Houle v. Canadian National Bank

Houle v. Canadian National Bank
Collection
Supreme Court Judgments
Date
1990-11-22
Report
[1990] 3 SCR 122
Case number
20634
Judges
Lamer, Antonio; Wilson, Bertha; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret
On appeal from
Quebec
Subjects
Commercial law
Torts
Notes
SCC Case Information: 20634
Decision Content
Houle v. Canadian National Bank, [1990] 3 S.C.R. 122
National Bank of Canada Appellant
v.
Normand Houle, Réjean Houle,
Rolland Houle and Bruno Houle Respondents
indexed as: houle v. canadian national bank
File No.: 20634.
1990: May 3; 1990: November 22.
Present: Lamer C.J.* and Wilson, La Forest, L'Heureux‑Dubé, Sopinka, Gonthier and Cory JJ.
on appeal from the court of appeal for quebec
Civil responsibility -‑ Abuse of contractual rights ‑‑ Criteria ‑‑Type of liability: contractual or delictual ‑‑ Liability to third parties ‑‑ Civil Code of Lower Canada, arts. 1024, 1053.
Civil responsibility ‑‑ Bank ‑‑ Abuse of contractual rights ‑‑ Liability to third party ‑‑ Bank liquidating company's assets only three hours after demanding payment of company's loan ‑‑ Bank aware at the time of shareholders' negotiations to sell their shares of company ‑‑ Shares sold at reduced price following liquidation of company's assets ‑‑ Shareholders suing bank for difference between value of shares before liquidation of company's assets and amount obtained from sale ‑‑ Whether there has been an abuse by the bank of its contractual right to realize on its security ‑‑ Whether shareholders have a right of action against the bank based on company's contract or on art. 1053 C.C.L.C.
Company law ‑‑ Lifting of corporate veil ‑‑ Bank liquidating company's assets only three hours after demanding payment of company's loan ‑‑ Bank aware at the time of shareholders' negotiations to sell their shares of company ‑‑ Shares sold at reduced price following liquidation of company's assets ‑‑ Shareholders suing bank for difference between value of shares before liquidation of company's assets and amount obtained from sale ‑‑ Family business ‑‑ Long‑term financial relationship between bank and shareholders ‑‑ Personal guarantees given by shareholders to secure company's loan ‑‑ Whether shareholders have a right of action against bank for damage caused to company ‑‑ Whether this is an appropriate case to lift the corporate veil.
Damages ‑‑ Additional indemnity ‑‑ Motion for additional indemnity filed in Supreme Court of Canada after prescribed time ‑‑ Whether motion should be granted ‑‑ Civil Code of Lower Canada, art. 1056c ‑‑ Supreme Court Act, R.S.C., 1985, c. S‑26, s. 48 ‑‑ Rules of the Supreme Court of Canada, SOR/83‑74, Rule 29.
Appellant bank had done business with the respondents' family and their company for over 50 years. In order to modernize and to expand, the company approached the bank for financing and by October 1973 had a rotating line of credit of $700,000 and a letter of credit of $100,000. As security, the bank held letters of surety supplied by the respondents ‑‑ the sole shareholders of the company ‑‑, by their mother, and security under s. 88 of the Bank Act. The bank also obtained a trust deed on all the movable and immovable assets of the company. In December 1973, the respondents commenced negotiations with an interested company to sell their shares in their company for $ 1,000,000. The bank was aware of these negotiations. The next month, the company asked the bank to increase its rotating line of credit to $900,000. The bank instructed an accounting firm to study the financial situation of the company and, following the report, decided to call in the loan and realize on the guarantees. The accounting firm's representative went to the company and attempted to obtain an additional investment from the respondents, promising that the bank would increase the company's line of credit. The representative also informed the respondents that the loan had been called in and that a notice to that effect would soon be served on them. With no agreement reached after an hour, the notice was served. The bank immediately took possession of the company's assets and liquidated them in less than three hours. A few weeks later, the respondents sold their shares of the company to the company with whom they had been negotiating for $300,000. The respondents then took action against the bank in the Superior Court for $700,000, claiming that their loss was solely due to the bank's abusive conduct in the sudden possession and liquidation of the company's assets. The Court found that the bank was at fault for not having given the company enough time to meet its demand for payment and also held that this was an appropriate case to lift the corporate veil. Even though it was the company which had contracted with the bank, the company was only an intermediary between the bank and the respondents. The court maintained the action and awarded the respondents damages in the amount of $250,000 ‑‑ the difference between the real value of the shares at the time of the repossession of the company's assets and the price obtained by the respondents for their shares. The Court of Appeal affirmed the judgment and the bank was granted leave to appeal to this Court. The respondents later filed a motion requesting the additional indemnity provided for by art. 1056c C.C.L.C. The motion was filed without opposition but beyond the time limit provided for in Rule 29 of the Rules of the Supreme Court of Canada.
