CASE COMMENTS
CHRONIQUES DE JURISPRUDENCE
Banque Nationale du Canada v. Houle (S.C.C.):
Implications of an Expanded Doctrine of Abuse of Rights
in Civilian Contract Law
Rosalie Jukier*
Introduction
If one were asked to list rapidly developing areas of Quebec civil law, one
would surely include the doctrine of abuse of rights in contractual matters. It
was only twenty-five years ago that Professor Cr~peau expressed the hope that
art. 1024 C.C.L.C.,’ with its reference to equity, could be used as a generally
applicable mechanism for controlling abusive exercises of contractual power:
On pourrait, croyons-nous, lui [article 1024 C.C.LC.] r6server un r6le plus
utile et ffcond dans l’laboration d’une th~orie de l’abus des droits contractuels
tout comme l’article 1053 du Code civil sert aujourd’hui de fondement 4 la thforie
de rabus des droits sur le plan extracontractuel.2
It was only in 1971 that the Quebec Superior Court in Fiorito v. Contin-
gency Insurance Co.’ recognized that the theory of abuse of rights could encom-
pass contractual rights, thereby mitigating the absolutist view of contracts. The
absolutist view of contracts dictates that the holder of a contractual right cannot
be held to have abused that right as long as its exercise falls within the strict
terms enunciated in the contract, no matter how unreasonable the exercise of the
right may be.4 The Fiorito decision marked the beginning of an era of judicial
*Assistant Professor, Faculty of Law, McGill University. I would like to thank Professor
Stephen Toope for his helpful comments on an earlier draft of this paper. I would also like to
acknowledge the help of my research assistant, Rhonda Yarin, who was hired under a research
grant from the Wainwright Trust of the Faculty of Law, McGill University.
McGill Law Journal 1992
Revue de droit de McGill
To be cited as: (1992) 37 McGill LJ. 221
Mode de citation: (1992) 37 R.D. McGill 221
‘Art. 1024 C.CLC. reads: “The obligation of a contract extends not only to what is expressed
in it, but also to all the consequences which, by equity, usage or law, are incident to the contract,
according to its nature” (emphasis added).
2P.-A. Crfpeau, “Le contenu obligationnel d’un contrat” (1965) 43 Can. Bar Rev. 1 at 24.
3[1971] C.S. I [hereinafter Fiorito].
4According to G. Ripert, La rbgle morale dans les obligations civiles, 4th ed. (Paris: L.G.D.J.,
1949) at 159, it is only the malicious exercise of a contractual right that can lead to abuse of rights.
Any other exercise of that right, no matter how unreasonable on the part of the creditor must be
McGILL LAW JOURNAL
[Vol. 37
recognition that the absolutist view of contracts and the sacrosanct nature of
contractual obligations could be tempered by the notion that abusive or unrea-
sonable exercises of contractual rights would not be tolerated.
In the last twenty years, a wealth of jurisprudence and doctrinal articles has
appeared on the subject.’ Of particular interest is the most current discussion on
abuse of contractual rights in an article by Professor P.-G. Jobin entitled
“Grands pas et faux pas de 1’abus de droit contractuel.”6 The recent Supreme
Court decision in Banque Nationale du Canada v. Houle,7 delivered for the
Court by L’Heureux-Dub6 J., firmly and indelibly entrenches the doctrine of
abuse of rights into Quebec contract law.
I. Facts of the Houle Case
Four Houle brothers were the sole shareholders of Herv6 Houle Limited
(“Company”), a corporation specializing in the slaughter and sale of pork. In
January of 1972, the Company approached the National Bank of Canada
(“Bank”), with which it had done business for fifty-eight years, in order to
obtain additional credit to finance the modernization of its factory. By October
of 1973, the Company had obtained from the Bank a rotating line of credit in
the amount of $700 000 and a letter of credit of $100 000 secured by Bank Act
security, letters of personal surety signed by the Houle brothers and other family
members and, at a later date, a trust deed. It is to be noted that all loans to the
Company were demand loans which, by the strict terms of the contract, con-
tained no specific requirement of notice before a loan could be called.
In December of 1973, with the Bank’s full knowledge, negotiations com-
menced between the Houle brothers and an interested corporation for the sale
of the shares of the Company. The brothers hoped to obtain a $1 000 000 pur-
chase price.
tolerated. See also the discussion of the absolutist view of rights in P.-G. Jobin, “Grands pas et faux
pas de l’abus de droit contractuel” (1991) 32 C. de D. 153 at 156.
5See, most notably, J.-L. Baudouin, “Contrat – Application de la th~orie de I’abus de droit en
matires contractuelles” (1971) 31 R. du B. 335; A. Mayrand, “L’abus des droits en France et au
Qu6bec” (1974) 9 R.J.T. 321; R. Soucy, “ttude sur les abus de droit,” [1979] R.L. 1; E. Colas, “La
notion d’6quit6 dans l’interpr6tation des contrats” (1981) 83 R. du N. 391; R. Demers, “L’obliga-
tion de bonne foi du cr6ancier face h l’entreprise en difficult6 en droit qu6bcois et canadien”
(1981) 22 C. de D. 561; J.-F. Desbiens, “L’abus de droit en mati&e contractuelle au Quebec”
(1987) 1 R.J.E.L. 81. See also an article written before the notion of abuse of contractual rights
developed in the courts: D. Angus, “Abuse of Rights in Contractual Matters in the Province of
Quebec” (1962) 8 McGill L.J. 150.
6Supra, note 4.
7[1990] 3 S.C.R. 122, 74 D.L.R. (4th) 577, [1990] R.R.A. 883 [hereinafter Houle cited to
S.C.R.].
1992]
CASE COMMENTS
At the end of January 1974, while these negotiations were still taking
place, the Company requested an increase in its rotating line of credit to
$900 000. Unbeknownst to the Company’s shareholders, the reaction of the
Bank’s head office was to commission an accounting firm to prepare a report
on the financial situation of the Company. On February 19, 1974, the Bank,
based on the verbal report of the accounting firm, took the following actions
which were at the heart of the litigation between the parties:
1. the Bank’s head office decided to recall the loans immediately and realize on
its guarantees;
2. immediately thereafter, the local branch of the Bank demanded repayment of
the loans from the Company, giving no notice period to the Company to effect
such repayment;
3. only three hours later, the Bank took possession of the Company’s assets and
proceeded to liquidate them in order to realize on its security.
The result of the Bank’s precipitous actions was to impair significantly the
bargaining position of the shareholders with regard to the proposed sale of the
Company. On March 14, 1974, one week after the Bank stepped in to realize on
its security, the Company was sold to the corporation with whom negotiations
had previously taken place for only $300 000.
The shareholders sued the Bank for damages representing the difference
between the purchase price they obtained for the Company’s shares and the
price they alleged they could have obtained had the Bank not acted abusively
in the manner in which it had called the loan and realized on its security. The
fact that it was the shareholders, and not the Company with whom the Bank had
contractual relations, who launched the action was a complicating factor. The
reasons for this were obvious. By the time any legal action was contemplated,
the Company had been sold. The only parties still interested in legal action were
the individual shareholders who wanted redress for what they felt was an inad-
equate purchase price for the sale of the Company’s shares.
The Courts, at all three levels,’ were unanimous in their condemnation of
the Bank’s behaviour. The Bank was uniformly criticized for demanding repay-
ment of the loans suddenly and without prior notice and, in particular, for real-
izing on the securities without giving the Company any time to attempt
repayment.
