[Vol. 16
Unreported Judgments
From time to time, judgments of interest to the legal community, which
do not, for one reason or another, appear in the regular reports in this province,
will be published in the McGill Law Journal. In all cases, the words in smaller
type are extracted verbatim from the judge’s notes; words appearing in
larger type are those of the editors.
BANKRUPTCY
–
EQUITABLE JURISDICTION OF THE COURT
In the matter of the bankruptcy of: ALLIANCE CREDIT CORPO-
RATION (Bankrupt), and ARMAND GAGNON
(Petitioner), and
MONTREAL TRUST COMPANY (Respondent) and TRUST GENE-
RAL DU CANADA (Intervenant), S.C.M. (Bankruptcy) 7864, May
11, 1971, Mr. Justice Paul Carignan.
Bankruptcy – Default of bankrupt under Trust Deeds – Provision for “premiums”
Is it due in case of bankruptcy – Bankruptcy
Equity – Nature of the premium –
Act, 1952, R.S.C., c. 14, ss. 93, 140(1).
Petitioner, in his quality as trustee to the assets of the bankrupt,
seeks an order declaring him entitled to a certain sum, for the
benefit of the mass of creditors. The amount, $1,072,359 is held by
Respondent, trustee by virtue of a Trust Deed, subsequent to the
bankrupt’s default and the Respondent’s realization of the assets.
The essence of the case is whether Respondent is, in its quality,
entitled to “premiums” provided for by the Trust Deed, especially
since these premiums would entitle the secured bond holders to
receive more than 100 cents on the dollar and thereby greatly
prejudice the unsecured creditors. In reaching its decision, the court
invoked its equitable jurisdiction and allowed the petition.
Mr. Justice Carignan
The Petitioner seeks an order declaring that he is entitled to payment
to him, for the benefit of the mass of creditors, of a sum of $1,072,359.52
together with interest in such amounts as would be payable thereon in
accordance with the terms of the Trust Deeds under which the Respondent
is acting, as well as judgment against the Respondent
in
that amount, and other subsidiary conclusions which will be examined
below. The amount involved represents the cumulative total of “premiums”
in varying percentages, ranging from 4 to 6%, of the principal amounts
of notes designated as Series “E” and Series “J” to “R” inclusive secured
by certain Trust Deeds
the so-called “Principal Trust Deed” of
November 1, 1962 and a number of Supplemental Trust Deeds. (Exhibit
R-1) –
s-qualit6
–
No. 4]
UNREPORTED JUDGMENTS
The Respondent is the Trustee named in these Trust Deeds. It is
vested with certain powers including, obviously, the power to realize
on the property of the borrower, Alliance Credit Corporation and
its subsidiaries, in the event of default, and the various events of default
are spelled out in the Principal Trust Deed. In addition to the right
to be repaid principal and interest, the abovementioned series of notes
were characterized, in the Supplement Trust Deeds securing them, by
the purported right of the holders thereof to be paid a premium under
certain conditions; the holders of notes Series “A” to “D” inclusive and
notes Series “F” to “I” inclusive, had no such right.
to Alliance Credit Corporation
On June 19, 1967, Respondent, as Trustee for the noteholders, gave
(Exhibit R-3).
notice of default
The default complained of not having been cured in the ensuing 60
days, Respondent proceeded to declare the security constituted by the
Trust Deeds to have become enforceable and gave notice of this fact
on August 21, 1967 (Exhibit R-4). Alliance Credit Corporation acknowledged
its default on the same day (Exhibit R-5) and Respondent complied with
the appropriate provisions of the Special Corporate Powers Act by
publishing notices of default (Exhibit R-6). Pursuant thereto, Respondent
took possession of the assets of Alliance Credit Corporation and com-
menced its realization thereon.
A receiving order was granted against Alliance Credit Corporation
on February 14, 1968 and, on March 12, 1968, the appointment of Armand
Gagnon as Trustee was confirmed at the first meeting of creditors. Prior
to the receiving order, the Respondent had already distributed almost
$21,000,000 to the secured noteholders and by the end of June, 1969, a
total of $62,333,714.45 had been so distributed.
According to Mr. Macklaier’s testimony of June 11, 1970 (page 13),
these distributions were made without particular imputation of any sums
to capital, interest or “premium”, and cheques were made without any
breakdown by item. The Respondent has withheld from final distribution
a sum of money which will be sufficient to satisfy a judgment, should
the Petitioner (or the Intervenant) be successful in these proceedings.
Such retention of funds by respondent is in accordance with an exchange
of correspondence between counsel for Petitioner and counsel for Re-
spondent (Exhibit R-2) and obviates the necessity of dealing with
conclusions (a) and (b) of Petitioner’s amended petition.
An intervention by Trust G~n6ral du Canada was received by this
Court after the petition was filed. The intervention was not contested
in writing by either of the other parties and the Intervenant made no
proof, apparently contenting itself with a statement of the various legal
propositions set forth in the intervention itself. Trust Gtn6ral du Canada,
as Trustee under various Trust Deeds (Exhibit I-1) securing senior de-
bentures, avers that if the amounts of money representing “premium”
and interest thereon are not awarded to Petitioner on grounds of equity
or on a basis which is personal to the Petitioner, in his quality as Trustee
in bankruptcy, such amounts would form part of a residue or excess
to the Intervenant in virtue of
of Alliance Credit assets accruing
the floating charge created by Exhibit I-1. Accordingly, the Intervenant
concludes simply for the rejection of conclusion (e) of Petitioner’s peti-
McGILL LAW JOURNAL
[Vol. 16
tion. The implication is that if the Petitioner were to succeed on grounds
of law, the amounts withheld by Respondent should be paid over to the
Intervenant for distribution by the latter to the senior debentureholders.
This position is consistent with the understanding reached between the
Intervenant and the Petitioner, reflected in Exhibit P-3.
The issue for determination by the Court is whether Petitioner is
entitled to the amount of money represented by the “premium” and
interest accrued thereon, whether this sum is the property of the Re-
spondent for distribution to the secured noteholders or whether this
sum should accrue to the benefit of the Intervenant.
It should be noted immediately that the secured noteholders have
received (or the Respondent has available for final distribution, in addi-
tion to amounts withheld for “premium” and interest thereon) the entire
amount represented by the face amount of the notes, as well as all interest
called for by the Trust Deeds, Exhibit R-1. They have received, or -will have
received, no matter what the terms of the present judgment may be, the
full amount of their investment plus full interest since all realization
expenses, including legal and other expenses, have been provided for in
the realization by Respondent, over and above payments to the secured
noteholders.
The unsecured creditors, on the other hand, are unlikely, on the
basis of the proof before the Court, to realize any dividend whatsoever
unless the Petitioner succeeds in the present case. The total of unsecured
creditors amounts to $7,685,484.80, of which $5,183.69 constitutes privi-
leged claims. Included in the unsecured portion is a contested claim
amounting to $3,994,000.00 as well as $3,633,296.20 owing to junior de-
bentureholders, whose claim is admitted by the parties to be unsecured.
The Petitioner, in his testimony, avers that there will definitely be more
unsecured claims fied.
The Petitioner urges five grounds in support of his Petition:
(a) A proper reading of the Trust Deeds issued reveals that, on a
proper construction, the premium stipulated would not be payable in
the circumstances of this case;
(b) The Bankruptcy Court is a Court of equity and, exercising its
equitable jurisdiction, this Court ought not to enforce payment of a
premium to the detriment of the unsecured creditors in the circumstances
of the present case;
(c) The Bankruptcy Act provides for payment of only one hundred
cents on the dollar on all provable claims and no more, and payment of
a premium in the circumstances of this case would yield a payment in
excess of one hundred cents on the dollar to holders of the secured notes
(Section 93);
(d)
It would be unjust, unconscionable and unreasonable, in the
circumstances of this case, to enforce the payment of what is effectively
a penalty, payment of which has traditionally been refused in matters
of bankruptcy, both in the Province of Quebec and in all countries whose
bankruptcy legislation is based on the English Bankruptcy Act, as is the
case of the Bankruptcy Act of Canada;
(e) Only the principal Trust Deed, bearing formal date of November
1, 1962, the third supplemental Trust Deed purporting to authorize the issue
No. 4]
UNREPORTED JUDGMENTS
of Series “F”, “G”, “H” and “I” and the seventh supplemental Trust Deed
have been registered, all of the other supposed Trust Deeds not having
been registered, and, consequently, since none of the Trust Deeds securing
the issue of notes purportedly entitled to redemption premiums have been
registered, no redemption premiums are due.
