Can a seller be sued for entertaining a better offer?

This page covers Québec’s Civil Code; other provinces apply their own law. The Code contains no rule naming it wrongful, by itself, to listen to a rival bid. A claim has to rest on something the seller promised or on a rule of conduct. So the first step is to read what was signed.

A promise to contract

The Code treats an offer made to a determinate person as a promise to enter into the proposed contract from the moment the offeree clearly indicates to the offeror that it intends to consider the offer and reply within a reasonable or stated time. It adds that a contract made in violation of a promise to contract may be set up against the promise’s beneficiary, without affecting the beneficiary’s remedy in damages against the promisor and against anyone who contracted in bad faith with the promisor. The same rule applies to a first refusal agreement.

An obligation not to do something

If a letter of intent contains an exclusivity or no-shop term, that is an obligation not to do something. The Code says a debtor is in default by operation of law where the debtor has violated an obligation not to do. Whether merely entertaining an offer breaches the clause depends on its words, such as whether it bars negotiating, soliciting or only signing.

Good faith and damages

The parties must conduct themselves in good faith both when the obligation arises and when it is performed or extinguished. A creditor is entitled to damages for injury that is an immediate and direct consequence of the debtor’s default. Éducaloi, writing about home purchases, notes that an offer to purchase is a contract and that once it is signed it is very difficult to cancel.

Before you take the call

Check whether the document has an exclusivity period, whether it is binding, and how it ends. If you are unsure, ask a Québec lawyer before replying to another bidder. The page on what to do with more than one offer covers running the process, and backing out after a letter of intent covers the buyer’s side.