Both the Superior Court and the Court of Appeal held that the Bank had
abused its rights contained in the loan contracts and that as a result, the share-
SThe Superior Court decision of Deslongchamps J. is unreported: (16 May 1983), Montreal
500-05-013683-758. The Court of Appeal decision of Malouf . is reported in [1987] R.J.Q. 1518.
The Supreme Court decision of L’Heureux-Dub6 J. was rendered on November 22, 1990 (ibid.).
REVUE DE DROIT DE McGILL
[Vol. 37
holders of the Company were entitled to $250 000 in damages representing the
difference in the purchase price actually received ($300 000) and the evaluated
worth of the Company’s shares at the date of liquidation ($550 000). The
Supreme Court affirmed this damage award and added the additional indemnity
of interest pursuant to article 1056c C.C.L.C.
While the actual damages awarded remained virtually identical in all three
courts, the juridical bases of the decisions, particularly those of the Court of
Appeal and Supreme Court, differ in substance, meriting more detailed analysis.
II. The Court of Appeal Decision
The Court of Appeal decision is very important for both corporate law and
civil law contracts, and has been the subject of several commentaries.’ It has
been celebrated as breaking “new ground with the expansion of the notion of
abuse of rights”‘” and applauded for no longer requiring proof of “la mauvaise
foi, la malice ou l’intention de nuire”” to make out a case of abuse of rights.
At the same time, it has not escaped criticism regarding the corporate law aspect
of the decision –
namely the Court’s finding of the appropriateness of piercing
the corporate veil so that the individual shareholders could sue the Bank directly
in damages.’ 2
In the Court of Appeal, Malouf J. did indeed face these two problems head
on. Confronting first the issue of interest to sue, and the traditional impenetra-
bility of the corporate veil, Malouf J. held that despite the notion of distinct per-
sonality enunciated in the celebrated Salomon decision, 3 this was a case in
which it would be just to pierce the corporate veil. 4 The family nature of the
business, the personal suretyships required by the Bank and the inequity which
would have resulted had the corporate veil not been pierced led Malouf J. to
9P. Martel, “L’arr&t Banque Nationale du Canada c. Houle: Lumires nouvelles sur rabus de
droit et le
3 National Creditor/Debtor Rev. 41; C. Vennat, “Commentaire d’arr&: Banque Nationale du Can-
ada c. Houle” (1988) 22 R.J.T. 387.
porate veil, see J.W. Durnford, “The Corporate Veil in Tax Law” (1979) 27 Can. Tax J. 281.
‘Scassa, ibid. at 43.
“Martel, supra, note 9 at 217. A small sampling of cases rendered before the Court of Appeal
decision in Houle which required proof of malice are: Banque Provinciale du Canada v. Martel,
[1959] B.R. 278; Sarvey Inc. v. B.C.N., [1981] C.S. 1122; Automobiles de Montrial-Ouest Inc. v.
General Motors du Canada Lte, [1986] R.J.Q. 1431 (C.S.); White v. Banque Nationale du Can-
ada, [1986] R.R.A. 207 (C.S.); Faule v. Sun Life du Canada (28 March 1984), Terrebonne
700-05-001272-792, J.E. 84-363 (C.S.); Equipements S9lect Inc v. Banque Nationale du Canada,
[1987] R.R.A. 99 (C.S.).
12Scassa, supra, note 9 at 43.
13Salomon v. A. Salomon and Co., [1897] A.C. 22, [1895-9] All E.R. 33 (P.C.) [hereinafter
4For a detailed discussion of the Salomon decision and an analysis on the piercing of the cor-
Salomon].
1992]
CHRONIQUES DE JURISPRUDENCE
allow the individual shareholders to sue the Bank directly, even though the
actions of the Bank caused damage to the Company with whom it had contrac-
tual dealings and not to the individual shareholders. This holding has led one
commentator to assert that “this type of reasoning does much to undermine the
traditional notion of the separation of identities of the company and its share-
holders.”‘” Even a commentator who argued that the Court properly lifted the
corporate veil in order to correct an unfair situation admitted that:
[L]a d6cision … a 6t6 largement motiv6e par un souci d’6quit6 plutat que par une
stricte application des principes de droit corporatif. 16
The second aspect of the decision related to the scope of the doctrine of
contractual rights. Malouf J. held that a delictual fault, actionable under art.
1053 C.C.L.C., had been committed by the Bank against the shareholders.
Despite the absence of any requirement in the contract between the Bank and
the Company to give the latter a reasonable time for repayment of the loans, an
abuse of the Bank’s contractual rights had been committed: the Bank had acted
unreasonably and unjustifiably by calling the loans suddenly and without notice,
and by then proceeding to liquidate the Company within three hours. Despite
the absence of malice or intention to harm, the Court of Appeal held that such
actions fell within the general notion of fault pursuant to art. 1053 C.C.L.C.,
according to which the abuse of rights should be judged. In the words of the
Court, this gave the notion of abuse of rights a new dimension, adding to its tra-
ditional role of protecting against the malicious exercise of rights.17
While art. 1024 C. C.L. C. was referred to in Malouf J.’s judgment, the gist
of his decision was that “[1]’abus de droit en mati~re contractuelle constitue une
faute d6lictuelle.”‘ 8 As such, the source of the fault which is committed in abus-
ing a contractual right seems to be delictual and not contractual.
M. The Supreme Court Decision
Despite an almost identical result in the Supreme Court of Canada, L’Heu-
reux Dub6 J.’s reasoning differs substantially from that of Malouf J. in the Court
of Appeal, with major implications for both corporate law and contract law.
Whereas the lower courts were prepared to pierce the corporate veil in
order to create a lien de droit between the individual shareholders and the Bank,
the Supreme Court was not inclined to overturn a long line of corporate law
precedents beginning with Salomon, and was not prepared to undermine the
concept of distinct legal personality. According to L’Heureux-Dub6 J.,
‘5Scassa, supra, note 9 at 42.
16Martel, supra, note 9 at 222.
7Supra, note 8 at 1529.
‘8lbid at 1527.
McGILL LAW JOURNAL
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[t]here would be no value to the corporate structure if whoever does business with
a corporation would at the same time become liable not only to the company but
also to every shareholder for any damage that may be caused to the company. 19
As such, the shareholders had no direct right of action against the Bank based
on the contract itself.
Given the criticism that had been directed against the lower court decisions
on this matter, this aspect of the Supreme Court decision will likely be a wel-
come addition to corporate law jurisprudence regarding the limits on a court’s
ability to pierce the corporate veil especially where, as in this case, the share-
holders themselves had chosen the corporate structure. The following statement
by L’Heureux-Dub6 J. makes eminent sense: “by choosing the benefits of this
business structure, individuals must be prepared to accept the necessary conse-
quences.”‘ Nevertheless, the Court found an alternative basis for a finding in
favour of the shareholders.1
The most important implications of the Supreme Court decision, however,
relate to the doctrine of abuse of rights in contractual matters. It is here that
L’Heureux-Dub6 J. seizes the opportunity to enunciate clear legal principles
regarding the state of the law on this subject, as well as the juridical basis of the
doctrine of abuse of rights.