Before dealing with any of these arguments, it would be useful to
determine the nature of a “premium” as this term is used in relation
to the issuing of securities. The Respondent, in its contestation, charac-
terizes it as something akin to “liquidated damages or a penal sum” the
objective of which is, in part, to compensate the purchaser of a security
for the cost of being forced, prior to the normal maturity date of the
security, to receive payment and then investigate and place his funds
in another suitable investment.
Mr. Paul Vien, a witness with much experience in the securities
market, describes it as one of the techniques commonly used to make
it less interesting for a corporate borrower to redeem securities prema-
turely in order to benefit from a falling interest market, (Page 80):
“A. For instance, if a company for reasons of, by the sale of assets
or for other reasons, comes into a large cash position, it may redeem
under certain terms and conditions. But obviously, if you borrowed,
that is different, than if you go out and borrow it at 6% while your
original yield was at 7.
Q. And use your 6% money to buy back your 7%.
A. That’s right. And this is why we normally say that you won’t have
the right to do this for a period of X years…”
This is the concept described by Mr. Vien as “non call for financial ad-
vantage”. To accomplish the same purpose, that is, to discourage pre-
mature redemption to the disadvantage of the investor, securities will
frequently provide for payment of a “premium” upon premature redemp-
tion of the security. In Bogen, Financial Handbook, an extract of
which was produced as Exhibit P-10, the matter is discussed in the
following terms:
“A bond issue may be made redeemable before maturity in whole or
in part. If so, redemption is at the option of the issuing corporation,
unless there is a provision for a sinking fund that makes-a periodical
‘call’ compulsory. The advantage to the debtor corporation of the
optional call lies in the flexibility that such a provision adds to the
company’s capital structure. The call privilege has been used advan-
tageously by corporations for the purpose of (a) eliminating bond
issues with unfavorable indenture provisions, (b) replacing short-term
obligations with long-term obligations, or vice versa, (c) reducing
debt, and (d) refunding high coupon bonds with low coupon bonds if
interest rates decline. The last-named advantage, refunding to effect
interest savings, has been of great value in periods of low interest
rates like the 1930’s. Corporations with noncallable issues deprive
themselves of this opportunity to effect substantial interest savings
through refunding. Hence, corporations seek to make all bond issues
callable at small or no premiums over par.
Investors and the call feature. Investors strongly dislike callable
bonds, since corporations will exercise the option to call in bonds
McGILL LAW JOURNAL
[Vol. 16
only when it is advantageous to themselves. When bonds are called
in during a period of low interest rates, as is often the case, investors
are deprived of higher-yielding issues at a time when these can be
replaced only with lower yields.
This conflict of interest between issuer and investor can be resolved
in two ways. First, investors are given call protection, usually by
a provision that a bond issue may not be called in for a period of
years, such as 5 or 10, immediately after it is put out. Secondly, bonds
are made callable only at premium prices, to reimburse the investor
for the loss of his investment at a time when it cannot be replaced
advantageously. Call prices are usually scaled down over a period
of years, so that the premium narrows as the bond approaches ma-
turity. For example, a 30-year bond issue may not be callable during
the first 5 years of its life; it may be callable at 108 during the second
5 years; at 106 during the third 5 years; at 104 during the fourth 5
years; at 102 during the fifth 5 years, and at 101 during the last 5
years before maturity, when it becomes redeemable at par value.
Because investors seek call protection, bonds that enjoy such protec-
tion can usually be sold at materially lower yields than those with-
out it.”
It is thus apparent that the objective of stipulating a “premium” in
cases of redemption or “call” prior to maturity of the instrument is to
discourage borrowers from using money borrowed at low interest rates
to acquit obligations of the borrower which bear higher interest. As a
corollary to the foregoing, the “premium” is meant to compensate the
investor whose investment cannot be replaced as advantageously, since
the proceeds of redemption can likely be reinvested only at a lower
yield –
the same factor which motivated the borrower to redeem pre-
maturely in the first instance. Conversely, however, in a rising interest
market, it would be very much in the investor’s interests to have the
instrument redeemed prior to maturity, so that the investor might re-
invest at a higher yield. In a rising interest market, the borrower is,
of course, quite content that the repayment of the debts should await
its maturity.
Payment of a “premium” appears to be exigible, generally, only in
the case of voluntary redemption prior to maturity; it is not applicable
in other instances, such as redemption through the use of sinking funds
or in the case of involuntary redemption. The witness Vien points out
that:
“Obviously again the source of redemption becomes a factor. For
instance, I’m talking about a complete redemption because on many
occasions, for instance in the case of sinking funds when you agree
at the beginning of the period that you will retire the issue in a
percentage each year and you commit to deposit funds with the
institution in the redeemed bonds, let’s say, on an obligatory basis,
then there’s no premium at all. And we’ve done that quite often. When
we’re talking about redemption, I think you have to divide it basi-
cally in three main areas, one being the sinking fund which is A. (sic)
redemptions per se, but it’s, then you’re obligated to do it by contract
and usually there is no premium on that particular redemption. In
No. 4)
UNREPORTED JUDGMENTS
the case that redemption, in the case of, well, like, the own decision
of the company for many reasons, they make their own decision to
redeem the bonds for whatever reason, then we have this premium
that we’re talking about and then you’ve got the other situation the
redemption or the reimbursement of the bond by virtue of bankruptcy
or something else that is not really under the control or hands of
the one that’s borrowed; at which point you find that sometimes,
for instance, I think the clearest area is in preferred shares when
we defer or make a difference between a redemption which is voluntary
and which the premium is applicable and where, in the case of in-
voluntary wind-up, then there’s no premium…” [sic]
The Principal Trust Deed does in fact envisage situations where a
“premium” would not be exigible on redemption prior to the maturity
date of the notes. Sec. 8.01, Clause 15, Paragraph 2(a), provides that the
company
to their
maturity for principal and accrued interest, but without “premium”, in
order to maintain a predetermined ratio between short term and long
term notes. The same clause further envisages redemption of notes with-
out “premium” if the Company’s receivables and paper arising from its
finance operations fall below and remain below a predetermined level.
Redemption through the use of a Sinking Fund (Article X) does not carry
with it the payment of a “premium”.
(Alliance Credit) may redeem some notes prior
Consequently, payment of a “premium” on premature redemption is
by no means automatic. It is true that section 11.02 provides that when
the security becomes enforceable, the Trustee may (or “shall”, if so
directed) “declare the principal of and interest on the Notes, together
with the premium, if any, which would have been payable thereon if
the company had redeemed the Notes on the date of such declaration…
to be due and payable…”.
It is nowhere stipulated, either in the Principal Trust Deed, or in
the Supplemental Deeds, that a “premium” is automatically payable in
the case of premature redemption as a result of default. A “premium”
is payable only if it would have been otherwise payable had the company
redeemed the notes on the date of default or on the next interest pay-
ment date. Thus, for example, if the company had been entitled to redeem
without a “premium” on that date as a result of the decline of paper
and receivables defined on pages 35-36 of the Principal Trust Deed, no
“premium” would be payable notwithstanding the declaration of a default.
Logical though this argument may be, there is no proof in the record
that the Company could, in fact, have redeemed the notes on the date
of default by using one of the techniques above described which does not
carry with it the payment of a “premium”. The Court would have used
the powers available to it under C.C.P. 292 to remedy this gap in the
proof, but in view of the conclusions reached by the Court on other
grounds, this is unnecessary.
Petitioner complains, in a further argument, that those supplemental
deeds which provide for the issue of premium-bearing notes were not
registered and, consequently, no premiums are due on redemption. Only
the Principal Trust Deed (providing for the issue of notes of a value of
up to $20,000,000.00), the third supplemental trust deed (increasing the
McGILL LAW JOURNAL
[Vol. 16
charge to $50,000,000.00 and providing for the issue of Series “F” to “I”
inclusive, without providing for a premium) and the seventh supple-
mental trust deed (increasing the charge to $250,000,000.00), together with
an additional sum equal to 10% of the principal amount, in each case,
have been registered. In other words, those deeds providing for the issue
of premium-bearing notes were never available for public examination
for which registration would have provided.
The Special Corporate Powers Act provides that the hypothec, privi-
lege, mortgage or pledge takes effect from the date of registration “of
the deed by which they are constituted” and, in the opinion of the Court,
only the Principal Trust Deed and the Third and Seventh supplemental
deeds constituted such charge, with the consequence that only these deeds
to give them validity against third parties. To
require registration
require registration of the other deeds, which do not constitute the
security but simply provide for the issue of further series of notes, the
value of which is already included in the registered deeds, adds a require-
ment which the law, admittediy one of exception, does not envisage.
The basic argument of the Petitioner is that the enforcement of the
payment of the premium, in the circumstances of this case, would be
is clear from the proof that the secured
unjust and inequitable. It
noteholders obtained a benefit as a result of the premature redemption
which, in the circumstances, shocks the conscience.
