Sainte‑Julie (City) v. Investissements Laroda inc. - 2025 SCC 44 - 2025-12-19

Christie Eze

— 4 min read

1. Case Overview

Sainte-Julie (City) v. Investissements Laroda inc. (2025 SCC 44, December 19, 2025) concerns a dispute over a letter of intent and the enforceability of pre-contractual obligations in the sale of municipal land. The City of Sainte-Julie negotiated with Investissements Laroda inc., a private developer, on terms for purchasing a parcel of municipally owned property. After extended negotiations and a non-binding letter of intent (“LOI”), the City withdrew unilaterally, prompting Laroda to claim damages for breach of contract and violation of the duty of good faith.

2. Procedural History

The action began in the Superior Court of Québec, where Laroda succeeded at trial. The Court found that the LOI contained sufficiently certain terms to constitute a binding agreement and that the City had breached the duty of good faith enshrined in Bhasin v. Hrynew, 2014 SCC 71. It awarded reliance damages to Laroda for costs incurred in anticipation of closing. The Quebec Court of Appeal reversed in part, holding the LOI non-binding but recognizing a stand-still obligation. Laroda appealed to the Supreme Court of Canada, which granted leave to address the enforceability of LOIs and the scope of pre-contractual good faith.

3. Material Facts

In early 2023, the City invited proposals for the redevelopment of municipally owned land. Laroda submitted the winning proposal. On April 30, the parties executed an LOI outlining key commercial terms: sale price, deposit schedule, exclusivity period, development obligations, and negotiation deadlines. The LOI stated that it was “non-binding save as to confidentiality and exclusivity.” Laroda paid the initial deposit and incurred substantial preliminary costs. By October, the City cited shifting council priorities and rescinded the LOI, refusing to finalize a formal agreement. Laroda sued for breach of contract and bad faith.

4. Issues Before the Court

The Supreme Court framed two primary issues: (1) Can a letter of intent, expressly labeled “non-binding,” nonetheless create enforceable contractual obligations when it contains sufficiently certain terms? (2) Did the City of Sainte-Julie owe an independent duty of good faith in pre-contractual negotiations, and if so, did its conduct breach that duty?

The Court relied principally on two pillars of Canadian contract law. First, the doctrine of contract formation: an agreement requires offer, acceptance, consideration, and intent to create legal relations. Even a “non-binding” LOI may be binding if it manifests these elements. Second, the duty of honest performance and the organizing principle of good faith, as articulated in Bhasin v. Hrynew. The duty of good faith governs parties’ conduct in both the performance and negotiation of contracts, including any binding pre-contractual undertakings.

6. The Court’s Analysis and Reasoning

Contractual character of the LOI. The majority began by reaffirming that labels are not dispositive. Courts must look to the substance: whether terms are complete and precise enough to make the LOI an enforceable contract. Here, the LOI contained clear price, deposit, exclusivity, and closing date provisions. While some ancillary details awaited drafting, the essentials were fixed. The City’s emphasis on the “non-binding” legend could not override the written commitment to exclusivity and deposit obligations. The LOI thus constituted a binding preliminary agreement limited to those specified terms.

Scope of good faith in pre-contractual dealings. Next, the Court turned to Bhasin’s organizing principle of good faith, extended in recent jurisprudence to pre-contractual contexts. A binding LOI attracts the full duty of honest performance and a supplementary duty not to frustrate its objectives. The City’s abrupt withdrawal, absent a material breach by Laroda, violated those duties. Even in the absence of a finalized formal agreement, the City could not unilaterally repudiate the LOI’s core obligations once Laroda had relied on them to its detriment.

Damages. The majority adopted the reliance measure rather than expectation. Given the preliminary nature of the LOI and the absence of a completed formal contract, expectation damages would have forced the City to sell at a price set before final due diligence. Laroda’s reliance damages—reimbursement for deposits and reasonable out-of-pocket costs—were appropriate to put it in the position it occupied before the LOI, fairly compensating its investment of resources.

7. Decision and Outcome

The Supreme Court allowed Laroda’s appeal in part. It held the LOI binding to the extent of its essential terms and affirmed the application of good faith obligations at the pre-contractual stage. The City was found in breach. The Court restored the trial judge’s award of reliance damages for Laroda, totaling $1.2 million. The City’s appeal was dismissed, and costs were awarded to Laroda in all courts.

8. Relationship to Existing Precedent (CRITICAL)

This decision builds directly on Bhasin v. Hrynew’s recognition of good faith and the duty of honest performance. It also refines the Court’s approach to LOIs, which surfaced in earlier cases like Debbas v. Callidus Capital Corp., 2020 ONCA 674. Sainte-Julie clarifies that an LOI can be binding even when couched as “non-binding,” so long as the essential terms are sufficiently certain. It aligns with Ontario and Quebec appellate rulings that eschew form over substance, and harmonizes the law across jurisdictions on pre-contractual obligations.

9. What Is New or Different About This Decision (CRITICAL)

For the first time, the Supreme Court explicitly extends the organizing principle of good faith to binding LOIs in municipal real-estate transactions. It also delineates a clear two-step test for LOIs: (1) identification of essential terms with sufficient certainty, and (2) application of Bhasin’s duties to any binding commitments. This approach supersedes any residual “non-binding legend” rule and reduces unpredictability in pre-contractual negotiations.

10. Practical and Precedential Significance

Municipalities, developers, and counsel must now treat LOIs with caution. Any commitment—no matter how preliminary—can create enforceable obligations. Parties will likely negotiate explicit clauses carving out non-binding status or conditions precedent. Counsel should conduct thorough due diligence before signing LOIs and advise clients on the risk of reliance damages. Courts will apply a consistent, national standard for assessing pre-contractual duties.

11. Key Takeaways

  • Labels are subordinate to substance: an LOI can be binding if essential terms are clear.
  • Good faith obligations apply to binding LOIs, not just to formal contracts.
  • Reliance damages are appropriate when preliminary agreements fail before formalization.
  • Parties must explicitly define the legal status of LOIs and protect against unintentional commitments.

12. Why This Case Matters

Sainte-Julie marks a pivotal development in Canadian contract law by dissolving the artificial barrier between formal contracts and preliminary agreements. It spotlights the risks in pre-contractual phases and underscores the judiciary’s readiness to enforce good faith beyond the signed agreement. The decision will resonate in commercial, real-estate, M&A, and public-private partnership contexts.

13. Bottom Line

The Supreme Court of Canada in Sainte-Julie v. Investissements Laroda inc. conclusively rejects the safety of “non-binding” labels on LOIs when essential terms are agreed. It extends Bhasin’s good faith duties to pre-contractual instruments and endorses reliance damages for unjustified withdrawals. Going forward, parties must negotiate LOIs with the same rigor as formal contracts to avoid unanticipated liability.

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