While it may already seem trite in 1992 to say that the Supreme Court has
firmly entrenched the doctrine of abuse of rights into Quebec contract law, one
need only consider the relative youth of this doctrine in Quebec and the uncer-
tainty regarding the extent of its applicability’
to appreciate the significance of
a decision of the final court of appeal on this matter. The importance is under-
lined by the fact that Quebec law is still being interpreted and developed by a
judiciary whose general philosophical standpoint continues to reflect notions of
autonomy of the will and the sacrosanct nature of contractual obligations.’ The
concept of abuse of rights clearly clashes with the doctrine of autonomy of the
will, a doctrine which calls for the courts to be bound by the subjective will of
the parties as evidenced in their contractual agreement. According to Soucy:
lorsqu’en effet on invoque la thdorie de rabus de droit c’est afin de restreindre le
domaine de la libert6 contractuelle et de limiter l’autonomie de ]a volont6 qui dtait
auparavant un champ sacro-saint oti le consensualisme r6gnait en maitre.24
19Supra, note 7 at 179.
20IbidL at 178.
21See text accompanying notes 36-39.
22In particular, whether malice or intent to harm are necessary ingredients of an abuse of rights
or whether mere unreasonableness will suffice.
23See discussion infra, notes 68-75 and accompanying text.
24Supra, note 5 at 71.
1992]
CASE COMMENTS
L’Heureux-Dub6 J. makes it clear in her judgment that the autonomy of the will
theory will not stand in the way of an expanded doctrine of abuse of rights:
[t]he doctrine of abuse of contractual rights today serves the important social as
well as economic function of a necessary control over the exercise of contractual
rights. While the doctrine may represent a departure from the absolutist approach
of previous decades, consecrated in the well-known maxim “la volont6 des parties
fait loi” (the intent of the parties is the governing factor), it inserts itself into
today’s trend towards a just and fair approach to rights and obligations …2
The following categoric assertion leaves little doubt about the status of the doc-
trine in contemporary civil law: “If this doctrine were not already part of Que-
bec civil law, there should be no hesitation to adopt it.”26
Another very important aspect of the Supreme Court decision in Houle is
the affirmation of Malouf J.’s expansion of the doctrine of abuse of rights to
encompass not only malicious and intentionally harmful exercises of contractual
rights, but unreasonable exercises of such rights as well. L’Heureux-Dub
J.
explicitly rejects the previous limitations that had been placed on the doctrine:
In accordance with the evolution of the Quebec doctrine and jurisprudence on
this issue, the time has come to assert that malice or the absence of good faith
should no longer be the exclusive criteria to assess whether a contractual right has
been abused. … there can no longer be a debate in Quebec law that the less strin-
gent standard of “the reasonable exercise” of a right, the conduct of the prudent
and reasonable individual, as opposed to the more stringent test of malice and the
absence of good faith, can ground liability resulting from an abuse of contractual
rights.27
Although the concept of enlarging the ambit of abuse of rights so as to
encompass unreasonableness in addition to malice and intentional bad faith is
not novel, it is important to stress the value of having it stated authoritatively
by the Supreme Court. Before the expansion of the abuse of rights doctrine in
the Court of Appeal decision in Houle, there was great uncertainty in Quebec
jurisprudence over the standard of behaviour required for a finding of an abuse
of a contractual right.2 And, despite Malouf J.’s expansion of the notion of
abuse of rights in his 1987 Court of Appeal decision, Quebec courts continued
to vacillate between the requirements of malice on the one hand, and unreason-
25Supra, note 7 at 145.
261bid. at 146.
27Ibid. at 154-55.
28For a sampling of cases rendered before the Court of Appeal decision in Houle which required
malice see supra, note 11.
A small sampling of cases rendered before the Court of Appeal decision in Houle which did not
require malice are: Pole Lite Lte v. Banque Provinciale du Canada, [1984] C.A. 170; Gignac v.
Radio Future LtDe, [1986] R.J.Q. 866 (C.S.); Caisse Populaire de Baie St.-Paul v. Simard (9 Sep-
tember 1985), Saguenay (La Malbaie) 240-05-000043-845, J.E. 85-943 (C.S.), appeal desisted (19
June 1986), Quebec 200-09-000701-851 (C.A.).
REVUE DE DROIT DE McGILL
[Vol. 37
ableness on the other. For example, in the 1988 Court of Appeal decision in
Nikolopoulos v. Cie Trust Royal, Lebel J. asserted that despite the recent pro-
nouncement of the Court of Appeal in Houle, bad faith was required before the
plea of abuse of a contractual right could be upheld:
Cependant, dans un cas comme celui-ci, sans qu’il soit besoin de r~examiner
toutes les formes possibles de l’abus de droit, il fallait retrouver un 616ment de
mauvaisefoi dans le comportement des appelants pour 6tablir que leur but prin-
cipal 6tait d’6viter le paiement de ]a commission de l’intimfe. La ddmonstration
du caractare intentionnel de 1’abus de droit dtait essentielle pour soutenir les inoy-
ens de plaidoirie des intimds.29
The Supreme Court decision in Houle injects certainty into this area of the
law by enunciating clearly that the standard of behaviour required of contracting
parties in the exercise of their contractual rights is reasonableness. This repre-
sents a clear rejection of the absolutist view of contracts which would limit judi-
cial intervention to cases of malice and bad faith.
Where the Supreme Court and Court of Appeal part ways is with respect
to the foundation of the doctrine and the nature of the liability that results from
the abuse of a contractual right. The Court of Appeal in Houle established delic-
tual liability on the part of the Bank for its unreasonable actions regarding the
exercise of its contractual rights.
Elle [the Bank] a commis une faute et cette faute constitue un dflit donnant droit
t rdparation en vertu de l’article 1053 du Code civil.30
The delictual fault lay in the Bank’s failure to act as an ordinarily prudent per-
son by not allowing the debtor a reasonable time for repayment.
Malouf J. is entirely correct in his assertion that the existence of contrac-
tual relations does not preclude delictual liability as long as the fault committed
by the contracting party would, in the absence of contractual dealings, constitute
a delict.31 It is regrettable, however, that although Malouf J. did cite art. 1024
C.C.L. C. in his judgment, he did not seize upon it as the contractual foundation
of the doctrine of abuse of rights. As Scassa, in her comment on the Court of
Appeal decision stated: “The Court, however, steered the discussion away from
any concept of an implied contractual term.”’32
Article 1024 C. C.L. C. tells us that obligations can be implied into contracts
by various means, one of which is “equity.” In the celebrated decision of Ban-
29(7 March 1988), Montreal 500-09-000697-847, J.E. 88-521 (C.A.) at 2 of Lebel J.’s judgment
(emphasis added).
30Supra, note 8 at 1529.
311bid. at 1527. See Wabasso v. National Drying Machinery Co., [1981] 1 S.C.R. 578, 38 N.R.
224 [hereinafter Wabasso], and Air Canada v. McDonnell Douglas Corp., [1989] 1 S.C.R. 1554
[hereinafter Air Canada].
32Supra, note 9 at 43.
1992]
CHRONIQUES DE JURISPRUDENCE
que Canadienne Nationale v. Soucisse,33 the Supreme Court of Canada asserted
that this notion of equity imports a duty of good faith in the performance of con-
tractual obligations. When a creditor abuses a contractual right by exercising it
in an unreasonable and harmful fashion, there occurs a breach of the duty of
good faith performance implied into all contracts by art. 1024 C. C.L. C. It does
not require a quantum leap to then assert that this contractual breach affords the
basis of the general theory of abuse of rights in contractual matters.