Held: The appeal should be dismissed.
(1) Abuse of Contractual Rights
The doctrine of abuse of contractual rights is part of Quebec civil law. The doctrine serves the important social as well as economic function of controlling the exercise of contractual rights and is consistent with today's trend towards a just and fair approach to rights and obligations. Bad faith or malice in the exercise of a contractual right is no longer the only criterion for assessing whether such a right has been abused. The standard of the prudent and reasonable individual can also form the basis for liability resulting from an abuse of contractual rights. An abuse of rights may occur when the contractual right is not exercised in a reasonable manner, i.e. in accordance with the rules of equity and fair play. The abuse of a contractual right gives rise to contractual liability. This liability is based on art. 1024 C.C.L.C. and the underlying principle of good faith in the execution of contracts. Since the abuse of a contractual right gives rise to contractual liability, it follows that only the parties to the contract may claim for the breach of that contractual obligation (art. 1023 C.C.L.C.). The fact that two parties have contracted, however, does not shield them from their extra‑contractual responsibilities to those outside the contractual sphere. In order to find delictual liability between a contracting party and a third party, there must exist, independently of the contract, a legal obligation deriving from art. 1053 C.C.L.C.
In this case, it is not contested that the bank had the contractual rights to recall the loan on demand and to realize on its security without notice. The bank exercised its right to recall the loan after a reasoned decision, based on objective economic factors, and there is no evidence that there were any extraneous considerations to that decision. While the recalling of the loan was not in itself an abuse of the bank's contractual rights, the quick liquidation of the company's assets did amount to an abuse of rights. A creditor should not realize its securities or take possession of assets before giving the debtor, depending on the circumstances of each case, a reasonable time to meet its obligations. By liquidating the assets only three hours after demanding payment of the loan, the bank effectively prevented any chance of the company's meeting its obligations. The bank acted in a sudden, impulsive, and detrimental manner, particularly considering that there was never any warning that the bank was concerned about its loan and there was only a low risk of losing money or security, at least in the short term. The respondents, however, as shareholders, were not parties to the contract between the bank and the company and, as such, had no right of action against the bank based on that contract for the abuse by the bank of a contractual right. Nor do they have a right of action based on a contract between themselves and the bank. The respondents did sign letters of surety to guarantee the loans, but they were never called upon to honour such guarantees when the bank called in its loan and liquidated the company's assets. Finally, there is no particular factor in this case which would justify the lifting of the corporate veil. Notwithstanding the "family" nature of the business, the family members chose a corporate structure rather than doing business in their own name. The sureties provided by the respondents are common in financial relations involving small corporations. By choosing the benefits of a corporate structure, the respondents must be prepared to accept the necessary consequences: a shareholder has no action against the person who causes damage to the company.
As third parties, the respondents have a claim against the bank based on delictual responsibility. The bank's impulsive repossession and liquidation of the company's assets, while fully aware of the respondents' imminent sale of their shares, was a fault entailing its liability for the ensuing direct and immediate damage caused to the shareholders. The bank had a duty to act in a prudent and diligent manner, as any individual, in order to avoid prejudice to the respondent shareholders. There is nothing in the record to indicate that the bank could not have granted a reasonable time before taking possession of the assets and liquidating them. Although the obligation to repay the loan and the right to recall it formed part of the contract between the bank and the company, no obligation of diligence towards the shareholders arose from the contract itself. Such an obligation arose from art. 1053 C.C.L.C. in light of the facts of this case. In addition to and independently of any damage the company itself may have incurred, the respondents had a direct, personal, financial interest at stake. It was the potential sale value of their shares that was damaged, a value that the respondents were on the point of enjoying personally. It was the bank's precipitous action in liquidating the company's assets that directly caused the respondents' loss. A more reasonable time period might have given the respondents the opportunity to sell their shares at the fair market value. The bank, therefore, breached its legal obligation towards the respondents under art. 1053 C.C.L.C. and must be found liable for the damage suffered by them, in the amount determined by the trial judge.
