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March 2009

 INFORMATION BULLETIN

Of certain provisions of the Civil Code of Quebec

 

Can the Court interpret a clear contract?

In the presence of a clear contractual provision, the Court will have to apply that provision without attempting at giving that provision another meaning. Indeed, article 2863 of the Civil Code of Quebec provides that the parties may not, by testimony, contradict or vary the terms of a writing, unless there is a commencement of proof. Consequently, if a provision is clear and there is no commencement of proof, the Court must apply that provision as it is, on the basis that it best represents the agreement of the parties.

Even though the general approach to the Civil Code is to ensure that the real and true intent of the parties should prevail, the Courts have recognized that the clear provision of a juridical act is to be enforced, as being a clear demonstration of the intent of the parties.

If however one of the parties has, either by a subsequent behavior, by testimony or by any other element of proof, given reasons to believe that the provision does not have the meaning it appears to have, article 2865 will then apply and the commencement of proof will be used to try and identify the real common intent of the parties concerning that provision.

The Court of Appeal of Quebec was seized with a matter concerning the application of articles 2863 and 2865 of the Civil Code of Quebec (Rémillard c. Coopérative Fédérée de Quebec). In that case, the Rémillards owned one-half of the shares of a fertilizer company, the other half belonging to Coopérative Fédérée de Quebec. A provision of the shareholders agreement granted the Rémillards a right to sell their shares to Coopérative Fédérée de Quebec at any time, at a price to be calculated according to a certain formula. Coopérative Fédérée de Quebec alleged that the application of that formula, although clear, would lead to absurd results and that it did not represent the true and common intent of the parties.

Coopérative Fédérée de Quebec acknowledged that the provision was clear as well as the result of such formula. However, it alleged that, by various acts or testimonies, by behaviors or attitudes, the Rémillards had given rise to a commencement of proof that would allow the presentation of testimony to establish a joint intention of the parties other than the clear wording of the provision.

The first instance Judge and the three Court of appeal Judges concluded that:

1.  the financial result obtained from the application of the formula was not absurd, all to the contrary;

2.  the provision of the shareholders agreement was clear and unambiguous;

3.  the elements raised by Coopérative Fédérée de Quebec on commencement of proof were not founded and did not allow the Court to seek a meaning to the provision that would be different from the clear and unambiguous reading of the provision.

The contentions of Coopérative Fédérée de Quebec were rejected unanimously.

This decision confirms the real interpretation of article 2863 of the Civil Code of Quebec. Notwithstanding various decisions of the Supreme court of Canada and the Court of Appeal of Quebec opening the door to interpretation of contractual provisions, it has been and now is clearly determined that such interpretation will only take place if the provision is ambiguous or there is a commencement of proof.

It is possible to consult the originals of those judgments through the following links: 
Rémillard - Superior court and Rémillard - Court of Appeal.

                                                           


Formal demand to one debtor bound severally with others

In the framework of its business activities, it is frequent for a company to grant lenders not only suretyship on its assets but also arrange for the shareholders to give joint and several guarantees.

It is also frequent that, later on, one of the guarantors either withdraws from the active operation of the business or does not keep a close eye on the operations of the business.

If the lender sues the borrower, one would expect that all guarantors be notified by the lender.

However, it is not what the Civil Code of Quebec provides. Indeed, article 1599 of the Code provides that a formal demand addressed to one of the debtors that are severally bound automatically constitutes notification to all other such debtors.

This principle was confirmed in Soris c. Tremblay (judgment of the Honorable Pierre Béliveau, J.C.S.).

It is consequently important that each person signing as several guarantor closely follows the evolution of the loan in order not to find himself in a post facto situation where, without his knowledge, he would have to pay the debt while not having been able to intervene timely.

However, under article 2345 of the Civil Code of Quebec, the lender must give the guarantor, upon the guarantor’s demand, all information on the obligation of the borrower which has been thus guaranteed. If a guarantor seeks that information from a financial institution, the financial institution must provide the information in a reasonable delay. Unfortunately, articles 1599 and 2345 of the Civil Code of Quebec appear to be either unknown to or disregarded by both lenders and guarantors.
 
It is possible to consult the original of said judgment through the following link:
Soris - Superior court.


March 2009




This bulletin is intended as a general information instrument and is not to be considered as a legal advice or opinion on any of the issues raised