Doctrinal writers have long asserted that the foundation of liability for
abuse of contractual rights lies in contract and not delict. 4 Quebec courts, on the
other hand, have vacillated between imposing contractual and delictual respon-
sibility in cases where a contracting party abused his or her rights.35 L’Heureux-
Dub6 J. specifies that the foundation of the doctrine is contractual,
since implicitly, in every contract, according to the civil law, parties undertake to
act in the prudent and diligent manner of a reasonable individual and within the
confines of fair play when exercising their contractual rights. If this implicit obli-
gation is breached, then contractual liability is engaged with regard to the other
contracting party.36
While thus far the Supreme Court judgment in Houle seems a model of
clarity, the decision in favour of the plaintiffs seems surprising when one com-
bines the finding of contractual liabilty for an abuse of a contractual right with
the finding that a piercing of the corporate veil was unjustified in the circum-
stances of the individual case. Had the Company, which was a contracting party,
taken the action against the Bank for abuse of rights, the liability of the Bank
would certainly have been contractual. Given, however, that the Company itself
was not involved in the litigation and that the shareholder-plaintiffs were held
not to be entitled to pierce the corporate veil and step into the Company’s shoes,
the shareholders’ action seems, at first glance, unsustainable by the very reason-
ing of the Supreme Court. It is at this stage that the Court introduces a novel
aspect to the Houle case so as to create a basis of recovery for the individual
33[1981] 2 S.C.R. 339 [hereinafter Soucisse]. Although there is no explicit duty of good faith
performance in the Civil Code in force in Quebec, as there is, for example, in Art. 1134 of the
French Code civil or s. 242 of the German Civil Code, the judiciary has created such an obligation
in Quebec civil law. See text accompanying note 57 for a discussion of the facts of Soucisse.
Jobin, supra, note 4 at 163.
34Mayrand, supra, note 5 at 336; Crpeau, supra, note 2 at 24; Baudouin, supra, note 5 at 335;
35Cases imposing delictual liability include: Banque Nationale du Canada v. Houle (C.A.),
supra, note 8; Lefran~ois v. Crane Canada Inc. (28 March 1988), Montreal 500-05-005768-856,
D.T.E. 88T-574 (C.S.); Stewart v. Standard Broadcasting Corp. (21 September 1989), Montreal
500-05-008666-875, J.E. 90-75 (C.S.).
Cases imposing a contractual basis for liability include: Marcotte v. Assomption Cie Mutuelle
d’assurance-vie, [1981] C.S. 1102; Macaulay v. Imperial Life Assurance Company of Canada (19
April 1984), Montreal 500-05-015231-804, J.E. 84-423 (C.S.); Drouin v. Electrolux Canada LtDe,
[19881 R.J.Q. 950 (C.A.).
136Supra, note 7 at 164.
McGILL LAW JOURNAL
[Vol. 37
shareholders without compromising the theoretical holdings of the decision. In
order to find liability on the part of the Bank against the non-contracting share-
holders, L’Heureux-Dub6 J. held that the contractual breach committed by the
Bank against the Company constituted an independent fault, actionable under
art. 1053 C.C.L.C., vis &t vis the shareholders.
The breach of a contractual obligation ordinarily leads to contractual liabil-
ity towards the co-contractant. But the Supreme Court, in the cases of Wabasso3″
and Air Canada38 held that a contractual breach may, in the alternative, lead to
delictual liability towards the co-contractant. Finally, the same contractual
breach may entail the delictual liability of the contracting party who has com-
mitted the breach against third parties who are strangers to the contract. The fact
that a contracting party may commit a delict against a third party through the
breach of a contractual obligation allowed the Supreme Court in Houle both to
anchor the doctrine of abuse of rights in contract and to find liability on the part
of the Bank in relation to the shareholder-plaintiffs, who were strangers to the
contract.
There is ample authority in Quebec law to support the imposition of delic-
tual liability under art. 1053 C.C.L.C. where the fault committed has, as its ori-
gin, a breach of a contractual obligation.39 It should be noted, however, that the
contractual breach which gave rise to the delict vis a vis the third parties in this
case was not the breach of an explicit contractual obligation but an implicit one,
imposed by the court, ex post facto, pursuant to art. 1024 C.C.L.C.
This aspect of the decision demonstrates how far-reaching the conse-
quences of a doctrine of abuse of contractual rights can be. Not only can it cre-
ate contractual liability for a party who exercises an explicit contractual right
unreasonably, albeit within the letter of the contract, it can also give rise to that
party’s delictual liability towards persons outside the contract. It is not difficult
to imagine that the majority of contracting parties would be surprised, not to say
aghast, at the prospect of being delictually liable towards strangers to the con-
tract, in addition to their co-contractant, for doing something their contract
states explictly they may do.
IV. A Comparison with the Common Law
In asserting that a creditor must give reasonable notice before requiring
payment of a demand loan, or else be liable in damages for abusing his or her
contractual rights, L’Heureux-Dub6 J. made explicit reference to the Supreme
37Supra, note 31.
38Ibid.
39See, for example, Alliance Assurance Co. v. Dominion Electric Protection Co., [1967] C.B.R.
767, aff’d [1970] S.C.R. 168; Placements Miracle v. Larose, [1978] C.S. 318; Caisse Populaire
De Charlesbourg v. Michaud, [1990] R.R.A. 531 (C.A.).
19921
CASE COMMENTS
Court decision of Lister v. Dunlop,4″ a decision emanating from the province of
Ontario and reflecting the common law position of the requirement of reason-
able notice. While it may be comforting to know that uniform results are
achieved in all parts of Canada on a given legal issue, it is submitted that this
is one area of the law where resort to the common law is neither necessary nor
warranted. First, there is eminent civilian authority on abuse of rights in both
France and Quebec.4 There is, as well, an explicit codal basis in art. 1024
C. C.L. C. to support the doctrine of abuse of contractual rights. While it may be
worth mentioning, as indeed l’Heureux-Dub6 J. did, that the application of
abuse of rights in contractual matters produces the same result as that in the
common law, Lister should be reserved for comparative interest only and cannot
constitute supporting authority for the Houle decision without invading an area
of civil law already rich in theory and precedent.
A second reason why a civilian court should not rely on Lister as support
for a doctrine of abuse of contractual rights is that while it is hailed as a very
important Supreme Court decision and has been followed in many subsequent
cases,42 it fails to enunciate, at least explicitly, any general underlying theory
which can support the decision and transform the holding into a broad propo-
sition applicable to contract law in general.
In Lister, Estey J. held that even in a demand loan, reasonable notice to
repay must be given to the debtor. Unlike L’Heureux-Dub6 J. in Houle, how-
ever, Estey J. did not attempt to relate the decision to any general contract prin-
ciple such as good faith or abuse of rights. The result is that although common
law Canada has maintained the reasonable notice requirement in contracts of
loan since 1982, there is no unanimity regarding a general underlying theory of
good faith or abuse of rights which can support the result achieved in Lister.
While it has taken almost ten years for the Supreme Court to enunciate a similar
proposition with respect to a reasonable notice requirement in contracts of loan
in the civil law, civilian lawyers are better off with the reasoning in Houle
because the case does more than simply create a precedent limited to the behav-
iour required of creditors recalling loans. Rather, it seeks to establish a general
theory of abuse of contractual rights dictating the parameters of the exercise of
all contractual rights by creditors and the extent to which the judiciary can inter-
vene in the sacrosanct arena of subjective rights.
40[1982] 1 S.C.R. 726, 135 D.L.R. (3d) 1 [hereinafter Lister cited to S.C.R]. Several Quebec
abuse of rights cases have done so as well. See, for example, Caisse Populaire de Baie St.-Paul
v. Simard, supra, note 28, where the court stated at 7 that art. 1024 C.C.L.C. is the civil law equi-
valent to the rule of reasonable delay as provided in Lister, ibid.
41Supra, note 5.
42See, for example, Mister Broadloom Corp. (1968) Ltd v. Bank of Montreal (1984), 44 O.R.