(2) Article 1056c C.C.L.C.
Respondents' failure to give the required notice is not fatal to their request for the additional indemnity provided for in art. 1056c C.C.L.C., since s. 48 of the Supreme Court Act allows for amendments whenever necessary for the purposes of the appeal. This section also indicates that such a motion may be granted even if there was error or neglect on the part of the applicant. Accordingly, s. 48 of the Act, read in conjunction with Rule 29 of the Rules of the Supreme Court of Canada, entitles this Court to grant respondents' motion, particularly since the issue was fully canvassed both in the factums and in oral argument and since no prejudice has been demonstrated. Further, while the granting of the additional indemnity is discretionary, it should be awarded where, as in this case, there is no valid reason to deny it.
Cases Cited
Referred to: Salomon v. A. Salomon and Co., [1897] A.C. 22; Boisjoli v. Goebel, [1982] C.S. 1; Colmar, May 2, 1855, D.P. 1856.2.9 (Doerr v. Keller); Brodeur v. Choinière, [1945] C.S. 334; Air‑Rimouski Ltée v. Gagnon, [1952] C.S. 149; Blais v. Giroux, [1958] C.S. 569; Laperrière v. Lemieux, [1958] R.L. 228; Quaker Oats Co. of Canada v. Côté, [1949] Que. K.B. 389; St‑Laurent v. Lapointe, [1950] Que. K.B. 229; Fiorito v. Contingency Insurance Co., [1971] C.S. 1; Noivo Automobile Inc. v. Mazda Motors Canada Ltd., [1974] C.S. 385; Latreille Automobile Ltée v. Volvo (Canada) Ltd., [1978] C.S. 191; Godbout v. Provi‑Soir Inc., [1986] R.L. 212; Equipements Select Inc. v. Banque Nationale du Canada, [1987] R.R.A. 99n; White v. Banque Nationale du Canada, [1986] R.R.A. 207n; Miville v. Québec (Ville de), J.E. 82‑609; Langlois v. Farr Inc., [1988] R.J.Q. 2682; Des Cheneaux v. Miron Inc. (1987), 20 Q.A.C. 157; Caisse populaire de Baie St‑Paul v. Simard, J.E. 85‑943; Stewart v. Standard Broadcasting Corp., J.E. 90‑75; Modernfold (Bas St‑Laurent) Ltée v. New Castle Products (Canada) Ltd., [1973] C.S. 220; National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339; Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429; Marcotte v. Assomption Cie mutuelle d'assurance‑vie, [1981] C.S. 1102; Macaulay v. Imperial Life Assurance Co. of Canada, J.E. 84‑423; Drouin v. Électrolux Canada Ltée Division de les Produits C.F.C. Ltée, [1988] R.J.Q. 950; Germain v. Sergaz Inc., J.E. 81‑334; Caisse populaire St‑Simon de Drummond v. Lalumière, J.E. 82‑1105; Carignan v. Infasco Division Ivaco Inc., J.E. 89‑286; Air Canada v. McDonnell Douglas Corp., [1989] 1 S.C.R. 1554; Wabasso Ltd. v. National Drying Machinery Co., [1981] 1 S.C.R. 578; Ross v. Dunstall (1921), 62 S.C.R. 393; Alliance Assurance Co. v. Dominion Electric Protection Co., [1970] S.C.R. 168; Bernard v. Cloutier, [1982] C.A. 289; Pole Lite Ltée v. Banque Provinciale du Canada, [1984] C.A. 170; Banque Royale du Canada v. Nettoyeur Terrebonne (1985) Inc., J.E. 88‑61; Charland v. Banque Canadienne Impériale de Commerce, J.E. 86‑142; Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., [1982] 1 S.C.R. 726; Massey v. Sladen (1868), L.R. 4 Ex. 13; Toms v. Wilson (1862), 4 B. & S. 442, 122 E.R. 524; Mister Broadloom Corp. (1968) Ltd. v. Bank of Montreal. (1979), 25 O.R. (2d) 198 (H.C.), rev'd (1983), 44 O.R. (2d) 368 (C.A.); Vicply Inc. v. Royal Bank of Canada, [1989] R.R.A. 11; Burland v. Earle, [1902] A.C. 83; Silverman v. Heaps, [1967] C.S. 536; Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2; Travelers Insurance Co. of Canada v. Corriveau, [1982] 2 S.C.R. 866; Trottier v. British American Oil Ltd., [1977] C.A. 576; Godin v. Trempe, J.E. 85‑822.