The value which the open market gave to the notes prior to the taking
of possession by the Respondent was between 60% and 67% of their
nominal or face value. Indeed, except for one transaction at 67% of face
value, the witness Leonard testifies that all other trades of Alliance
notes through his brokerage house were at 60% of face value, and that
any other brokerage houses maintaining a market in these notes would
have put through trades “dans ces niveaux-iW”. Respondent adduced no
proof to the contrary and the Court finds, as a matter of fact, that the
secured notes were worth no more than 2/3 of their face value, at best,
in the open market, when Respondent took possession of the assets of
the Bankrupt.
The Court further finds, as a matter of fact (and this is, in any
event, admitted by Respondent) that at the time that Respondent took
possession, at the time of default by the Bankrupt, at the time of the
bankruptcy of the Bankrupt and at the time of each partial distribution
by the Respondent (paragraph 40 of the Contestation), the secured note-
holders could have invested in similar grade or quality securities at
substantially higher yields or bearing substantially higher coupon rates
or in higher grade securities yielding at least the same, if not a better,
return. Interest rates, from 1967 on, were constantly rising.
As a result of the premature redemption, the secured noteholders
obtained the following unanticipated benefits:
(a) They obtained 100 cents on the dollar and all accrued interest,
net of any expense, since the Respondent realized enough on possession
to pay all expenses. Had they sold their securities on the open market,
they would have realized 600 or, at best, 670 on the dollar;
(b) They were able to obtain an identical yield on the proceeds of
redemption immediately, and this, in a security of better quality or
No. 4)
UNREPORTED JUDGMENTS
(c) They were able to obtain a better yield on the proceeds of
redemption by reinvesting in securities of equal quality.
In short, premature redemption of the notes resulted in very substan-
“tial advantages to the noteholders represented by the Respondent. To
give them a yet additional advantage, a premium which would deprive
the unsecured creditors of any meaningful dividend, borders on the
immoral.
The Intervenant cannot, in the opinion of the Court complain of this
result. On page 38 of Exhibit I-1, the Intervenant’s Trust Deed, one finds,
in section 6.05, the express acknowledgement that the security thereby
created is subordinated, and subject to, the security created by the
Principal Trust Deed and supplemental trust deeds upon which the
Respondent relies, and the Intervenant further acknowledges the priority
of Respondent’s security in capital, interest, premium, if any, and other
moneys secured, to its own.
The Intervenant is consequently bound by its own acknowledgements;
it can no more succeed by intervening in Petitioner’s proceedings than
it could have succeeded in proceedings of its own. Nor can it rely on the
terms of Exhibit P-3, which does not, in any event, bind the Court.
Exhibit P-3 purports to recognize that the Intervenant will be entitled
to the proceeds of the “premium” if the judgment to intervene is based
on grounds of law, while it stipulates that the Petitioner will be entitled
to the proceeds if the judgment is based on grounds of equity or on
grounds purely personal to the Petitioner in virtue of the Bankruptcy Act.
But in view of the Intervenant’s own acknowledgements in Exhibit I-1,
it could not succeed on grounds of law and, accordingly, the Intervention
must be dismissed. There should be no award of costs on the Intervention,
since such award could only further reduce the dividend available to the
unsecured creditors and, in any event, neither of the parties contested
the Intervention in writing and no enqu~te took place with respect to
the Intervention.
Having arrived at the conclusion that the payment of the “premium”
by the Respondent would be inequitable and unjust, the Court may, in
virtue of the Bankruptcy Act, declare it to be payable to the Petitioner.
Such a conclusion is consistent with both the letter and the spirit of the
Bankruptcy Act. It does not fall into the assets transmitted to the Inter-
venant for the reasons herein above given, and the right to demand
payment of it vests in the Petitioner alone because of the special status
given to a trustee in bankruptcy.
This special status has been recently examined and described in the
following terms by Mr. Justice O’Connor in the case of Quebec Trucks
and Trailers Inc., (1968), 11 C.B.R. n.s. 115, at page 117:
“… The Trustee under the bankruptcy has been given by statute a
separate and distinct right superior to any right which the debtor
may have given to certain grove of his creditors by trust deed. This
separate right given to the trustee in bankruptcy has been recognized
by Canadian commentators and jurisprudence.”
Certain rights are conferred by the Act upon the trustee alone, and he
alone, subject to the provisions of sec. 16, has the right to exercise them.
McGILL LAW JOURNAL
[Vol. 16
Included in such rights is the right to seek equitable relief from the
Courts charged with the application of the Bankruptcy law. Duncan and
Honsberger, Bankruptcy in Canada, (3rd ed.) point out at page 807 that:
“…A Court in its bankruptcy jurisdiction is a Court of equity and
as such is bound to give equitable relief to suitors entitled thereto
in proceedings in bankruptcy.”
Section 140 of the Act itself vests the Court sitting in bankruptcy
matters with appropriate jurisdiction at law and “in equity” to carry
out its functions. Houlden and Morawetz, Bankruptcy Law of Canada,
(1960), say –
at page 285 –
that:
“… The bankruptcy Court in its administration of the joint principles
of equity and the common law is the inheritor of the powers of these
courts … ”
The jurisprudence has consistently applied principles of equity to
the solution of problems in bankruptcy matters. It was said in the case
of Heron, (1934), 15 C.B.R. 39, at page 51, that:
“. . The Court in its bankruptcy jurisdiction is a Court of equity.”
In Fredericton Co-Operative Ltd. v. Smith, (1922), 2 C.B.R. 154, the
Chief Justice of the New Brunswick King’s Bench Division cites with
approval a dictum of Fletcher-Moulton, L.
refusing to sanction the per-
petration of an “injustice” in a bankruptcy matter.
In the case of Gold Medal Manufacturing Co. Ltd., (1927), 8 C.B.R. 39,
the Court, applying principles of equity, ordered the reformation of a
contract to eliminate an inequity.
Mr. Justice Fisher, in the case of Stanley and Bunting, (1925), 5 C.B.R.
18, applied principles of equity in a bankruptcy matter to relieve an
injustice.
In the unreported case of B. & J. Finance Inc., (Montreal, No. 6961,
Feb. 4, 1970), Mr. Justice Aronovitch reiterated that “the Bankruptcy Act
is a law of equity”.
In the case of Duranceau, (1954), 34 C.B.R. 198, at pp. 199-200, it was
said that:
“… Mais il y a la loi de faillite. Or, celle-ci, qui pr6voit que la Cour
poss~de non seulement une juridiction en droit mais en dquit6 (art.
140(1)), a pour 1un de ses objets principaux de protdger, autant que
possible, la masse de crdanciers garantis et ordinaires d’un failli et
d’6viter, de fagon g6ndrale, que les uns bdndficient d’avantages indus
an detriment des autres…
… [La] Cour croit qu’il s’agit ici d’un cas oii il lui incomberait d’in-
tervenir ‘en 6quit’…”
In reversing this judgment, on different grounds, the Court of Appeal
nevertheless acknowledges that principles of equity form part of the
bankruptcy law. Referring to the Notes of the Court (rather than to the
reported summary, which is incomplete),
the following passages are
noted:
Rinfret, J.:
“… Le cas pourrait se pr6senter ot l’exercice par un cr6ancier hypo-
th~caire de la plnitude de ses droits de crdance en vertu de son acte
d’obligation affecterait de fagon sensible les crdanciers chirographaires
No. 4]
UNREPORTED JUDGMENTS
de son ddbiteur. I1 y aura lieu alors de se demander si, appliquant
les r~gles d’quit6, Yon doit arbitrer.
… Je n’ai pourtant pas h considdrer le point dans la prdsente instance,
puisque les cr6anciers chirographaires ne sont pas affectds.”
St-Jacques, J.:
“.. En recevant la totalitd de sa reclamation moins ce qui devra en
&re ddduit, tant pour le fisc que pour le syndic, la crdanci~re hypo-
thdcaire ne recevra m~me pas cent cents dans le dollar de sa crdance,
tel que stipul6.
Qui aura le bdndfice de cette deduction, si ce n’est pas le second
crdancier hypothicaire qui, dans L’espce, comme on l’a vu, se trouve
6tre Pun des membres de la socigtg Perras et Perras.
“Comment peut-il 6tre question d’dquitd en faveur d’un crdancier
hypothdcaire dont la crdance occupe un rang postdrieur h celui de
la rdclamante et alors qu’il est certain que les crianciers ordinaires
ne recevront pas un sou du produit des immeubles vendus.