(2d) 368 (C.A.); Kavcar Investments Ltd v. Aetna Financial Services Ltd (1989), 70 O.R. (2d) 225
(C.A.); Bank of Nova Scotia v. Dunphy Leasing Enterprises Ltd (1990), 105 A.R. 161 (Q.13.) [here-
inafter Dunphy].
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After the Supreme Court decision in Houle, it cannot be disputed that in
Quebec, there is a limit on the exercise of contractual rights and that liability
will be imposed if a creditor exercises those rights within the letter of the con-
tract but in a manner which is unreasonable and causes harm to the debtor. The
common law of contract in the rest of Canada is far from evidencing a similar
consensus. While certain case law and some authors have attempted to rational-
ize Lister on the basis of a duty of good faith,43 it cannot be said with any cer-
tainty that such a duty presently exists in the Canadian common law of con-
tracts. One need only look to Professor Waddams’ oft-cited textbook on contract
law to appreciate the lack of such a general theory in common law Canada.
A word must be said at this point about the concepts of “good faith in per-
formance” and “abuse of rights.” It is always difficult to oppose so attractive
sounding a concept as “good faith” or to favour anything so unpleasant as an
“abuse.” But the concept of “abuse of rights” raises difficult conceptual problems.
If we prohibit A from exercising a right on the ground that its exercise is an
“abuse” is it not more accurate to say that A has no right, or that it does not apply
in the circumstances? In the contractual context, good faith is … a relevant factor
in determining the true meaning of the parties’ agreement. When that has been
determined the agreement can be tested for unconscionability, but if it passes that
test it seems doubtful that there is any further scope for a doctrine of good faith
in performance.44
Professor Bridge echoes this view: “it is probably accurate to say that our con-
tract law contains little more than intermittent, discrete and superficial refer-
ences to a good faith standard of behaviour.”4 Even Professor Belobaba, who
argues that Anglo-Canadian law does have a de facto doctrine of good faith,
asserts that “[tihe judicial recognition of an independent doctrine of good faith
is long overdue.” 46 The preceding quotes illustrate that the common law has not,
at least explicitly, progressed from the absolutist view of contractual obligations
reminiscent of Ripert.47 In the area of abuse of contractual rights,4 the civil law
in France and Quebec has now abandoned that concept of contracts and evolved
43In Dunphy, ibid., Power L stated that: “[t]he essence of the decision by the Supreme Court in
Lister v. Dunlop is that lenders must act in good faith and give bona fide consideration to the
requirement of reasonable notice” (ibid. at 211). In “The Duty to Act in Good Faith, Tort and Fidu-
ciary Liabilities” (1990) 5 National Creditor/Debtor Rev. 53 at 60, D.G. Cowper stated that: “an
implied duty to give notice of default under a lending agreement represents a partial acceptance
of the same doctrine [of good faith] in substance if not in name.”
44S.M. Waddams, The Law of Contracts, 2nd ed. (Toronto: Canada Law Book, 1984) at 404.
45M.G. Bridge, “Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?” (1984)
9 Can. Bus. Li. 385 at 385.
46E.P. Belobaba, “Good Faith in Canadian Contract Law” in Special Lectures of the Law Society
of Upper Canada, Commercial Law: Recent Developments and Emerging Trends (Toronto: De
Boo, 1985) 73 at 91.
47Supra, note 4.
4But, as will be seen later in this comment, the absolutist view of contracts has not been aban-
doned in other areas of Quebec civil law, such as lesion and imprivision.
1992]
CHRONIQUES DE JURISPRUDENCE
to a point where it is clear that good faith in the performance of contracts exists4 9
and that creditors can be liable for exercising explicit contractual rights in an
abusive manner.0
V. The Impact of the Houle Decision in Civil Law Generally
The inevitable result of the Supreme Court decision in Houle will be a
gradual increase of judicial intervention in the contractual sphere.5′ This creates
an obvious conflict with one of the pillars of civilian contract law, namely, the
doctrine of autonomy of the will as the underlying philosophical basis of con-
tractual obligations. Simply put, this doctrine posits that the contracting parties’
will is the unique source of contractual obligations and is the reason that con-
tracts are binding. A contract, under this theory, is seen to be an instrument of
self-government, in which the parties’ subjective law reigns supreme, binding
the parties and the courts.
Pacta sunt servanda, which refers to the binding nature of the parties’ sub-
jective wills, is a corollary to the doctrine of autonomy of the will and demands
that not only are contracting parties bound, vis a vis each other, to their initial
expression of will which becomes frozen in the contract, but that the judiciary
as well is limited by this will thereby making judicial revision of contracts very
difficult and unusual.
The conflict between the notion of abuse of contractual rights and auton-
omy of the parties’ will is explicitly recognized in the Supreme Court judgment
in Houle. L’Heureux-Dub6 J. stated:
I must note that the contract regarding the rights of the bank to realize its
securities stipulates, in paragraph 4, that it can do so without notice. Nonetheless,
this seemingly absolute right must be tempered by the principle of reasonable
delay …52
The Court also explicitly admitted that “the doctrine [of abuse of rights in con-
tractual matters] may represent a departure from … the well-known maxim ‘la
volont6 des parties fait loi.”‘ 53
49See Soucisse, supra, note 33. See also the recent decision of Bank of Montreal v. Ng, [1989]
2 S.C.R. 429 at 436, 62 D.L.R. (4th) 1, where the Supreme Court noted (per Gonthier J.) the “pol-
icy of the civil law for the protection of honesty and good faith in the execution of contracts.”
5 0See, in particular, Aselford Martin Shopping Centres Ltd v. A.L. Raymond Ltde, [1990] R.J.Q.
1971 (C.S.) [hereinafter Aselford]. See text accompanying notes 63-67 for a discussion of Aselford.
5 1Houle has already been cited with approval and followed in Banque Nationale du Canada v.
Couture, [1991] R.J.Q. 913 (C.A.), in 120804 Canada Inc. v. La Caisse Populaire Sacrd-Coeur
de Montrdal, [1991] R.J.Q. 1049 (C.S.), and St-Eustache Auto Location Inc. v. Location A & C
Inc., [1991] R.J.Q. 1325 (C.S.).
52Supra, note 7 at 176.
531Ibid. at 145.
McGILL LAW JOURNAL
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Contract doctrine, in both civil law and common law traditions, has long
been wary of attempts to undermine the absolute power of contracting parties
to regulate their contractual relationship as they see fit without court interven-
tion. Professor Jobin offers the following comments regarding the imposition of
a notion of abuse of rights based on a good faith obligation in civil law:
Toute utile qu’elle soit, la thdorie de l’abus de droit constitue aussi un instru-
ment puissant qui n’est pas sans danger. II y a certes des “risques de ddrapage” A
vouloir interpr6ter et appliquer le contrat conformrment a la bonne foi. … [une]
interprdtation divinatoire de la volont6 des parties et “forcage” du contrat selon les
convictions personnelles du juge. Cette throrie se r6v~le pourtant utile et oppor-
tune dans la mesure oti elle est employee avec prudence. 4
In “Good Faith in Canadian Contract Law,” Belobaba reports a similar anxiety
of legal academics within the Canadian common law tradition:
They worry that an undefined good faith doctrine would jeopardize such Anglo-
Canadian contractual traditions as individual autonomy and freedom of contract,
and fundamentally undermine values of certainty and predictability in contractual
dealings and commercial adjudication. 55
The concern with undermining the autonomy of the will theory has been
expressed by Quebec judges as well. Several cases have refused to accede to the
plea of abuse of rights on the ground that the judiciary cannot contradict a clear
term of the contract, the contract representing the freely chosen and therefore
sacrosanct law of the parties.56
However, even before the Supreme Court pronouncement in Houle, art.