Statutes and Regulations Cited
Civil Code of Lower Canada, arts. 1023, 1024, 1040a [ad. 1964, c. 67, s. 1], 1053, 1056c [ad. 1956‑57, c. 16, s. 1; am. 1971, c. 85, s. 10], 1065, 1070, 1075, 1141, 1152.
Civil Code of Quebec [am. 1987, c. 18, s. 1], arts. 6, 7 [not yet in force].
Rules of the Supreme Court of Canada, SOR/83‑74, Rule 29(1).
Supreme Court Act, R.S.C., 1985, c. S‑26, s. 48 .
Authors Cited
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APPEAL from a judgment of the Quebec Court of Appeal, [1987] R.J.Q. 1518, 9 Q.A.C. 9, affirming a judgment of the Superior Court[1]. Appeal dismissed.
Serge Guérette and Roger Reinhardt, for the appellant.
Jean‑Yves Fortin, Richard Nadeau and Lise Beaudoin, for the respondents.
The judgment of the Court was delivered by
//L'Heureux-Dubé J.//
L'HEUREUX-DUBÉ J.--The doctrine of abuse of contractual rights has provoked controversy and confusion from its beginnings in Roman law to the present. This case provides the opportunity to deal with this doctrine that has vexed jurists, doctrinal writers, and jurisprudence for centuries, both in French and Quebec civil law.
Facts
The facts of this case are simple, yet a detailed analysis may be necessary given that any decision as to whether contractual rights have been abused must, in the end, rest on the particular facts of each case. For the moment, however, I will recite the facts essential to the understanding of what follows.
For fifty-eight years, the appellant bank had done business with Hervé Houle Limited, a company specializing in pork slaughter and the bringing to market of pork carcasses. The sole shareholders of this company were the four Houle brothers, who are the respondents before this Court. In order to modernize the factory and to allow a new orientation towards the sale of pork in pieces, the company approached the bank for financing in January of 1972.
By October 1973, the company had a rotating line of credit of
$700 000 and a letter of credit of $100 000 to guarantee the purchase of new products at the Ontario Hog Producers Marketing Board. As well, the company owed $90 000 as the balance on some temporary financing that the bank had arranged for the modernization of the company's slaughterhouse. As security for these debts, the appellant bank held the following guarantees:
1. Security under s. 88 (now s. 178) of the Bank Act, R.S.C. 1970, c. B-1;
2. The transfer of the balance of a $90 000 loan between the company and Roy Nat Ltd.; and
3. Letters of surety for $1 000 000 supplied by all the shareholders of the company (the respondents), as well as letters of surety provided by the respondents' mother and by Les Porcheries Houle Ltée, a company whose sole shareholders were the respondents.
In October 1973, the appellant bank, wanting to increase its securities, demanded a $1 000 000 trust deed on all the moveable and immoveable assets of the company. This trust deed was signed on January 29, 1974.
In December 1973, negotiations commenced between the respondents and an interested corporation, Weddel Ltd., for the purpose of the proposed sale of the respondents' shares in the company to Weddel. The respondents hoped to obtain $1 000 000 for their shares. The appellant bank was aware that these negotiations were taking place.
At the end of January 1974, the company asked the bank to increase its rotating line of credit to $900 000. This request was referred to the head office of the bank. An accounting firm was then given a mandate, by the head office, to prepare a report on the financial situation of the company. A representative of the accounting firm came to the company's office to obtain the necessary information. However, on February 19, 1974, only 20 days after the signature of the trust deed, the bank, based on the verbal report of the accounting firm's representative, took the following action: the credit committee at the bank's head office met and decided to recall the loan and realize on the guarantees. Immediately, the branch manager of the bank where the company did business was apprised of the situation and a letter of demand was drafted. It was the first time that the St-Hyacinthe branch had been informed of either the decision of the head office or that there had even been a credit investigation by an accounting firm.
One hour before the putting in default, the accounting firm's representative went to the company and attempted to obtain a further $100 000 investment from the respondent shareholders, promising that the bank would increase the line of credit by $220 000 if this was done. However, the representative also told the respondents that the loan had been recalled and that a notice to that effect would soon be served on them. It was the first time that the respondents and the company became aware that the bank intended to realize its securities. With no agreement reached after an hour, the notice was served. The bank there and then took possession of the company's assets, and liquidated them soon after. The time span from the first notification of the imminent recall of the loan to the liquidation of the assets was three hours.
