estimated at $500,000 for 2022.
Claims, counterclaim and issues before the Court
On 16 December 2022, Daou and the Daou Family Trust commenced proceedings in the Superior Court of Québec. They sought a declaration that Canada inc. had lost the benefit of the term for the $500,000 balance of sale because of its non-payment of the first $100,000 lump sum and the first monthly instalment, with the effect of rendering the full balance immediately due, or alternatively a declaration that the loss of the term occurred by the date of their 28 September 2022 demand letter. They also asked for release of the $150,000 holdback, subject to agreed post-closing adjustments and AlfaAlfa closing costs, which the parties eventually quantified at $93,050 and $44,863.74 respectively, leaving $12,086.26 for Daou.
Canada inc. filed a defence and counterclaim on 28 February 2023, seeking $1,743,293.31 from Daou. The core of this counterclaim was a $1,600,000 reduction of the purchase price corresponding to the goodwill allocation, on the theory that the business had suffered a material adverse change before closing, in breach of Daou’s representations about preserving goodwill, maintaining employees and client relationships, and disclosing any adverse facts. Canada inc. also claimed $17,911.30 for allegedly expired jackfruit (“fruits du Jacquier”) inventory said to be “produits périmés” under the agreement, and interest on the post-closing adjustment and AlfaAlfa closure amounts from July 2022. Canada inc. asked that any sums due under the counterclaim be set off against the $500,000 balance and the $150,000 holdback.
This produced three central issues: whether Canada inc. had lost the benefit of the term on the balance of sale; how the $150,000 holdback should be released and whether interest was payable on the adjustment sums; and whether Canada inc. had proven misrepresentations, undisclosed material adverse changes or other breaches entitling it to a $1.6 million reduction and recovery of jackfruit losses.
Loss of the benefit of the term
On the first issue, Daou argued that Canada inc.’s failure to pay the $100,000 lump sum due 31 July 2022, and the first $8,333.33 instalment due 1 August 2022, triggered loss of the benefit of the term, making the entire $500,000 balance immediately payable with 4% interest. In the alternative, Daou said the term was lost as of the demand letter of 28 September 2022.
The Court began by recalling the civil law framework of terms in obligations and article 1514 of the Civil Code of Québec, which allows loss of the term where, for example, the debtor becomes insolvent or fails to respect conditions underpinning the granting of the term. The Court emphasised that loss of the term is a protective sanction available where the debtor’s conduct materially jeopardises the creditor’s prospects of being paid in full at maturity, but that the mere non-payment of a single instalment will not typically suffice absent specific contractual stipulation or evidence of real risk to collection.
Applying the law, the Court noted that the Convention d’achat did not contain any clause providing for automatic forfeiture of the term upon late payment or other specified defaults. The parties had not contractually defined such triggers. More importantly, the Court accepted that Canada inc. was withholding payment based on its view—right or wrong—that it had contractual rights to a price reduction and indemnification for alleged misrepresentations, and was litigating those issues. The non-payment was thus not linked to insolvency or a lack of willingness to honour the contract, but to an ongoing dispute and a judicial determination yet to be made. On that basis, the Court found that Daou’s prospects of ultimate collection were not in real jeopardy and that there was no justification to accelerate all future instalments. The request to declare loss of the benefit of the term was therefore rejected, and the original payment schedule remained intact, subject to ordering payment of the arrears already due.
Holdback, post-closing adjustments and AlfaAlfa closing costs
On the second issue, the Court observed that the parties were in substantive agreement on the amounts to be charged against the $150,000 holdback: $93,050 for post-closing adjustments and $44,863.74 for AlfaAlfa closing costs, totalling $137,913.74 to be paid to Canada inc., with the residual $12,086.26 to go to Daou. The Convention d’achat stipulated that the holdback was to be released on the later of: the approval by both parties of final closing financial statements, including adjustments; and completion of the AlfaAlfa closure steps by Daou, with immediate remittance of the holdback (or remaining balance) after that time. AlfaAlfa was closed by August 2021, closing financial statements were only approved on 7 July 2022 and the parties agreed the adjustments on 21 July 2022.