1024 C. C.L. C. and the obligation to act in good faith in the performance of con-
tractual duties was wreaking havoc with the hitherto inviolable nature of the
parties’ volontarily created obligations. Article 1024 C. C.L. C. was, for the most
part, being used by the Quebec courts to add to or vary clearly drafted contrac-
tual arrangements which had been created by the will of the parties. In Sou-
cisse,57 the Supreme Court used art. 1024 C.C.L.C. to impose an additional obli-
gation on the part of the Bank to inform a surety’s heirs of the existence of the
suretyship agreement and its revocable character before it advanced money to
the debtor for which such heirs would potentially be liable. What is very impor-
tant about this judgment is that the obligation to inform was nowhere expressed
54Supra, note 4 at 176.
55Supra, note 46 at 77-78. See also K. Doerksen & M. Rudoff, “Business Issues: Reconsidering
Lister v. Dunlop” (1989) 53 Sask. L. Rev. 262 at 275, where the authors state that “[w]hat alarmed
the lending community about Lister was the uncertainty it introduced.”
56See, for example, Cartier Structural Steel Ltd v. Rose Enterprises Ltd, [1976] C.S. 335; Ban-
que Nationale du Canada v. Manufacture Roland Couture Inc. (26 August 1982) Quebec
200-09-000505-823, J.E. 82-876 (C.A.); Drouin v. Electrolux Canada LtWe (24 November 1983),
Beauce 350-05-000374-809 (C.S.), rev’d [1988] R.J.Q. 950 (C.A.).
57Supra, note 33.
1992]
CASE COMMENTS
in the contract between the Bank and the surety, nor could it be extrapolated
therefrom using the ordinary rules of interpretation of contracts.5
1
Many abuse of rights cases have had the same effect of judicially overrid-
ing the express will of the parties. Where the parties’ will was somewhat ambig-
uous, then one could safely argue that the judiciary was merely performing its
role of interpreting contracts in a manner consistent with good faith and reason-
ableness. However, most cases where a court has found an abuse of a contrac-
tual right involve contracts in which the parties’ will was explicitly stipulated
in unambiguous terms. In such cases, the clash with the doctrine of autonomy
of the will and the binding nature of the parties’ contract is indisputable. Houle
is one such case. Despite clear contractual entitlement to demand and execute
repayment of a loan, the doctrine of abuse of rights was applied to add an obli-
gation to give notice. In a similar vein, in cases where the parties stipulate
clearly that their contract can be resolved unilaterally and without cause, Que-
bec courts have held that the party attempting to exercise such termination
rights can be liable under the doctrine of abuse of rights, notwithstanding that
he or she is acting within the strict confines of the contract.59
In the above cases, the doctrine of abuse of rights has been used to vary
the parameters of an existing obligation by adding a requirement of reasonable
notice before an existing contractual right may be exercised. In a very recent
decision, the Quebec Superior Court took the notion of abuse of rights one step
further and used it to create an entirely new obligation in a contract of lease.
The case is Posluns v. Entreprises Lormil Inc.,6 and the relevant contract was
one of lease of space in a shopping mall. The contract limited the lessee’s right
to use the leased premises to serve a restricted list of food. The lessor then ope-
ned a competing restaurant in the same shopping mall and proceeded to serve
two of the same items of food allowed the lessee. In an action by the lessor for
unpaid rentals, the lessee successfully argued that the actions of the lessor con-
stituted an abuse of rights, and that notwithstanding the lack of any express
clause to that effect, an implicit guarantee of exclusivity was read into the con-
tract in favour of the lessee. Goodwin J. stated:
Dans leurs relations avec leurs locataires, ils ne peuvent signer un bail et obliger
le locataire A servir un menu principal prdcis sans assumer une certaine obligation
rdciproque, mime en l’absence de toute clause spicifique d”exclusivit. 61 Le Tribu-
58See, in the same vein, Rondeau v. Lamarre Valois Int’l Lte, [1975] C.S. 805; Ouellette v.
Sdguin-Dansereau, [1976] C.S. 1405; Godbout v. Provi-Soir Inc., [1986] R.L. 212 (C.A.),
L’Heureux-Dub6 J.A. dissenting; Bussikres v. Syndicat des employis du Centre Hospitalier Robert
Giffard et annexes (C.S.N.), [1986] R.J.Q. 586 (C.S.).
59See, for example, Noivo Automobile Inc. v. Mazda Motors Canada Ltd, [1974] C.S. 385;
Gignac v. Radio Futura Ltoe, [1986] R.J.Q. 866 (C.S.); Drouin v. Electolux Canada Lt~e, [1988]
R.J.Q. 950 (C.A.).
60(4 July 1990), Quebec 200-05-001584-858, J.E. 90-1131 (C.S.).
611bid. at 14 (emphasis added).
REVUE DE DROIT DE McGILL
[Vol. 37
nal se arde d’imposer une clause d’exclusivit6 la oba les parties n’en ont pas
prevu.
6
Another very interesting case which illustrates the extent to which art.
1024 C.C.L.C. and the doctrine of abuse of rights can be used to contradict the
express will of the parties and severely undermine the notion of autonomy of the
will is the recent decision of Aselford.63 The case involved the sale of a shopping
centre where, in order to secure the unpaid balance of purchase price, the deed
of sale contained, inter alia, an assignment of rentals clause in favour of the
vendor. The clause was drafted, however, in such a broad way as to entitle the
vendor to exercise the assignment of rentals clause even in the absence of any
default. The relevant clause was stipulated in the following unambiguous terms:
Le Vendeur pourra m~me en 1’absence de tout dffaut de ]a part de l’Acqureur sig-
nifier cette cession aux locataires.64
When the purchaser took an action to try to end a lessee’s lease, the vendor
treated this as a “default” and proceeded to exercise the assignment of rentals
clause. Frenette J. disagreed with the vendor’s course of action and enjoined
him from exercising the assignment of rentals clause on the ground that such
exercise would be tantamount to abusing his contractual rights. According to
Frenette J., if all the principal obligations (namely the repayment of principal
and interest) are fulfilled, it would not be just or logical for a creditor to be able
to arbitrarily and without valid reason exercise a collateral guarantee. In order
to justify his decision to disregard an explicit clause in the parties’ contract, Fre-
nette J. stated that although the principle of freedom of contract is “quasi-
absolute,” it remains subject to other basic principles such as equity.65
Aselford is an interesting case for two reasons. First, it shows just how far
the courts can go in using art. 1024 C. C.L. C. and the doctrine of abuse of con-
tractual rights to undermine, indeed virtually ignore, the express will of the par-
ties on the ground that equity ought to be the over-riding norm. The Aselford
decision does exactly what Soucy, in his article on abuse of rights in 1979, sug-
gested be done:
De m~me, ]a notion d’6quit ne doit demeurer inconditionnellement subor-
donn~e h la volont6 des parties: dans certains cas d’espce nous devrons bien lui
restituer son sens de notion suprieure A la volont6 des parties.66
Moreover, it does so explicitly. It does not seek to ignore the consequences of
the decision. Frenette I. states blatantly that this decision will necessarily con-
62Ibid. at 15.
63Supra, note 50.
64Ibid. at 1974.
65Ibid. at 1976.
66Soucy, supra, note 5 at 73.