It is evident that, after the liquidation of the company's assets, the respondents, sole shareholders in the company, were no longer in a strong negotiating position for the sale of their shares in the company to Weddel Ltd. The sale did, however, take place on March 14, 1974, in response to a written offer made by Weddel Ltd. one week after the liquidation of the company's assets. The price obtained by the respondents was $300 000, far less than the respondents' estimated value of their shares at the outset of the negotiations and before the liquidation of the company's assets ($1 000 000).
The respondent shareholders took action against the appellant bank in Quebec Superior Court for $700 000, being the difference between what they alleged was the real value of their shares in the company and the amount they obtained from the sale to Weddel Ltd. They claimed that this loss was solely due to the bank's abusive conduct in the sudden possession and liquidation of the company's assets.
Judgments
Superior Court (Deslongchamps J.)
The trial judge held that the appellant bank was at fault for not having given the company enough time to meet its demand for payment. As he concludes:
[TRANSLATION] Considering . . . the unexpected and sudden nature of the demand for payment, and considering that no time was allowed to respond either to the demand for payment or to [the bank's] investment requirements . . . THE COURT has to come to the conclusion that [the bank] acted wrongfully.
He further held that the appellant's good faith, necessary when executing contractual obligations, seemed doubtful given the facts of the case, and particularly [TRANSLATION] "considering the [appellant's] knowledge of the negotiations for the purchase of the "company's" shares"".
With respect to the right of action of the shareholders, the trial judge concluded that the corporation Hervé Houle Limited was only an intermediary between the appellant and the respondents, even though it was the company which had contracted with the appellant bank. He found the shareholders to be [TRANSLATION] "the people with whom it was really doing business". Although acknowledging the principle of the independent personality of companies established in Salomon v. A. Salomon and Co., [1897] A.C. 22 (H.L.), he noted that the courts have not hesitated to "lift the corporate veil" to prevent injustice. Therefore, the trial judge maintained the action of the respondent shareholders and granted them damages in the amount of $250 000, being the difference between the real value of the shares at the time in his estimation ($550 000) and the price ($300 000) obtained by the respondents for their shares.
Court of Appeal, [1987] R.J.Q. 1518 (Malouf and Nichols JJ.A., and Chevalier J. (ad hoc))
The Court of Appeal also concluded that this was an appropriate case to lift the corporate veil. There existed, in its view, [TRANSLATION] "sufficient positive indications to recognize, in equity, the existence of a legal relationship between the parties" (p. 1523). In the circumstances, given the personal sureties of the respondents as well as the request for additional investment made to the shareholders directly, the Court held that the appellant's business relations were with the shareholders as well as with the company.
The liability of the bank for the abuse of its contractual rights towards the company was found to lie in art. 1053 C.C.L.C., and the court underlined the fact that, as all members of society, a bank must act in a prudent and reasonable manner when dealing with a client. On the issue of reasonable delay, it held that [TRANSLATION] "the creditor must give his debtor a reasonable time before demanding payment and proceeding to realize on his security" (p. 1524), and that, on the facts of this case, the bank did not give its debtor a reasonable delay to allow it to either liquidate some assets to meet the debt, or to obtain other financing for the business.
With respect to the criteria for establishing an abuse of rights, Malouf J.A., after a thorough analysis of the Quebec jurisprudence, expressed the view that the criteria are not restricted to bad faith (at p. 1529):
[TRANSLATION] After considering the scholarly commentary and precedents . . ., I have come to the conclusion that the time is now right to rule that this theory [abuse of contractual rights], which is now part of Quebec law, should no longer be limited in contractual matters only to cases where the creditor reacts maliciously or mischievously or is in bad faith.
Consequently, the appeal was dismissed.
Issues and Arguments
Three issues are raised by this appeal. Firstly, what are the criteria for the abuse of contractual rights? Secondly, what is the foundation of liability for the abuse of contractual rights? Thirdly, assuming that there is an abuse of contractual rights, what are the rights of third parties? If there are any, on what basis are these third party rights grounded?
The appellant and the respondents take opposite views on each of these issues.
The appellant's arguments can be summarized in the four following propositions:
The criteria for the abuse of contractual rights should not be enlarged. In contractual matters, the only situation in which one can abuse contractual rights is where rights are exercised with the intent to harm the other party to the contract.