… Avec tout le respect possible, je ne puis me r6soudre h admettre
que, dans le cas present, la decision du syndic, confirmde par la Cour
Supdrieure, puisse s’appuyer sur cette disposition de la loi de faillite
qui permet, dans certaines circonstances, d’envisager l’dquit6, en mime
temps que la loi.”
In the Duranceau case, our Court of Appeals refused to apply prin-
ciples of equity because (a) the hypothecary creditor was not receiving
100 cents on the dollar because of the deduction of various costs and
taxes, (b) the mass of chirographic creditors did not stand to benefit
from the application of equitable principles and (c) as a result of certain
manipulations, the party who would benefit from the application of equity
was the trustee’s partner.
None of these factors is applicable in the present case; as was seen
earlier, the secured noteholders are obtaining 100 cents on the dollar
plus all accrued interest, net of all expenses. Can they, and should they,
obtain more at the expense of the unsecured creditors?
Sec. 93 of the Act provides that:
“Subject to the provisions of section eighty-nine, a creditor shall in
no case receive more than one hundred cents in the dollar and interest
as provided by this Act.”
This provision was contained in the 1919 Bankruptcy Act which came into
force on July 1, 1920 and was based on Sec. 18 of the Second Schedule
to the English (Imperial) Bankruptcy Act of 1914. The Respondent con-
tends that this rule is applicable only to secured creditors who have
proved their claims in the bankruptcy.
The Act, in See. 2, defines both “creditor” and “secured creditor”,
the former term including the latter in its defined meaning. Had the
legislator wanted to differentiate between the two in Sec. 93, it would
have done so in the manner as it did elsewhere in the Act. Not having
done so, the Court must give to Sec. 93 its plain and obvious meaning –
that is, that Sec. 93 must apply to all creditors, irrespective of the nature
of their debt. Accordingly, Sec. 93 is applicable to the Respondent.
McGILL LAW JOURNAL
[Vol. 16
In the Duranceau case above cited, Mr. Justice Montpetit holds that
the indemnity of 10% should not be paid to the secured creditor but
should rather be paid to the mass of creditors, because the secured credi.
tor “…ne perd absolument rien et, A vrai dire, elle n’a encouru aucun
des dommages (m~me s’ils sont ddclards liquides
l’avance) pour les.
quels cette indemnit6 avait 6t6 pr6vue”.
Respondent argues that the Petitioner has no interest in instituting
the present proceedings since a trustee in bankruptcy is simply an as-
signee of the bankrupt, who takes the property and assets of the bankrupt,
subject to any prior assignment or security which may exist in relation
to the property of the bankrupt. Accordingly, Respondent argues that
the Petitioner’s rights are subordinate to those of the Intervenant.
This proposition is only partially true; in many instances, the trustee
in bankruptcy simply stands in the shoes of the bankrupt, having no
greater rights than the bankrupt may have had. But in many other
respects, the rights of the trustee in bankruptcy are superior to those
which the bankrupt may have had.
An assignee of the creditors collectively, the trustee may have, vis-h-vis
certain parties, the rights of a third party. He may thus, for example,
bring suit to annul contracts which, but for the bankruptcy, may have
been completely binding on the debtor. He may recover payments which,
but for the bankruptcy, would have been validly made by the debtor.
He may redeem a security in circumstances where the debtor would have
had no such right. He may disclaim certain onerous contracts. He may,
in short, do many things and enjoy certain rights which the law bestows
upon him so that the law’s purposes may be better fulfilled. Paramount
among these purposes is the equitable distribution of the debtor’s assets
among the mass of creditors.
The trustee’s powers and capacity certainly transcend those of a
mere assignee. It is thus in vain that Respondent argues that the Petitioner
has no interest in instituting the present proceedings: his interest is that
of the mass of creditors and, as was pointed out in the Quebec Trucks
and Trailers case, this interest may be “superior to any right which the
debtor may have given to certain of his creditors by Trust Deed”. Nor
is the Petitioner’s interest affected by the security which the Intervenant
purports to have; Petitioner could well have, and does in fact have, rights
to the proceeds of the “premium” while the Intervenant has none.
Both counsel devoted a significant proportion of their proof, and
their notes and authorities, to an analysis of what the eventual realization
of the assets of the Bankrupt might yield, and whether there would be
a sufficient excess, after payment of the Respondent’s claim, to pay the
Intervenant’s claim and, thereafter, leave a dividend for the mass. It
is
unnecessary for the Court to pronounce itself on such proof. If Mr.
Macklaier’s analysis is overly pessimistic, it is properly so, for he is
administering in a fiduciary capacity and must, necessarily, take a con-
servative view. In any event, even if the excess were to be insufficient
to pay the Intervenant’s claim in full, and this notwithstanding the addi-
tion to such excess of the proceeds of the “premium”, this would in no
way affect the Petitioner’s rights.
No. 4]
UNREPORTED JUDGMENTS
Respondent argues strenuously that the concept of “equity” is not
applicable in bankruptcy matters.
The Court cannot accept this argument in the face of the clear wording
of Sec. 140 and the necessary implication of See. 93. The Act abounds
with equitable concepts. Thus, in the other provinces of Canada, “equitable
assignments” i.e. those which, although they are technically or in strict
law invalid, are nevertheless clearly expressive of the intentions of the
parties, are protected against the rigorous provisions of Sec. 63.
Sec. 36 permits a court to set aside a proposal when it cannot proceed
without “injustice”.
The jurisprudence cited above and the doctrine make of the Court,
in the exercise of its bankruptcy jurisdiction, a “Court of Equity”.
It is true that there were in England two systems of administration
of justice, one of them applying the common law and the other, deriving
from the Ecclesiastical Courts and known as Courts of Chancery, applying
a system of jurisprudence known as “Equity”. It is not, however, in this
sense that the term is used in Sec. 140; the use of the term “equity” in
this section gives to the Court the power, as was pointed out in Gold
Medal Manufacturing Co. Ltd. above cited, to “give equitable relief to
suitors entitled thereto in proceedings in bankruptcy”, and this precisely
because the strict legal remedies might be insufficient for such purpose.
There is nothing startling about the insertion of equitable concepts in
the Bankruptcy Act; our Civil Code also requires the application of equity
for the solution of certain problems. Aside from C.C. 1040(a) and fol-
lowing, which are comparatively recent amendments, the Code stipulates,
in Art. 1024, which is of entirely French derivation, that the obligations
of a contract extend to consequences which, by equity, are incidental
to the contract. Art. 1135 of the Code Napol6on is identical to C.C. 1024.
Nor is the Canadian Bankruptcy Act unique in applying equitable
principles. The Supreme Court of the United States, in the case of
Kothe v. R.C. Taylor Trust, 280 U.S. 224 (1930), at page 227 said as
follows:
“… The broad purpose of the Bankruptcy Act is to bring about an
equitable distribution of the bankrupt’s estate among the creditors
holding just demands based on adequate consideration. Any agreement
which tends to defeat that beneficent design must be regarded with
disfavour.”
Respondent relies on the judgment of In re: Civano Construction,
4 C.B.R. n.s., 294. This case is, however, substantially different from
Civano. The latter case dealt with a bonus of 10% due specifically in
the event of bankruptcy; no such clause is contained in the Respondent’s
security documents. No proof was apparently made of any change
in interest rates. Moreover, the trustee in the Civano case had done
certain acts which estopped him from attacking payment of the bonus.
The gist of the judgment –
and that which distinguishes it from the
present case –
is contained in page 298:
“…Lorsque le syndic, aidd des inspecteurs, a ddcid6 de procdder
lui-m~me h la vente des immeubles avec le consentement des crdanciers
hypoth6caires, i a dfi dvidemment se rendre compte des obligations
McGILL LAW JOURNAL
[Vol. 16
du ddbiteur envers ces derniers. II lui 6tait alors loisible d’examiner
les contrats, et de constater quels dtaient les montants dus en
capital, en int6r~ts, aussi bien qu’en indemnit6 prdvues h la clause
spdciale ci-dessus mentionne. C’est donc en toute connaissance de
cause que le syndic a accept6 de procdder lui-m6me & la vente
des
immeubles, et c’est sans doute apr~s s’6tre rendu compte
qu’il pouvait, malgrd toutes ces charges, y avoir un avantage pour
la masse des cr~anciers, qu’il a ddcid6 de faire la vente lui-m~me.”
As Petitioner points out in his Notes, it is obvious that the judgment
would have been different had the creditors tried to protect themselves
rather than leading the secured creditor to the position in which it
found itself in that case.