19921
CHRONIQUES DE JURISPRUDENCE
flict with the parties’ autonomy of the will and freedom of contract. Nonethe-
less, equity forms part of every contract notwithstanding the doctrine of auton-
omy of the will:
L’dquit6 fait donc partie intdgrante de tous les contrats civils, malgri la doctrine
fondie sur l’autonomie de la volonti en matibre contractuelle. Elle permet aujuge
un pouvoir discrdtionnaire de corriger les consequences des iniquit6s les plus gra-
ves dans les contrats. 67
There is in Quebec today a substantial body of jurisprudence in which
courts are altering parties’ contracts on the ground that equity cannot allow the
parties to exercise even express contractual rights abusively. The implication of
this jurisprudential trend, now confirmed by the Supreme Court of Canada in
Houle, is undoubtedly a move away from the notions of autonomy of the will,
freedom of contract and pacta sunt servanda. What is ironic, however, is that
Quebec law remains wedded to the notion of autonomy of the will in other
aspects of contract law, in particular, lesion and imprevision.
Even more ironic is that in many of the abuse of rights decisions, judges
use other doctrines of civil law to justify the departure from the absolutist view
of contracts. Quite often the reference is to art. 1040c C.C.L.C., s the primary
unconscionability provision in the Civil Code, which, it is argued, provides leg-
islative condonation for a departure from classical contract theory.69 Article
1040c C.C.L.C. was created in 1964 in the hope of inserting a limited concept
of lesion for majors. It sought to give the judiciary the power to annul or reduce
harsh and unconscionable provisions in a contract of loan of money. The inap-
propriateness of using art. 1040c C. C.L. C. as an analogy in abuse of rights cases
is that the Quebec judiciary has never been particularly receptive to this provi-
sion, and has proceeded to read it very restrictively. Rather than abandoning the
absolutist view of contracts, the judiciary’s reaction to art. 1040c C.C.L.C. dem-
onstrates its continuing commitment to consensualism and the autonomy of the
parties’ will. Quebec courts have told us in art. 1040c C.C.L.C. cases that pacta
sunt servanda required them to be bound by the parties’ voluntarily assumed
obligations, and that this important corollary to the autonomy of the will theory
could only be undermined in very specific and limited circumstances which fall
squarely within the wording of the article of the Civil Code. Obligations which
did not fall strictly within the contract of loan of money, such as prepayment
67Supra, note 50 at 1976 (emphasis added).
6sThe first paragraph of art. 1040c C.C.LC. reads:
The monetary obligations under a loan of money may be reduced or annulled by a court
so far as it finds that, having regard to the risk and to all the circumstances, they make
the cost of the loan excessive and the operation harsh and unconsionable.
69Some examples of reference to art. 1040c C.C.LC. in abuse of rights cases are: Fiorito, supra,
note 3 at 7; and Aselford, supra, note 50 at 1976.
McGILL LAW JOURNAL
[Vol. 37
clauses or obligations under a hypothec, did not fall within the rubric of review
by the courts.70
This reluctance to intervene in contractual matters is also seen in the area
of imprivision. Quebec, like many other civil law jurisdictions, has refused to
grant relief for unforeseeable future events which fall short of causing impos-
sibility of performance but nonetheless change significantly the equilibrium of
the contract. Quebec civil law restricts the concept of discharge from one’s obli-
gations to cases of fortuitous events, where the irresistible event causes the per-
formance of the contract to be impossible. The stability of contractual obliga-
tions created in a properly formed agreement dictates that the parties perform
their contract. In a recent Quebec case on imprdvision,7′ the court held that short
of impossibility, contractual obligations cannot be extinguished and that the the-
ory of imprivision should not be allowed to overturn or undermine traditional
civil law principles. This approach is in sharp contrast to the common law,
where the excuse of frustration is a much broader form of relief for non-
performance, because it encompasses impracticability of performance, and frus-
tration of the underlying purpose of a contract, in addition to impossibility.” It
is also in contrast to the position in several other civilian jurisdictions where a
concept analogous to frustration has been recognized. It is worth mentioning
that in German law, this notion has evolved from the interpretation of the sec-
tion on good faith in the German Civil Code.73 In Quebec law, despite great
advances being made with respect to the doctrines of good faith and abuse of
rights, the notion of imprivision still remains an unacceptable deviation from
civilian contract principles.
The result in Quebec civil law today is a somewhat schizophrenic approach
to the law of contractual obligations. On the one hand, the courts are ready and
willing to ignore, add to, vary and rewrite parties’ contracts in the name of
70See in this vein, Roynat Ltie v. Les Restaurants La Nouvelle-Orlians Inc., [1976] C.A. 557,
aff’d [1978] 1 S.C.R. 969 [hereinafter Roynat]; Eiffel Construction (Quebec) Ltd v. Morguard Trust
Co., [1986] R.J.Q. 879 (C.S.), aff’d in most respects (25 October 1990), Montreal
500-09-000327-866, J.E. 90-1594 (C.A.); Imperial Oil Ltd v. Le Domaine Gatineau Inc., [1977]
C.S. 212; Construction St-Hilaire Ltie v. Les Immeubles Fournier Inc., [1972] C.A. 35, rev’d on
other grounds [1975] 2 S.C.R. 2; Simard v. Royer, [1978] C.A. 219; Tremblay v. Trans-Canada
Cridit Inc. (28 May 1982), Hauterive (Baie-Comeau) 655-05-000045-823, J.E. 82-698 (C.S.). See
also the discussion in R. Jukier, “Flexibility and Certainty As Competing Contract Values: A Civil
Lawyer’s Reaction to the O.L.R.C.’s Recommendations on Amendments to the Law of Contract”
(1988) 14 Can. Bus. L.J. 13 at 22-26.
71Canada Starch v. Gill & Duffus (6 December 1983), Montreal 500-05-001746-823, J.E. 84-88
(C.S.), aff’d on appeal (17 October 1990), Montreal 500-09-000036-848, J.E. 90-1617 (C.A.).
72See Waddams, supra, note 44 at 265-84.
73S. 242 of the German Civil Code. See E.J. Cohn, Manual of German Law, vol. 1 (London: Brit-
ish Institute of International and Comparative Law, 1968) at 100; P. Hay, “Frustration and its Solu-
tion in German Law” (1961) 10 Am. J. Comp. L. 345.
1992]
CASE COMMENTS
equity and good faith. The judiciary has seized upon one word –
in art. 1024 C.C.L.C. to perform that feat.
“equity” –
On the other hand, the courts in Quebec are loathe to intervene in contrac-
tual matters when substantive injustice and inequity are taking place, other than
in the consumer context.74 In cases of lesion in particular, the courts hide behind
the doctrine of autonomy and the supremacy of the parties’ contract as self-
made law, and refuse to apply provisions relating to lesion in anything but a
very restrictive and toothless manner. Bemier J. in Roynat stated that:
La libert6 des conventions est la r~gle; la convention est la loi des parties. Les
Tribunaux ne peuvent y d&oger … que dans la mesure oii une disposition sprci-
fique de la Loi les y autorise: une telle disposition en 6tant une d’exception devra
quant h la portde de son application recevoir une interprdtation stricte.
