Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of the “Répartitions” clause and whether it allowed a later claim for municipal taxes, garbage collection and common area charges advanced by the seller for 2020.
• Effect of mutual release language (“quittance mutuelle” and “quittance totale et finale”) in the asset purchase agreement on any post-closing financial adjustments between the parties.
• Application of article 1432 C.c.Q. on interpreting contractual ambiguity in favour of the party who assumed the obligation (here, in favour of the buyer/defendant).
• Assessment of whether the seller met the civil burden of proof under articles 2803–2804 C.c.Q. to show that an additional amount of 7,328.97 $ remained payable after the sale.
• Distinction between the seller’s historic practice with the landlord (annual advance and later adjustment) and the actual contractual allocation and risk agreed to in the 14 December 2020 asset sale.
• Allocation of costs following dismissal of the claim, resulting in an order that the unsuccessful plaintiff pay 288 $ in contestation costs to the defendant.

Facts of the case

The dispute arose out of the sale of the assets of an A&W restaurant operated at 2485, boulevard Ste-Anne, Québec, under the name “Restaurant A&W 5569.” The seller, 9344-6102 Québec inc. (9344), owned the business assets and entered into an asset purchase agreement with the buyer, 9413-4541 Québec inc. (9413), on 14 December 2020. The transaction involved equipment, leasehold improvements, franchise rights and goodwill, with a total purchase price of 1,050,000 $, excluding inventory, allocated in the written contract. Following the sale, 9344 claimed that it had advanced 7,328.97 $ to the landlord in 2020 for municipal taxes, garbage collection and common area charges related to the leased premises. According to the seller’s evidence, its established practice with the landlord was to pay an annual advance at the beginning of the year for these items, followed by an adjustment based on actual costs at year-end. It was this advance and the related adjustment for the year 2020 that formed the basis of the seller’s monetary claim. After the sale, 9344 sought reimbursement of the 7,328.97 $ from 9413, contending that, as new owner and operator of the restaurant, the buyer should bear these occupancy-related costs for the relevant period. A demand letter was sent on 6 December 2022, but no payment followed, leading to the small claims action in the Court of Québec, Small Claims Division.

The asset purchase agreement and the key clauses

The written contract of 14 December 2020 governed the parties’ rights and obligations. It expressly recorded that 9344 was selling to 9413 the assets used in the operation of the A&W restaurant, and it provided a detailed allocation of the purchase price among equipment, leasehold improvements, franchise right and goodwill. Of particular importance was the section entitled “Répartitions.” In that clause, the parties declared that they had already made between themselves the “répartitions d’usage” as of the date of the agreement, specifically including the rent for the month of December, which had been fully paid by the seller. They further agreed to give each other a mutual release (“s’en donnent quittance mutuelle”) in respect of those allocations, with an additional sentence stating that, if other “répartitions” proved necessary, they would be made as of the same date.

A second important section was “Répartition du prix de vente,” which not only broke down the 1,050,000 $ purchase price but also contained wording indicating that this allocation entailed a full and final release (“quittance totale et finale”). Taken together, these clauses suggested that, as of 14 December 2020, the parties intended to settle between them — on a final basis — both the allocation of the purchase price and the usual financial adjustments associated with operating the business, including the December rent that had already been paid by the seller.

The parties’ opposing positions

The seller, 9344, argued that the “Répartitions” clause allowed for further adjustments if necessary and that its 2020 advance to the landlord for municipal taxes, garbage collection and common area expenses was one such adjustment. From its perspective, the contractual reference to other “répartitions” that could later prove necessary meant that it remained entitled to claim 7,328.97 $ from the buyer after the closing date, on the theory that this amount related to occupancy of the premises during the period in which 9413 ultimately operated the restaurant. The seller relied on its long-standing arrangement with the landlord, under which an upfront payment was made at the start of each year and later reconciled against actual costs, and it treated this advance as a recoverable business expense vis-à-vis the purchaser.