For the Foregoing reasons, the Court:
Maintains Petitioner’s petition in part; with costs against Respondent,
6s-qualit6;
Dismisses the Intervention, without costs;
Declares that Respondent 2s-qualit6 does not have the right to make
any payments whatsoever on account of the alleged premium and interest
thereon accrued;
Declares that no premium whatsoever, and no interest thereon, is
due to the secured noteholders for which Respondent is acting as
Trustee;
Condemns the Respondent 6s-qualit6 to pay to Petitioner
s-qualit6,
for the sole benefit of the mass, the total amount of the purported
premium, to wit: $1,072,359.52, and interest thereon accrued by Respondent
in such amount as would be payable thereon in accordance with the
terms of the Principal and Supplemental Trust Deeds.
RESPONSIBILITY
THEODORE DIDONE v. HANS MUROVIC and VLADIMIR
MUROVIC, and M. H. BLAKELY, Intervenant, and VLADIMIR MU-
ROVIC v. M. H. BLAKELY, S.C.M. 745,255, February 18, 1971, Mr.
Justice Puddicombe.
Automobile accident – Presumption of Liability of owner of vehicle –
Rebuttal
– Action in warranty – Highway Victims Indemnity Act,
Theft of vehicle
1964, R.S.Q. c. 232, s. 3.
In
this action, plaintiff sues Hans Murovic, the driver, and
Vladimir Murovic, the owner of the vehicle, for damages suffered
in an accident. Vladimir impleaded M. H. Blakely in warranty, in
his quality as Attorney in Canada for the Non-Marine Underwriters,
members of Lloyd’s, London.
The principal action centered around the determination of
whether unauthorized use, contrary to an express prohibition, by
No. 4]
UNREPORTED JUDGMENTS
a son, of his father’s car constituted “theft” in order to rebut the
presumption of liability imposed upon the owner by the Highway
Victims Indemnity Act.
In the action in warranty, co-defendant Vladimir wanted to force
his insurers to take in his defence. Defendant in warranty argued
that since the insurance policy specifically excluded coverage should
the vehicle he driven by Hans, it did not, under the policy, have
to defend Vladimir in an action based on the fault of the former.
The part of the judgment dealing with the liability of the driver
is omitted; it suffices to say that Hans was found to have committed
a fault and to have been the cause of the accident.
Mr. Justice Puddicombe
The Court having heard the parties through their respective attorneys
on the merits of the present case, examined the proceedings and exhibits
of the record, having heard the evidence and on the whole deliberated,
renders the following judgment:
M. H. Blakely of the district of Montreal is described in the writ of
summons in the action in warranty as attorney in Canada for the Non-
Marine Underwriters, members of Lloyd’s London, England.
The declaration in warranty alleges that the plaintiff in warranty
has been sued by the principal plaintiff in this case alleging personal and
property damages as a result of a motor-vehicle occurrence of on or about
February the 5th, 1967, in the district of Montreal, involving a motor
vehicle of the plaintiff in warranty, allegedly driven then and there by
one Hans Murovic, a principal defendant; that by a policy of automobile
insurance the defendant in warranty as a representative of Lloyd’s of
London insured the plaintiff in warranty, the defendant in warranty having
agreed, inter alia, to indemnify the insured, i.e. the plaintiff in warranty,
against the liability imposed by law upon him arising from the ownership,
use or operation of the automobile described therein, i.e. the Volkswagen,
within Canada, arising from bodily injury or death to any person or
damage to property, and to defend in the name and on behalf of any
person insured by the policy and at the cost of the insurer any civil
action which might at any time be brought against such person on account
of such loss or damage to persons or property, the whole as appears
from the said policy of insurance. The declaration goes on to allege
that the plaintiff in warranty was called upon to take up its obligations
under the said policy of insurance which it has failed to do concluding
that “the defendant in warranty take up the defence of the principal
defendant, Vladimir Murovic, the plaintiff in warranty, and, should the
defendant in warranty fail to do so or should defendant in warranty
be unsuccessful in having the principal action dismissed as against the
principal defendant, Vladimir Murovic, plaintiff in warranty, that the
defendant in warranty be held to indemnify the said principal defendant,
Vladimir Murovic, the plaintiff in warranty for any contestation which
may be pronounced against him.
McGILL LAW JOURNAL
[Vol. 16
In defending
the action-in-warranty
in warranty
admitted the contract of insurance but went on to allege that the plaintiff
in warranty’s defence had not been taken up by the Underwriters because
there was no obligation to do so. In support of this allegation it is
alleged: (par. 5)
the defendant
“With respect to the accident complained of the contract of insurance
had no effect whatsoever vis-h-vis the assured or vis-h-vis third parties
because by endorsement dated September 6th, 1966, coverage was
specifically excluded if the automobile be driven by plaintiff in
warranty’s son Hans Murovic”.
(par. 6)
“Accordingly neither plaintiff in warranty Vladimir Murovic nor his
son Hans Murovic are entitled to protection or to a defence from
Underwriters under the contract of insurance”.
Inasmuch as the action has already been decided and the defence
of Vladimir Murovic, principal defendant and plaintiff in warranty,
upheld, the only question left for the Court to decide is whether or not
defendant in warranty was obliged to defend Vladimir Murovic in the
principal action.
Originally the insurance contract read, in part, as follows:
“…subject to the limits, terms and conditions herein stated and
subject always to the condition that the insured shall be liable under
the section (s) or subsection (s) of the following Insuring Agreements
A, B, C…
The Insurer agrees to indemnify the Insured, … and in the same
manner and to the same extent as if named herein as the Insured,
every other person who with the consent of the Insured, or the
consent of an adult member of the Insured’s household other than
a chauffeur or domestic servant, personally drives the automobile,
against the liability imposed by law upon the Insured or upon any
such other person for loss or damage arising from the ownership,
use or operation of the automobile.., resulting from:
Bodily injury to or death of any person or damage to property…”
Then the policy enunciates various additional agreements the third of
which is:
“To defend in the name and on behalf of any person insured by this
policy and at the cost of the Insured any civil action which may at
any time be brought against such person on account of such loss
or damage to persons or property and
To pay all costs
interest.. “.
The said policy expired on April the 13th, 1967. However, on September
taxed against any person insured
… and any
the 6th, 1966 the policy was endorsed to the following extent:
“The Insured, named in the policy to which this endorsement is
attached, hereby agrees that the automobile shall not be driven by
Mr. Hans Murovic”.
There follows the signature of the Insured, Vladimir Murovic, and then
the following:
No. 4]
UNREPORTED JUDGMENTS
“Except as otherwise provided in this endorsement, all terms, provi-
sions and conditions of the policy shall have full force and effect.
All other terms and conditions of this Policy remaining unchanged”.
In my opinion the endorsement does not relieve the insurer of its
obligation to defend the insured under the circumstances disclosed by
the proof in the principal action in this case. The insured, Vladimir
Murovic, agreed that the automobile should not be driven by his son
Hans. That is all! He did not agree, nor does the policy which, save for
the endorsement, remains unchanged, stipulate that the insurer would
be absolved from taking up the defence of the insured against the liability
imposed by law upon the latter. In this case the liability imposed by law
was set forth in Section 3 of the Highway Victims Indemnity Act. Surely
had any third party other than Hans Murovic stolen the automobile there
could be no question but that the insurer was bound to defend an action
taken against the insured, Vladimir Murovic. Undoubtedly the defence
would have been as pleaded by the defendant and plaintiff in warranty,
Vladimir Murovic, that sub-section b of the said section 3 was operative
and therefore as owner Vladimir Murovic could not be held responsible.
I cannot conceive that because the insured agreed the automobile
should not be driven by one of his sons this relieves the insurer from
defending an action taken against the insured because despite every
effort on his part, at the time of the accident it was being driven by a
thief who, as it happened, was the person named in the endorsement,
that is, the said son Hans Murovic.
In my opinion, therefore, the action in warranty is well taken and
the defendant in warranty should have taken up the defence of the
principal defendant, Vladimir Murovic, and plaintiff in warranty.
Wherefore defendant in warranty is ordered to indemnify the said
principal defendant, Vladimir Murovic, the plaintiff in warranty, from
any condemnation which may be pronounced against him, the whole with
costs against the defendant in warranty.
The defence of Vladimir, as owner, rests on the exception as to
liability contained in Section 3b, of th Highway Victims Indemnity Act,
(1964) R.S.Q., C. 232.