In the Supreme Court judgment in Houle, L’Heureux-Dub6 J. argues that
the doctrine of abuse of rights that she proposes “inserts itself into today’s trend
towards a just and fair approach to rights and obligations”76 and cites as support
for this “just and fair approach” the notion of lesion between persons of full age
in the proposed reforms to the Quebec Civil Code. This again is inappropriate
support for a doctrine of abuse of rights. It is true that such a general provision
on lesion was suggested as part of the general reform of the Civil Code currently
contemplated in Quebec. It made its way into proposed legislation at the draft
bill stage,7 but, ironically enough, it was eliminated from the proposed Code
when it finally took the form of a bill before the legislature. 8
Bill 125, which seeks to recodify civil law, likewise contains no reference
to a doctrine of imprdvision. Thus, Quebec civil law will remain in the current
uneven state of having a very developed notion of abuse of rights in contractual
matters and a very undeveloped notion of judicial intervention in areas of lesion
74The attempts to introduce lesion at the consumer protection level have, by contrast, been more
successful. Decisions rendered pursuant to the Quebec Consumer Protection Act, L.R.Q. c. P-40.1,
for example, have advocated a more liberal and flexible approach and consumers have been
awarded reductions in obligations when the court has found that the consumer paid an excessive
purchase price or when the contract proved to be too onerous for the particular consumer. See, for
example, Leclair v. Chevalier (21 November 1983), Abitibi 615-32-000265-833, J.E. 84-38 (C.P.);
CIBC v. Carbonneau, [1985] C.P. 65; Banque de Nouvelle-Ecosse v. Savard, [1990] R.J.Q. 1707
(C.Q.); Banque de Montrial v. Nadon, [1990] R.J.Q. 880 (C.Q.). It is perhaps felt that such flex-
ibility is more justifiable in the consumer setting where inequality in bargaining power is often pre-
sumed and exploitation an accepted fact whenever an unfair contract has been entered into.
75Supra, note 70 at 559-60. See also statement by the Superior Court in Eiffel Construction
(Quebec) Ltd v. Morguard Trust Co., supra, note 70 at 882, affirmed by the Court of Appeal: “an
exception to the fundamental principle of freedom of contract … must be interpreted restrictively.”
76Supra, note 7 at 145.
7Draft Bill, An Act to Add the Reformed Law of Obligations to the Civil Code of Quibec, 2d
7SBill 125, Civil Code of Qudbec, 1st Sess., 34th Leg. Qu6., 1990.
Sess., 33d Leg. Qua., 1988, Art. 1449.
REVUE DE DROIT DE McGILL
[Vol. 37
and imprivision. It is interesting to note that this is the reverse of the current sit-
uation in Anglo-Canadian law. In the common law provinces, courts have
clearly adopted a doctrine of unconscionability79 and have recognized the ability
of a contracting party to escape the consequences of non-performance due to a
frustrating event.”0 On the other hand, they have not, as has the civil law, explic-
itly adopted a general duty of good faith or recognized the concept of abuse of
rights in any general way.
Conclusion
The doctrine of abuse of rights has justifiably been surrounded by contro-
versy both as to its existence and as to the parameters of its applicability. At first
glance, it seems inconsistent to even assert that it is possible for a person to
abuse a “right:”
The abuse of rights doctrine states essentially that a person may incur civil liabil-
ity through a certain act, even though such act is within the bounds of a legal
right.8′
Once it is admitted that by imposing a general good faith obligation under
art. 1024 C.C.L.C., liability may arise for unreasonable and harmful exercises
of a contractual right, a conflict then arises between the desire to intervene and
protect against such abuse, and the desire to uphold the philosophical underpin-
nings of civilian contract law. No matter how well-founded the obligation of
good faith and the doctrine of abuse of rights may be, it is incontestable that
such principles seriously interfere with the autonomy of the will theory. But
given the dynamics of modem day contract law, as it functions in a complex
society, it is entirely justifiable to undermine the concept of autonomy of the
will in such manner. Although many Quebec judges still operate from the van-
tage point of freedom of contract and the sacrosanct nature of freely-created
contractual obligations, most contemporary doctrinal writers admit that there
has been a serious decline in the relevance of the doctrine of the autonomy of
the will such that it is no longer recognized as the operating theory underlying
contractual obligations:
Le consensualisme a perdu l’importance qu’il avait autrefois et
‘autono-
mie de la volont6 occupe une moins grande place dans notre syst~me jun-
dique
8 2
79See, for example, Harry v. Kreutzinger (1979), 95 D.L.R. (3d) 231, 9 B.C.L.R. 166 (C.A.);
and most recently, Hunter Engineering v. Syncrude, [1989] 1 S.C.R. 426, 57 D.L.R. (4th) 321.
80Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975), 9 O.R. (2d) 617, 61 D.L.R.
(3d) 385 (C.A.). See also the Ontario Frustrated Contracts Act, R.S.O. 1980, c. 179, and the British
Columbia Frustrated Contract Act, R.S.B.C. 1979, c. 144.
81Angus, supra, note 5 at 151.
82M. Deschamps, “L’autonomie de ]a volont6 dans la dftermination de Ia loi contractuelle et du
tribunal competent” (1990) 24 R.J.T. 471 at 473.
19921
CHRONIQUES DE JURISPRUDENCE
The autonomy of the will theory owes its origin primarily to the individ-
ualistic philosophy of the natural rights of man, and, in particular, to the Rous-
seauian premise that “men are free and equal” implying that contracting parties
would not, in exercising their freedom to contract, agree to something that is
unjust. The “decline of the autonomy of the will theory” reflects the growing
acceptance that its underlying premise no longer reflects societal reality of the
late twentieth century.8 3 Critics of the theory propound that men are not free and
equal because inequality in bargaining power exists in almost every type of con-
tract.84 Furthermore, freedom of contract is no longer absolute: legislative
restraints on the content of contracts are legion, 5 and adhesion contracts, in
which contractual terms are not negotiated but are imposed by one of the con-
tracting parties, are proliferating. Finally, monopolistic market conditions make
the freedom of choosing a contracting party largely unrealistic. The reality of
contracts in today’s society has led one author to state in a recent article on
autonomy of the will that
[1]a th6orie de l’autonomie de la volont6 n’a done pas rdussi i 8tre un principe
directeur de la politique 16gislative et de la pratique jurisprudentielle.
C’est pourquoi il ne faut pas parler de son d6clin mais de son abandon.86
The purpose of this comment is not to lament the decline of the autonomy
of the will theory or to criticize the detrimental effect the expanded judicial role
in the area of abuse of contractual rights may have on that theory. In fact, the
contrary is true. The fact that contracting parties are rarely of equal bargaining
power and virtually never possess equal amounts of relevant information are, in
this author’s opinion, sufficiently serious grounds for rethinking the wisdom of
remaining wedded to such a theory as the underlying foundation of contractual
obligations in the civil law.
What is lamentable, however, is the inconsistent approach of the civil law
in Quebec with respect to the possibility of judicial intervention to correct con-
tractual injustice and inequities. It is regrettable that the same judges who have
advanced the cause of equity in the field of abuse of rights have not seized upon
opportunities to inject equity into other areas of civil law in deserving cases.
83R. West, “Authority, Autonomy, and Choice: The Role of Consent in the Moral and Political
Visions of Franz Kafka and Richard Posner” (1985) 99 Harv. L. Rev. 384.
4One of the most notable dissents to the theory is Jacques Ghestin who expounds an alternative
theory to the effect that the State should not lend its hand at enforcing contracts unless they are
both useful and contractually just. See “L’utile et le juste dans les contrats” in Archives de Philo-
sophie de Droit, t.26 (Paris: Sirey, 1981) 35.
85See in this vein the decision of Lapointe v. HOpital Le Gardeur, [1989] R.J.Q. 2619 (C.A.).
86M. Coipel, “La libert6 contractuelle et la conciliation optimale du juste et de l’utile” (1990) 24
R.J.T. 485 at 488 (emphasis added).