A contract defines how the parties may act, and thus, the notion of "reasonableness" in exercising rights cannot be imported into contractual relationships. This would involve the court's substitution of its own judgment for that of the parties and would be, in essence, an alteration of the contract, which goes against the principle of autonomy of the will.
Any abuse of a contractual right can only lead to contractual liability. If the doctrine of abuse of contractual rights is to be widened to include the unreasonable use of a contractual right, then the abuse can only be the failure to execute an implicit obligation, which can only engage responsibility between the contracting parties. Consequently, the respondent shareholders, who were not parties to the contract, had no right of action, according to the principle of relativity of contracts of art. 1023 C.C.L.C.
Finally, the corporate veil should not be lifted in favour of the respondent shareholders. The respondents, having opted for the benefits of the corporate form, must be bound by its disadvantages.
The respondents advance the following arguments:
Neither bad faith, nor an intent to harm, is a necessary element of the doctrine of abuse of contractual rights. An abuse of a contractual right occurred in the present case because the appellant bank did not conduct itself with a minimum amount of cooperation and loyalty towards the respondents' company.
There is a right of action between the respondent shareholders and the appellant bank, grounded in art. 1053 C.C.L.C., independent of any contractual relationship with the appellant. This delictual recourse is based on the appellant's alleged contractual fault in the execution of its rights under the contract.
The right of action is independent of the issue of the lifting of the corporate veil. It is a direct right of action of the respondents, as third parties, against the appellant for the breach of a general legal obligation of diligence towards the respondents.
The respondents have established fault, damage, and causality, and thus, as third parties, can exercise a quasi-delictual recourse based on the appellant's contractual fault.
In order to dispose of these issues, an overview of the evolution of the abuse of rights theory as it has developed in civil law is warranted at the outset.
Abuse of Rights
I. Historical Background
Although this historical analysis deals with abuse of both contractual and extra-contractual rights, I want to stress immediately that the present case is concerned only with the abuse of contractual rights inasmuch as such abuse causes damages to third parties, that is persons who are not parties to the alleged contract. (For a clear example of abuse of purely extra-contractual rights, see Boisjoli v. Goebel, [1982] C.S. 1, where an abuse of property rights was alleged because the construction of a sundeck threatened a neighbour's rose garden.) However, given that the abuse of contractual rights is a particular aspect of the general theory of abuse of rights, it is helpful to examine this theory in a broader perspective.
Roman law is often cited as the basis for the proposition that there can be no "abuse" of a "right", since it would not be a right (i.e. absolute entitlement) if it were subject to review for abuse. The Corpus Juris Civilis 11th ed. 1881) sets out several propositions that would lead to such a conclusion. Gaius asserts that no one is considered to commit a fraud who does what he has a right to do -- Nullus videtur dolo facere, qui suo jure utitur (Digest, 50.17.55); while Paulus is of the view that no one commits a wrong against another unless he does something which he has no right to do -- Nemo damnum facit, nisi qui id fecit, quod facere jus non habet (Digest, 50.17.151). However, a closer analysis does demonstrate that the concept of abuse of rights was, to a certain extent, accepted in Roman law. Planiol and Ripert, in their Traité pratique de droit civil français (2nd ed. 1952), t. VI, so find, at No. 573, pp. 798-99:
[TRANSLATION] While there are in the Digest formulas which, taken out of context, are such as to suggest that Roman jurists considered that a person could not be liable for damage caused to another while exercising a right, other texts show that these jurists refused to accept the use of a right so as to cause harm to another.
The well-known maxim Neque malitiis indulgendum est (Digest, 6.1.38) seems to confirm it: malice would never be permitted, even if a right were being exercised. In fact, interestingly, Gaius states that if a debtor is ready to pay and the creditor attacks the sureties instead, for the purpose of injuring his debtor, then the creditor, even though he has a right to claim from the sureties, will be liable on account of such injury (Digest, 47.10.19) As Mazeaud and Tunc, in their Traité théorique et pratique de la responsabilité civile délictuelle et contractuelle (6th ed. 1965), t. I, assert, at No. 555, p. 646:
[TRANSLATION] However, if these formulas [which appear to state that there can be no abuse of rights] are placed in their context, if one refers to Roman law as a whole, it can be seen that the idea of an abuse of right was recognized.