M. H. Blakely, described as “attorney for Non-Marine Underwriters
at Lloyd’s, London, England”, intervened. Having referred to the principal
action the said intervenant, in his amended intervention, alleges: (par. 3)
“The automobile owned by defendant Vladimir Murovic and driven
at the time of the accident by his son Hans Murovic was insured under
the terms of a contract of automobile insurance number Q8445 which
was in effect at the date of the accident herein above mentioned; but
with respect to the accident complained of the contract has no effect
whatsoever vis-a-vis the assured or vis-h-vis third parties because by
endorsement dated September 6th, 1966 coverage was specifically
excluded
the automobile be driven by defendant’s son Hans
Murovic.”
if
McGILL LAW JOURNAL
[Vol. 16
The intervenant then goes on to plead that in any event the plaintiff’s
damages were exaggerated, that there was no lien de droit between
plaintiff and defendant Vladimir, (par. 5), “whose automobile had been
stolen, by his co-defendant Hans Murovic just prior to the accident” and,
finally, by paragraph 6 thereof the following:
“Intervenant desires to set up against plaintiff any other grounds of
defence which defendant may or might set up without regard to any
consent or confession or judgment by defendant, the whole under
reserve of Underwriter’s rights to deny liability under the contract
to the assured or at law to third parties including plaintiff”.
Also, the defendant, Vladimir, called the above described intervenant
in warranty in his quality as set forth. To the action in warranty said
defendant in warranty pleaded, inter alia, that the contract of insurance
referred to spoke for itself; that, however, plaintiff in warranty’s defence
had not been undertaken by the Underwriters “because there was no
obligation to do so”, (Plea of defendant in warranty, paragraph 3), and
subsequently, to all intents and purposes, repeated the allegations con-
tained in the amended intervention;
in brief that by reason of the
endorsement of the 6th, of September 1966 coverage was specifically
excluded if the automobile was driven by Hans. Hence, he pleads neither
of the defendants in the principal action are entitled to protection or
to a defence from the Underwriters, (par. 6), and, finally, that there was
no lien de droit between the principal plaintiff and the plaintiff in
warranty, “whose automobile had been stolen by Hans Murovic just
prior to the accident”.
The defence of the defendant, Vladimir, that of the intervenant and
of the said intervenant as defendant in warranty present considerable
difficulty.
As above set forth, defendant Vladimir invokes the exculpatory
clause, Section 3b, of the Highway Victims Indemnity Act, that is as
owner of the Volkswagen, he was not responsible because, at the time
of the accident, it was being driven by a third person, to wit his son Hans,
who had obtained possession of it by theft.
With regard to this plea the Court finds the following facts to have
been proved.
Hans had been involed in a serious accident sometime
in July
preceding the events giving rise to the present litigation. Consequent to
this previous accident Vladimir’s insurers, i.e. represented by the inter-
venant and defendant in warranty, had refused to insure the Volkswagen
if Hans was to drive it. So Vladimir agreed to an endorsement to the
insurance policy to the effect that the Volkswagen was not insured when
driven by Hans. Hence Vladimir unequivocally forbade Hans thereafter
to drive the Volkswagen and, for that matter, his other car. Hans, in his
evidence, agreed that he had been forbidden to drive either of his father’s
cars. Vladimir was unaware that Hans had, on occasion, disobeyed and
had taken one or other of his, Vladimir’s vehicles out and driven it. He
wanted Hans’ driving licence cancelled but had been unable to effect this.
There were three ignition keys to the Volkswagen, one of these
Vladimir kept on his person, one he placed in an unlocked drawer in his
desk situated in a room reserved by him as his office in the basement
No. 4]
UNREPORTED JUDGMENTS
of the family dwelling house. The third key was in the possession of yet
another son, Vladimir junior, who was permitted to use the Volkswagen;
there is no suggestion by any of the witnesses that this third key was
used by Hans on the night of the accident. (Any discrepancy between
Vladimir’s evidence On Discovery and at the trial as to the number of
keys, particularly the one in the desk drawer, of this he was certain. His
evidence.) He never disclosed to Hans the whereabouts of the ignition
keys, particularly the one ni the desk drawer, of this he was certain. His
office was for his own use, Hans had no business being in it.
Nevertheless, on that Sunday night, although forbidden to drive it,
Hans entered his father’s office in the basement and aware that one
of the ignition keys of the Volkswagen was in the drawer of the desk,
abstracted it, got into the vehicle with his brother, Carl, and the said
girl, or girls, and himself at the wheel, drove away.
At this time Mrs. Murovic, (not heard as a witness), i.e. Vladimir’s wife
and Hans’ mother, was on the premises albeit on a different floor from
the office. Hans said he was not aware of this fact. At any rate, sometime
later, before Vladimir’s return, Mrs. Murovic was surprised to see Vladimir
junior descending the stairway from his room. She asked him what had
happened, “you did not drive the car”, (Discovery, page 16). She was told
then that Hans had taken it. But there was no way that they could get
in touch with Vladimir, “they couldn’t reach me because I am working
in many clubs and so I go from club to club”, (Discovery, page 16).
Vladimir, an ice-maker for various curling clubs, some of which
were in different municipalities to that of his residence, was engaged
in this calling on the said Sunday. He didn’t return home until about
8.00 p.m. He noticed that the Volkswagen was not in the driveway, (Dis-
covery, page 11), and, on entering the house his wife told him that, without
her knowledge, Hans had taken the automobile in order to drive a girl,
or girls, (there is a discrepancy in the proof), who had been visiting the
Murovic residence, to their home. (A considerable amount of this was
hearsay evidence, but no objection was made to it.) Of course, Vladimir,
being absent when Hans left, did not, and could not have known that
Hans had driven the Volkswagen away. On learning that he had, Vladimir
took no overt action; he did not, for instance, notify the police that the
Volkswagen had been stolen.
Vladimir had always had good relations with his son Hans; he had
had no trouble with him. He was obedient, “He was always listening.
Serious like, you know, in the old country, still like I am the boss, you
know… and if I say, ‘you don’t drive the car’, I thought he won’t do it,
I thought he won’t do it… I was surprised he took the car after”, (Dis-
covery, page 13).
From this proof, can it be said that Hans was in possession of the
Volkswagen at the time of the accident by theft?
The question as to what constitutes theft within the meaning of the
Highway Victims Indemnity Act, Section 3b, has been examined on a
number of occasions by this Court, at least once by the Provincial Court,
but to date, as far as I am aware, not by the Appeal Court.
The judgments in the Superior Court have all, insofar as I have been
able to ascertain, based the decisions on reference to the definition of
McGILL LAW JOURNAL
[Vol. 16
theft found in the Criminal Code, Section 269, or, in the same Code, under
the heading “Offences Resembling Theft”, Section 281. A possible exception
is the judgment in Frost v. McEiien, ([1966] C.S. 524), but there, “[lie
demandeur ne nie pas qu’au moment oii raccident est survenu, l’automo-
bile du ddfendeur 6tait l’objet d’un vol. II reproche seulement au d6fendeur
d’avoir cr66 la tentation pour un voleur en laissant les cl6s dans son auto
et le moteur en marche. Cette circonstance n’affecte pas la situation
juridique des parties. Quand l’automobile du demandeur a W endomma-
gde par celle du d~Jendeur, l’automobile du d6fendeur avait dt6 volde. Le
vol de son automobile par un tiers permet au propridtaire de s’exondrer
de la responsabilitd du dommage causd par son vdhicule. L’article 3,
alinda b, de la Loi de l’Indemnisation des Victimes d’Accidents Auto-
mobile doit recevoir ici son application…” (My italics).
In Pelletier v. Boudreau, ([1968] S.C. 22), it was held, inter alia, “Pour
se lib6rer de la responsabilit6 ddictde par l’article 3…, en invoquant que
l’automobile dtait conduite par un tiers en ayant obtenu la possession par
vol, le propridtaire doit prouver qu’il s’agit d’un vol tel que ddfini par
l’article 269 C.cr.” (My italics). The facts in this case were “le d6fendeur
dormait au moment oii on lui a substilis6 les clefs de sa voiture, qu’il ne
permettait pas h son fils Gadtan de se servir de son automobile et que,
dans le cas particulier de l’6v6nement qui s’est produit le 20 ao-ht 1964,
ledit Gadtan Boudreau n’avait pas l’autorisation de prendre 1’automobile
de son p~re et de s’en servir”, (p. 26). The question was not whether Gadtan
Boudreau had taken his father’s automobile without permission and
consent of this latter, “mais bien s’il en a obtenu la possession par vol”.
