Background
During the 1990s, real estate developer Promotions M.G. Larochelle inc. completed several subdivision projects on the territory of Ville de Sainte-Julie (the “City”) in Quebec. Under the applicable legislation and municipal by-laws, Larochelle was required to transfer 10% of its project areas to the City for parks and green spaces. When the parties audited what had actually been transferred, they discovered that Larochelle had conveyed 3,898.27 m² more than legally required. The City acknowledged the excess but stated it could neither return the land nor reimburse its monetary value at that time. Separately, the City sought to acquire an additional parcel of 45,615 m² owned by Larochelle—half of which was buildable—to complete public amenities including a bicycle path, and asked Larochelle to finance that acquisition.
To resolve both matters simultaneously, the parties entered into a written agreement on February 19, 2001, creating a “land area bank” of 26,705.78 m² in Larochelle’s favour—representing the 3,898.27 m² excess already transferred plus 22,807.5 m² of the newly acquired parcel. The bank was to be drawn down against future park fees owing in connection with new cadastral operations (subdivision approvals) on Larochelle’s remaining land. Both parties expected those future developments to proceed without difficulty, believing that pending applications to have adjacent agricultural land de-zoned by the Commission de protection du territoire agricole du Québec (CPTAQ) would succeed. Those applications were, however, denied in 2004 and again in 2008, and subsequent metropolitan land-use planning restrictions further foreclosed development for at least a decade. The bank was never used.
Laroda inc., the corporate successor to Larochelle’s rights, sent a demand letter to the City on December 15, 2015, noting the impossibility of applying the area bank and requesting monetary compensation. When negotiations failed, Laroda commenced proceedings in December 2018. The Superior Court dismissed the claim, finding the obligation conditional on a future and uncertain event that had become impossible. The Court of Appeal reversed, characterizing the obligation as one with a term rather than a condition, fixing that term judicially, and ordering the City to pay $287,458.51 calculated by reference to the land’s value in 2001. Both parties appealed to the Supreme Court.
The Court’s Holding
Writing for a unanimous nine-judge panel, Justice Côté dismissed the City’s appeal and allowed Laroda’s cross-appeal in part. The Court first held that the 2001 agreement effected novation of the City’s pre-existing debt for the excess land received. Because novation simultaneously extinguishes the former obligation and creates a new and different one (arts. 1660–1666 C.C.Q.), the parties’ pre-existing restitution relationship was replaced by an entirely new contractual obligation governed by the terms of the area-bank agreement. The requisite intention to novate was established by the agreement’s text and context: the parties did not merely adjust an existing debt but constructed a fundamentally different mechanism—a forward-looking bank to be drawn down only through future cadastral operations—demonstrating a clear intent to substitute a new obligation for the former one.
The Court next held that the City’s obligation under the agreement was one with a suspensive term, not a conditional obligation. The key distinction turns on whether the parties subjectively viewed the triggering event as certain or uncertain: a condition requires the event to be objectively and subjectively uncertain, whereas a term may reference a future event considered certain even if the precise date is unknown (art. 1508 C.C.Q.). Here, both parties were convinced that cadastral operations would eventually occur—indeed, de-zoning approvals had never previously been refused in dealings between these parties—so the occurrence of those operations was, in the parties’ minds, certain. The trial judge erred by focusing exclusively on objective uncertainty. Because the agreed term was indeterminate and the parties never fixed the date, the court was empowered under art. 1512 para. 1 C.C.Q. to fix it judicially. Having regard to the nature of the obligation, the parties’ situation, and all relevant circumstances, the Court fixed the term at December 15, 2015—the date of Laroda’s demand letter—at which point the City’s obligation became exigible.
On remedy, the Court held that the performance by equivalence regime (arts. 1607 et seq. C.C.Q.) applied, not restitution of prestations (art. 1699 C.C.Q.). Because novation extinguished the original debt for the excess land, restitution of that specific area was unavailable; and none of the three statutory triggers for restitution of prestations were present. Laroda was therefore entitled to damages equal to the market value of the 26,705.78 m² area bank—assessed as vacant bulk land free of park fees on the City’s territory—as of December 15, 2015. Because the evidentiary record did not contain valuations as of that date, the matter was remanded to the Superior Court solely to determine that value.
Key Takeaways
- Novation under the Civil Code of Québec requires a clear and evident intention to extinguish an existing debt and replace it with a new and different one; such intention may be tacit and inferred from the parties’ conduct, but the threshold of proof is high given the creditor renounces the benefit of its prior rights.
- The distinction between a conditional obligation and an obligation with an indeterminate suspensive term turns on both objective and subjective certainty: if the parties mutually believed a future event was certain to occur, the modality is a term—not a condition—even though the exact date was unknown, and the obligation survives the non-occurrence of that event.
- Where parties have agreed on an indeterminate suspensive term and fail to fix it after a reasonable time, art. 1512 para. 1 C.C.Q. empowers the court to set the term judicially; arts. 1512 and 1510 C.C.Q. are mutually exclusive regimes that must be carefully distinguished depending on whether the date of the event is determinable.
- Once novation is found, the performance by equivalence regime—not restitution of prestations—governs the creditor’s remedy for non-performance of the novated obligation; damages are assessed as of the date the term expires (i.e., when the obligation became exigible).
Why It Matters
This decision is the Supreme Court’s most thorough treatment in decades of the intersection between novation, modal obligations, and judicial term-fixing in Quebec contract law. It resolves a doctrinal fault line between objective and subjective approaches to characterizing suspensive terms versus conditions—a distinction with substantial practical consequences because a failed condition extinguishes liability entirely, while an unfulfilled term merely delays it. Municipalities, developers, and commercial parties who craft deferred-performance agreements by reference to anticipated future events (regulatory approvals, market milestones, third-party consents) now have clear guidance that their subjective shared belief in the certainty of those events can transform what looks like a condition into a term, preserving the obligation even if the triggering event never materializes.
The ruling also clarifies the interaction between the restitution of prestations and performance by equivalence regimes when novation is in play, confirming that once a prior debt is extinguished by novation, restitution remedies tied to the original transfer are foreclosed. Creditors holding area banks, credits, or other deferred-compensation arrangements with public bodies should note that the absence of a force-majeure or impossibility clause in such agreements will not necessarily release the debtor: the Court found that the agreement contained no such mechanism, and the debtor bore the risk that the contemplated future events would not come to pass.