(See also Planiol and Ripert, op. cit., at No. 573, notes 1 and 2, p. 799; and Ch. Appleton, "Les exercices pratiques dans l'enseignement du droit romain et plan d'un cours sur l'abus des droits" (1924), 78 Revue internationale de l'enseignement 142, at p. 156.) This theory, like others derived from Roman law, made its way into French law early on.
A) Acceptance of the Abuse of Rights Doctrine
1. France
Ancient French law accepted the concept of abuse of rights (Mazeaud and Tunc, op. cit., at No. 556, p. 646). Voltaire, paraphrasing the Latin maxim Summum jus summa injuria, is quoted as saying (Josserand, De l'esprit des droits et de leur relativité (2nd ed. 1939), at p. 5):
[TRANSLATION] A right taken too far becomes an injustice.
Mazeaud and Tunc, op. cit., describe the situation in early French law as follows, at No. 556, p. 646:
[TRANSLATION] With the rebirth of Roman law, these ideas passed into our old law. The Parlements did not hesitate to punish any malicious abuse: thus on February 1, 1577 the Parlement of Aix condemned a wool carder who was singing simply in order to annoy his neighbour, a lawyer.
Domat would allow an action for abuse of rights [TRANSLATION] "as a result of injustice and chicanery by poor litigants" (Oeuvres de J. Domat (1823), vol. 4, by M. Carré, at pp. 131-32), and would also allow it with regard to property rights if exercised with an intent to harm (p. 134).
The French Civil Code did not contain any specific provision relating to the abuse of rights. However, courts soon began to apply the theory. Mazeaud and Tunc, op. cit., at No. 557, p. 647, discuss the famous decision of the Court of Colmar, May 2, 1855, D.P. 1856.2.9 (Doerr v. Keller), condemning a property owner to damages for building a false chimney with the sole purpose of [TRANSLATION] "removing almost all the daylight left in his neighbour's window". Marty and Raynaud, Droit civil: Les obligations (2nd ed. 1988), t. I, at No. 477, p. 538, comment:
[TRANSLATION] This line of authority has developed widely not only for the right of ownership but also with respect to many other rights, such as the right to bring an action or to defend an action at law and to use execution proceedings.
The evolution and application of the abuse of rights doctrine grew quickly from the beginning of the 20th century. It then became an accepted recourse in French law. The extent of that acceptance was perhaps best summarized by J. Charmont, "L'abus du droit" (1902), 1 Rev. trim. dr. civ. 113, at p. 118:
[TRANSLATION] What we cannot help being struck by in considering this question of abuse of rights is the increasing importance it tends to have in lawyers' concerns -- and the fact that it has had this position for only a short time. Ten or fifteen years ago it was barely mentioned: since then, cases of its use have multiplied; in strikes, labour unions, dismissal in contracts of employment, the right of criticism in newspapers. . . .
That application of the doctrine by the courts translated eventually into legislation as regards dilatory proceedings, the unreasonable refusal by a landlord to rent his premises, and an express limitation on a husband's right to oppose the exercise of a separate profession by his wife since it had to be justified by the family's best interests (Mazeaud and Tunc, op. cit., at No. 558, pp. 648-49).
Consequently, by the early part of the 20th century, the doctrine of abuse of rights had acquired its "letters patent of nobility" in French law. This trend appears even stronger today. One need only note the words of the
eminent French jurist, Gérard Cornu, in Droit civil (Introduction: Les personnes -- Les biens) (4th ed. 1990), where he states, at No. 147, p. 57:
[TRANSLATION] The theory of abuse of rights, of Praetorian and doctrinal origin and expressly set out in legislation in various specific areas (such as a wrongful breach by an employer of a contract of employment), is now an integral part of French positive law.
Given the established role of the abuse of rights doctrine in France, it is now appropriate to examine its evolution in Quebec.
2. Quebec
Mayrand (formerly of the Quebec Court of Appeal), one of Quebec's leading jurists, perhaps best summarized the evolution of the abuse of rights doctrine in Quebec when he noted, in "Abuse of Rights in France and Quebec" (1974), 34 La. L. Rev. 993, at p. 994:
The evolution and the spread of the theory of abuse of right has followed a similar pattern in France and in the Province of Quebec.
David Angus, in "Abuse of Rights in Contractual Matters in the Province of Quebec" (1962), 8 McGill L.J. 150, also discusses the acceptance of the abuse of rights theory at p. 152:
From time to time after 1895, various French jurists came to Quebec and spoke ardently in favor of the abuse of rights theory. As a result,