The judgment then cites section 269 of the Criminal Code. But the learned
judge pronouncing the judgment, went on to say that having given the
proof “n examen attentif”, (same page), “le tribunal ne peut se convaincre
qu’une cour compdtente de juridiction criminelle, sur une plainte portde
contre Gadtan Boudreau en vertu de l’article 269 du Code criminel, aurait
pu dventuellement le reconnattre coupable de
‘accusation formulde,
c’est-ii-dire de vol.” (My italics). The judgment goes on to discuss Section
281 of the Criminal Code, finding that, in all probability Gadtan Boudreau
would have been found guilty had he been charged under this section;
however, this was not the law contemplated by the Highway Victims
Indemnity Act, “la responsabilit6 du propridtaire dont l’automobile est
ainsi soustraite h sa possession n’est pas ddgagde de la responsabilitd de
‘accident qui peut survenir en l’occurrence,” (p. 27). The judgment conti-
nue: “Si s6v~re que puisse 6tre cette opinion, le tribunal croit de son
devoir d’appliquer la loi telle qu’elle est formulde, sachant qu’il s’agit lh
d’une loi d’ordre public dont l’interpr6tation est restrictive et de droit
strict”. So, following this opinion, first the alleged theft must be that
corresponding to the definition in Section 269 of the Criminal Code, the
offence described in Section 281 thereof is not the criminal act contem-
plated in the Highway Victims Indemnity Act; second, in order to be
relieved of the responsibility enacted by Section 3 of the said Act, the
owner must show to the satisfaction of the Court that, had the third
party been accused of theft a Court of criminal jurisdiction would have
found him guilty.
The Superior Court finding in McNamee v. Pancaldi, ([1968] C.S. 630),
is also based on an interpretation of Section 269 of the Criminal Code.
No. 4]
UNREPORTED JUDGMENTS
On the facts the Court found that an employee of a service station who
had taken the tow-truck, although forbidden to do so, in order to change
a tire on an automobile belonging to a customer of the service station,
could not be found to have had possession of the tow-truck by theft inas-
much as at the time of the accident the owner had not been deprived
of its use, on the contrary it was being used for his benefit. Hence the
expulpatory clause of the Act, Section 3b, did not apply and the owner
remained responsible. “Even if such an act is an offence resembling
theft, it lacks the elements of taking fraudulently and without colour
of right or converting as required by Section 269 of the Criminal Code.”
The judgment in the McNamee v. Pancaldi case discussed a number
of decisions concerning the aforesaid exculpatory clause. In Plante v.
Brabant & De Richard, C.S. Arthabaska 17,092, (December 6, 1965) appar-
ently unreported), it is pointed out that the lack of consent, or consent,
must coincide “lors de l’accident.” In Perron v. The Wawanesa Mutual
Insurance Co., ([1964] S.C. 324, at p. 330), the Court discussed theft as
defined in a policy of insurance and found that the contract of insurance
exacts “la plus grande bonne foi ou uberrima ides” not because of any
ambiguity in the contract but in support of the principle laid down in
Orchard v. Mutual Benefit Health and Accident Association, ([1961] C.S.
293). “Le principe d’interpr6tation des contrats ddict6
‘article 1019
C.C. oblige, en mati~re d’assurance, le tribunal A interpr6ter contre
‘assu-
reur, qui a stipul6, et en faveur de
‘assur6.” The finding in the Perron v.
Wawanesa contained a reference to the judgment in Boyle v. Yorkshire
Insurance Co., ([1925] 1 D.L.R. 344), the Court remarking that in the said
judgment the insurance policy did not require the condemnation of a
presumed thief of an automobile, but simply that there had been a theft.
This judgment of the Ontario Appeal Court was followed by the Supreme
Court of New Brunswick, appelate division, in Babineau v. Colette and
Colette, ((1962), 32 D.L.R. (2d) 541, cited in Perron, supra, at p. 337),
in which it was decided, in interpreting the word “theft” in an insurance
policy, that “un fils qui avait pris les cl6s de l’automobile de son p~re,
dans les habits de ce dernier, alors qu’il 6tait absent au travail, et qui
avait conduit le v6hicue en son absence… avait agi” fraudulently and
without colour of right to deprive him temporarily of it and hence had
committed theft of the car as defined by Section 269, sub-section la, of
the Criminal Code. The Court then went on to find in the Perron case,
(it being reiterated that this had to do with “theft” as found in an
insurance policy), that, as in the Babineau case, the elements of theft
as defined in Section 269 of the Criminal Code existed. All of which, in the
opinion of the undersigned, leads to the conclusion that, while the word
“theft” in an insurance policy is not rigidly confined to the meaning given
by Section 269 of the Criminal Code, as a wider interpretation premised
on the meeting of the minds of the parties to the insurance contract must
be given, nevertheless the Courts have had recourse to the definition
of “theft” given in the Criminal Code, which, though narrower than that
in the contract of insurance, a fortiori, must be included in the wider
interpretation.
t
The judgment in the McNamee v. Pacaldi case also refers to an un-
reported judgment of the Superior Court, (No. 631,558, Germain v. Saucier
& Bdlisle, dated the 23rd, of June, 1966), wherein the action against the
McGILL LAW JOURNAL
[Vol. 16
owner was rejected on the grounds that he had established theft of his
vehicle by a third party who was in possession thereof at the time of the
accident and, hence came under the exculpatory clause, Section 3b, of the
Highway Victims Indemnity Act. “Les agissements de Saucier correspon-
dent au vol tel qu’il est d6fini
t Particle 269 du Code Criminel. Ils corres-
pondent aussi h 1’infraction sp6ciale d6crite h Particle 281 du Code Crimi-
nel.” In fact, the third party, Saucier, had pleaded guilty to a charge under
this latter section of the Criminal Code which, the Court found, rebutted
any suggestion that he had been given even the smallest authorization
to use the automobile in question. Hence, in the undersigned’s opinion,
this finding is not contrary to the finding in the Pelletier case, i.e. that
“theft” must be defined restrictively as having, in the Highway Victims
Indemnity Act, the same meaning as in Section 269 of the Criminal Code.
So, in all these decisions, both of the Quebec Superior Court, the
appellate divisions of the Supreme Court of Ontario and of the Supreme
Court of New Brunswick, in interpreting the word “theft”, be it in Section
3b of the Quebec Highway Victims Indemnity Act or, with its wider
interpretation, from a contract of insurance, all such Courts have referred
to the definition in Section 269 of the Criminal Code.
But the judgment of the Quebec Provincial Court in Tantalo v. Klay-
dianos & Devreeze ([1970] C.S. 331), rejects all references
the
Criminal Code in interpreting the meaning of the word “theft” in Section
3b in the Highway Victims Indemnity Act. “… .’article 3 de la loi doit
recevoir une interprtation intrins~que, non une interprdtation emprunte
h une autre mati~re, tel le droit penal … Mais un usage liM A la volontd
de son propridtaire… demeure, parce que mandataires et prdposds sont
la continuation de la personnalit6 juridique du mandant et du commettant
ou plut6t prdcisdment sa personnalit6 juridique” (at p. 336).
to
L’usage peut rdsulter d’un quasi-contrat entre le propridtaire d’une
automobile et son usager… Cet usager, ce conducteur, n’est pas un tiers
par rapport au propridtaire de la voiture: il y a entre eux contrat formel
ou tacite ou acceptation implicite d’une partie h l’autre”. This is elementary
as is the following: “Le tiers dans les textes de la deuxi~me section de
cette loi (art. 3b) est celui qui n’est aucunement partie directement ou
indirectement i la volont6 expresse ou implicite du propri6taire dans
la conduite de sa voiture”. (page 336) … Le voleur est un tiers parfait,
le prototype de l’6tranger ht toute manifestation d’intention ou de volontd
du propridtaire … le voleur (par) … son acte permet au propridtaire
de ddgager sa responsabilit6″.
Up to this point the judgment is stating the obvious. But it goes on
to say, and here it departs radically from the above cited judgments:
“Le l6gislateur civil n’avait pas b opdrer des distinctions familires “au
lexicologue” ou au droit pdnal et h. subir les crit~res d’interprdtation qui
rdgissent les textes d’exception.
Ii lui suffisait de s’exprimer par un mot qui d6terminit clairement
sa pensde: “la possession par vol”.
Il dit tout, ce mot-lA: le vol grave, le vol ldger… le vol pr6mddit6,
le vol-tentation. (Here the judgment refers to Frost v. McEwen, supra.)
Voler, c’est s’approprier le bien d’autrui ou “prendre ce qui appartient
h autrui, contre son gr6 ou h son insu”. Qu’il soit fait h main armde, h la
tire, t la ddrobde (larcin), c’est un vol” (page 337).
No. 4]
UNREPORTED JUDGMENTS
It matters little what a thief calls himself, according to the judgment
for: “Un commun ddnominateur, le vol, les lie et leur qualit6 de tiers les
dissocie du propridtaire d’une voiture. Le vol est le rdceptable qui les
contient tous et le volume du mot indique l’ind6pendance absolue du tiers
et du propridtaire de l’automobile volde, subtilis~e, enlev~e sans son
consentement ou h son insu.
Il suffisait au 1gislateur provincial de dire “possession par vol”
pour tout dire. Toute dissertation 6trang~re au tiers est, h mon avis,
dtrang~re ht son propos.