The Court accepted the joint request to order release of the holdback in accordance with this agreement. However, it refused Canada inc.’s claim for 4% interest on the $137,913.74 from July 2022. The Convention d’achat did not provide for such interest on the holdback amounts, and there was no evidence of any default or obstruction by Daou in the release process. Moreover, the funds were held in trust by Canada inc.’s lawyers, not controlled by Daou, so no basis existed to impose contractual interest on these sums.
The jackfruit inventory dispute
Canada inc. also claimed $17,911.30 for jackfruit inventory which it said constituted “produits périmés” under the agreement, meaning they should be reimbursed by Daou. The evidence showed that at closing there were 108 boxes of jackfruit in Dima’s inventory with expiry dates in January 2023, and that sales volumes would ordinarily allow this quantity to be sold before expiry. Additionally, 690 boxes stored in Dima’s warehouse at that date already belonged to a customer, Cook it, and were merely being stored temporarily for that client, with appropriate identification; they were not Dima’s inventory. Post-closing, on 13 October 2021, Canada inc. itself ordered an extra 600 boxes of jackfruit, thereby increasing inventory exposure. Several days later, on 19 October 2021, Fortin agreed to credit Cook it for 270 boxes of the client’s jackfruit, effectively taking them back. These two decisions—purchasing 600 additional boxes and crediting Cook it for 270 boxes already held—created a large surplus that Canada inc. later could not sell before expiry.
The Court found that any losses on the jackfruit stockpile were therefore entirely attributable to Canada inc.’s own post-closing business decisions. Even if the boxes could have been characterised as “produits périmés” under the agreement, the Court added that Canada inc. had missed the contractual deadline to notify Daou of such claims, which was one year from 4 July 2021. The first jackfruit-related demand email was sent on 3 August 2022 and was followed by an upward adjustment in 2025 during the proceedings, meaning both claims were time-barred under the agreement. The jackfruit claim was thus dismissed.
Alleged misrepresentations, material adverse change and price reduction
The heart of Canada inc.’s counterclaim lay in its allegation that Daou had misrepresented Dima’s financial state and failed to disclose material adverse changes and facts likely to harm Dima’s financial condition, in breach of multiple representations and warranties, and that Dima’s performance from December 2020 to July 2021 had materially deteriorated compared to the 2020 financial statements. Canada inc. argued that these breaches justified a $1.6 million reduction in the price of goodwill and related indemnity, as provided in the indemnity and price adjustment clause of the Convention d’achat.
The Court approached this issue through the lens of Daou’s contractual duty of disclosure and cooperation, combined with general civil law duties of good faith and diligence. It first concluded that Daou had fully cooperated with Canada inc.’s due diligence and provided all requested financial and operational information. Fortin and Allard-Fortin had received multi-year financial statements, store-level data, interim results up to at least 31 March 2021, detailed listings of inventory, accounts receivable and payable, and staffing and supplier information, and had unrestricted, real-time access to Dima’s ACCPAC system from March until closing. Canada inc. did not show that any of this documentation was inaccurate or false. Nor did it prove that Daou personally made any misleading oral assurances about Dima’s finances or operations beyond what appeared in the documents.
On the alleged “changement défavorable important” in sales and financial performance, the Court found the evidence wanting. Canada inc. relied heavily on a sales table it had prepared, but that table was incomplete, as it only reflected sales from four stores (Maisonneuve, Ontario, Jean-Talon and Albert-Hudon) and excluded both the Masson store and important revenue streams from the Albert-Hudon warehouse and online sales. Given that warehouse and web sales contributed significant monthly revenues, drawing conclusions about the entire business from partial data was deemed risky and inconclusive.
The Court also observed that even within the four stores shown, monthly sales fluctuated up and down across the months, with no consistent pattern of under-performance in April to June 2021 compared with December 2020 to March 2021, a period Fortin had previously accepted. Revenue in some months exceeded, and in others fell below, the chosen comparators (prior year or pre-COVID period), producing a mixed picture rather than a clear downward trend.