The buyer, 9413, contested the claim on the basis that the asset purchase agreement contained a mutual release and full and final settlement of the relevant financial matters. It maintained that the “Répartitions” clause, read together with the price allocation and “quittance totale et finale,” meant that no additional sums were owed between the parties once the contract was signed, except as expressly provided. The buyer also highlighted that, from January 2021 onward, its own arrangement with the landlord was different: it paid a monthly rent that included the same categories of charges, and any adjustment was done at the end of the year, not through the same advance system that 9344 had used. In its view, the seller’s historic practice with the landlord did not translate into a separate, post-closing right to seek reimbursement from the buyer, absent a clear contractual reservation.

Legal framework and evidentiary burdens

In analysing the dispute, the Court began from the principle that a written contract is the primary basis for determining the parties’ rights and obligations. Here, the asset purchase agreement clearly contained language of mutual release regarding the “répartitions d’usage” as of 14 December 2020, and referred to a full and final discharge in connection with the price allocation. The issue was whether the wording, “Si d’autres répartitions s’avèrent nécessaires, elles seront effectuées à la même date,” allowed the seller to return later and seek additional sums, specifically the 7,328.97 $ paid to the landlord in 2020.

The Court relied on article 1432 of the Civil Code of Québec, which provides that, in cases of doubt, a contract is interpreted in favour of the party who assumed the obligation and against the party who stipulated it, and, more generally, in favour of the adherent or consumer. This rule functions as a tie-breaker when contractual language is ambiguous. Alongside interpretative rules, the Court referred to articles 2803 and 2804 C.c.Q., which establish the general civil burden of proof: the party asserting a right must prove the facts that support it, and proof is sufficient if it makes the existence of a fact more probable than its non-existence, unless the law requires stronger proof. In this context, 9344 bore the onus of demonstrating, on a balance of probabilities, that the contract permitted an additional, post-closing claim for the 2020 landlord-related charges.

Court’s reasoning on contract interpretation and evidence

After hearing the representatives of both corporations, the Court found that the “Répartitions” clause did not contain any express reservation preserving for the seller the right to later claim the 7,328.97 $ that had been paid to the landlord in 2020. The mutual release related to all “répartitions d’usage” as of the date of 14 December 2020, and the wording about any other necessary “répartitions” being made as of the same date was interpreted as confirming that all such matters had to be settled at that time. In other words, if any additional allocation or adjustment was required, it had to be made effective as of 14 December 2020, within the framework of the closing, not years later through a separate post-closing claim.

The Court emphasised that the contract did not contain a specific clause carving out or reserving for the seller a future right to seek reimbursement for the 2020 municipal taxes, garbage collection and common area charges already advanced to the landlord. Given this absence of clear reservation and the presence of mutual release and “quittance totale et finale” language, any ambiguity about the scope of the “Répartitions” clause had to be resolved under article 1432 C.c.Q. in favour of the buyer, 9413, as the party who had assumed the contractual obligations. Applying this interpretative rule, the Court concluded that the contract should be read as extinguishing any claim of the kind now advanced by 9344.

From an evidentiary standpoint, the seller’s description of its past practice with the landlord, and its assertion that the 7,328.97 $ related to 2020 charges, were not enough to overcome the contractual wording and the burden imposed by articles 2803–2804 C.c.Q. The Court held that 9344 had not proven, on a preponderance of evidence, that the contract allowed or preserved a right to recover that specific amount from 9413 after the closing date.

Outcome and monetary consequences

In light of this reasoning, the Court of Québec, Small Claims Division, rejected the entire claim brought by 9344-6102 Québec inc. against 9413-4541 Québec inc. The Tribunal held that the asset purchase agreement, properly interpreted, barred any post-closing claim for the 7,328.97 $ paid in 2020 to the landlord for municipal taxes, garbage collection and common area charges, and that the seller had not met its evidentiary burden to show otherwise. As a result, the plaintiff’s demand was dismissed in full, and the defendant, 9413-4541 Québec inc., emerged as the successful party, with the Court ordering that it recover 288 $ in contestation costs from the plaintiff as the total monetary amount awarded in its favour.