Looking at aggregate figures, Dima’s sales for the 215-day period from 1 December 2020 to 3 July 2021 totalled approximately $5.77 million. When annualised, this translated into roughly $9.79 million in sales over a 365-day year. This level of turnover was consistent with Dima’s historical sales in the preceding years, which had fluctuated between about $8.9 million and $10.7 million. Indeed, the annualised figure was very close to Dima’s 2019 sales, which Fortin had earlier considered satisfactory after being reassured that the lower profit in 2019 stemmed from non-recurring IT expenses. The Court further underscored that this 2020–2021 period included two months in which Masson produced no revenue due to the strike, whereas historically the Masson store generated about $100,000 of monthly sales; if anything, this context made the sales level more understandable, not alarming.
On this basis, the Court held that there was no proven substantial decline or “baisse substantielle des affaires” between 1 December 2020 and 3 July 2021. The financial data did not demonstrate a material adverse change that Daou had failed to disclose or that would contradict his contractual representations. Nor did the evidence show that these data foreshadowed a future deterioration in Dima’s business that should have been specially flagged to Canada inc. before closing.
Regarding the Masson labour dispute, the Court was not persuaded that the unionisation, strike and strained relations at that one store had spilled over to meaningfully depress sales or profitability across the rest of Dima’s operations. For presumptions to be drawn, they must be serious, precise and concordant; the evidence did not allow the Court to infer such a causal chain. The Court also found that Daou had in fact been transparent about the Masson issues: he informed Fortin at each stage, sought advice, kept him updated on the negotiations and promptly conveyed the conclusion of the collective agreement and return-to-work protocol. There was no proof that relations with Masson employees remained problematic after the new agreement, or that Daou had mishandled the labour relations in a way that breached any duty of diligence.
Finally, the Court saw no conduct by Daou or his management that would amount to failing to preserve goodwill, reputation, employee stability or customer and supplier relations. On the contrary, Daou and his spouse participated actively and constructively in the ownership transition, visiting the various locations to explain the sale, reassure employees and support Fortin’s introduction. Daou also stayed in the business for a month post-closing to assist the handover, as promised.
In contrast, the Court noted that after taking control in July 2021, Fortin implemented numerous changes: he brought in new administrative personnel, shifted customer accounts from Dima to his own company, cut positions, closed the Masson store and the Albert-Hudon warehouse, and altered the product mix by adding new products and discontinuing others. These managerial decisions materially changed Dima’s business model and dynamics and, by implication, its performance. Against this background, the Court declined to attribute later financial outcomes to any pre-closing misconduct by Daou or breach of contractual representations.
Outcome and monetary orders
In the result, the Court partially granted Daou’s main action and dismissed Canada inc.’s counterclaim in its entirety. On the payment of the balance of sale, the Court refused to accelerate all future instalments but ordered Canada inc. to pay the arrears: $518,703.06, comprising the first $100,000 instalment (with 4% interest) and the monthly instalments of $8,333.33 due from August 2022 (with 4% interest). It also ordered Canada inc. to pay the $8,333.33 instalment (with 4% interest) that fell due on 1 December 2025, and to continue paying all remaining monthly instalments of $8,333.33 plus 4% interest through to the contractual end date of 1 July 2026, in accordance with the Convention d’achat.
With respect to the holdback, the Court gave effect to the parties’ agreement and ordered the release of the $150,000 in trust so that $137,913.74 (covering the $93,050 post-closing adjustment and $44,863.74 AlfaAlfa closure costs) would be paid to Canada inc., and the remaining $12,086.26 would go to Daou. It expressly rejected Canada inc.’s attempt to obtain 4% interest on the $137,913.74 from 22 July 2022. The Court also rejected Canada inc.’s $17,911.30 jackfruit claim and the much larger $1.6 million price-reduction theory, leaving its entire $1,743,293.31 counterclaim without recovery. Finally, the Court ordered costs against Canada inc., though the precise quantum of costs was not determined in the reasons and will follow the usual taxation process. Overall, the successful parties were Johnny Daou and the Daou Family Trust, in whose favour the Court ordered at least $530,789.32 in quantified amounts (the $518,703.06 arrears plus $12,086.26 from the holdback), in addition to the continuing future monthly instalments with 4% contractual interest and court costs whose exact monetary value cannot be determined from the judgment.
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Plaintiff
Defendant
Court
Quebec Superior CourtCase Number
500-17-123338-223Practice Area
Corporate & commercial lawAmount
$ 530,789Winner
PlaintiffTrial Start Date