L’intervention d’un tiers aussi parfait que le voleur d6gage la res-
ponsabilit6 du propri~taire de la voiture”.
To accept the criterion of this judgment in interpreting “theft”
within the meaning of the Highway Victims Indemnity Act, Section 3b,
one must postulate that “theft” in the Act refers to something other
than a crime. Else how can one disregard the total absence of “mens rea”
in a definition which says simply that “to steal is to appropriate to
oneself the goods of another, or to take that which belongs to another
without his consent or knowledge.” Here there is no reference to good
faith or rights of retention, (C.C. Article 441, for instance, where there
is no question of a contract resulting in a lien de droit). Nor does the
definition require an element of fraud. But a third party, not bound by
contract to the owner, may have the right to take possession of something,
at least temporarily, belonging to another without his knowledge or
consent, for instance, the irate proprietor who removes the automobile of
another parked in front of his driveway, the fireman who takes possession
of and removes the automobile of another parked in front of a hydrant,
the municipal employee who tows away the vehicle of another left on
a street, or highway, in contravention of a snow-removal sign. Such
takings of possession are accomplished by “colour of right” mention
of which in the said definition is singularly lacking. These attributes, or
rather the lack of them, are indicative of crime. Hence, when not
present “theft” or “to steal”, as defined by the judgment, is not a crime.
The which, it is submitted, is contrary to the generally accepted purport
of “theft” and “stealing”. But even if one subscribes to such a theory,
it does not follow that the more narrow definition of the Criminal Code
may not be the criterion for, a fortiori, if the elements of possession
without knowledge or consent by a tiird party, as defined, being all the
essentials required by the Tantalo v. Kaydianos & Devreeze judgment
are present, the presence of further elements such as “fraudulently and
without colour of right” cannot alter the finding that a third party
had possession by theft.
In the present case it
is the intention of the Court to apply the
proven facts to the criterion of the pertinent part of Section 269(1) of
the Criminal Code which reads:
“269 –
(1) Everyone commits theft who fraudulently and without
colour of right takes, or fraudulently and without colour of right
converts to his use or to the use of another person, anything whether
animate or inanimate, with intent.
(a) to deprive, temporarily or absolutely, the owner of it… of the
thing or of his property or interest in it”.
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[Vol. 16
There can be no doubt that Hans took and converted to his own
use the Volkswagen on the Sunday night of the 5th, of February 1967,
with the intent of depriving, at least temporarily, Vladimir of it. It
must also be acknowledged that he did so after having been expressly
forbidden to do so. There cannot be, therefore, any colour of right. But
did he do so fraudulently? In the Pelletier case, (supra), the Court ruled
that had Ga6tan Boudreau been accused, under Section 269, it was,
at any rate to the Court, inconceivable that he would have been found
guilty. This despite the fact that he had possessed himself of the ignition
keys of the automobile without his father’s, the owner’s, knowledge.
Nor had his father known that he took the car which was parked in
a yard near the family’s residence. Gadtan had no driving licence, that
he had, effectively, never driven the car and that his father didn’t even
to manage an automobile. Other
know that he, Gadtan knew how
than in its opinion a Court of competent criminal jurisdiction, on these
the judgment
facts, would not have found Gadtan guilty of theft,
finding the owner still responsible, gave no reasons; save perhaps that
the Highway Victims Indemnity Act was for the purpose of safe-
to damages when injury by admittedly
guarding
dangerous vehicles the very ownership of which entailed responsibility
and, hence, the possibility, the Court said “probability”, of acquittal must
be resolved against the owner.
the public’s right
But one must contrast this finding with that of the New Brunswick
Appeal Court in Babineau v. Colette & Colette, ((1962), 32 D.L.R. (2d)
541), in which the Court found that a son who had taken the keys of
his father’s automobile from his clothes while has was absent at work
and who had driven the car in his absence had acted fraudulently and
without colour of right to deprive him temporarily of it and hence had
committed theft of the car as defined by Section 269, sub-section l(a)
of the Criminal Code. This was the finding despite the fact that the
son had a learner’s licence and his father, although never allowing him
to drive by himself, had been giving him driving lessons.
Applying the test given in the Peletier case, (supra),
it seems
to the undersigned that a competent court of criminal jurisdiction would
have had to find Hans guilty of theft were he charged under the
provisions of Section 269(1)(a) Cr. C. He took the ignition key of the
Volkswagen from his father’s desk where it had been placed to prevent
him from having access to it. Despite his father’s stern prohibition, he
had taken possession of the car and, knowing that by the endorsement
to the insurance policy it was not insured while driven by him, he had
driven it away from the family residence. (It is noted that in the Pelletier
case, (supra), while there was lack of permission to drive, there was
no express prohibition as in the present case). Surely the abstraction of
the keys was underhand and clandestine, hence fraudulent. This being
granted, all the other elements of theft as set forth in Section 269(1)(a)
of the Criminal Code are present.
It follows that the plea of the defendant, Vladimir Murovic, must be
maintained.
No. 4]
UNREPORTED JUDGMENTS
ALIENATION OF AFFECTION – DAMAGES
DAME MARY LINDA WRONSKI v. DAME YOLANDE LEBLANC,
S.C.M. 773,043, November 27, 1970, Mr. Justice G.B. Puddicombe.
Alienation of Affection – Action by aggrieved wife against paranour of husband
Quantum of damages – Fault of defendant not proven – C.C. 1053.
Has an aggrieved wife, who has lost her husband to another
woman, a right of action against the latter? Alienation of affection
has been frequently the source of litigation but the action has,
in the past, been taken by an aggrieved husband. In the present
case, Plaintiff, the wife, in order to succeed, had to prove fault on
the part of defendant, causality and damage.
Mr. Justice Puddicombe
By her action plaintiff claims $3,000 from defendant as damages suffered
by her in that, as she alleges, defendant has completely alienated the
affection of plaintiff’s husband.
The facts on which plaintiff bases her action are as follows:
(a) Plaintiff and her husband, Jacques Gignac, were employed by
the Canadian General Electric Co. at 5781 Notre Dame St. East, in the
City and District of Montreal; defendant was also employed by the said
company. Defendant and the said Gignac work in the same department
the latter being a foreman. Plaintiff, however, did not work in the same
department as defendant and Gignac;
(b) Some two years before the commencement of the present action,
i.e. on the 3rd. of July 1969 when the writ of summons was served on
defendant, plaintiff’s husband, the said Gignac, and defendant, had entered
into a liaison. The said Gignac would visit defendant two, three or four
times a week and occasionally for weekends. He would stay with her
all night or sometimes for a whole weekend. During this time he and
defendant had sexual relations;
(c) Plaintiff reproached defendant with her conduct in thus consorting
with the said Gignac; on one occasion on or about the 23rd of May
1969 she waited outside defendant’s residence and about 6.45 a.m. saw
her husband coming out therefrom. Subsequently she wrote a letter to
defendant, copy of which appears as plaintiff’s exhibit P-5, which in
effect was putting defendant in default. Despite the letter defendant
continued to receive the said Gignac.
The foregoing facts have been admitted by defendant.
Defendant did plead to the present action but after a time her
Counsel asked to be relieved of the mandate inasmuch as she did not
cooperate with them. The request was duly granted by the Court and
plaintiff proceeded to require defendant to appoint another Counsel
which she did not do. Accordingly the action was heard ex parte before
the undersigned.
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[‘Vol. 16
In addition to the above proof it was alleged and the defendant
did not deny it that she knew plaintiff and the said Gignac were married
and had children.
is first: Defendant
induced plaintiff’s husband
What has been alleged by plaintiff, but in the Court’s opinion, has
not been proved
to
lose interest in his wife, and affection and care for his children, (Decla-
ration, paragraph 8); second: Defendant has wilfully disrupted the entire
life of plaintiff and their children, (Declaration, paragraph 10); third:
As a result of the relationship between Gignac and defendant, the
former has shown and is showing no interest whatsoever either as a
husband to plaintiff or as a father to his children, (Declaration, paragraph
14).
I can find no proof whatsoever in the record other than the allegations
made that defendant seduced Gignac, plaintiff’s husband. The letter,
P-5, in my view, even if defendant received Gignac thereafter makes no
proof of seduction.
In respect to the allegations that Gignac no longer cared for his
children there is no proof of this whatsoever; on the contrary the
proof is to the effect that he has supported plaintiff and his children
during the whole time in question. As a matter of fact he has never
abandoned them and still remains living in the common domicile.
As to paragraph 25 of the declaration, quoted above, the damages
alleged are global. There is no division between special and general
damages. Some attempt has been made
to establish disbursements
which plaintiff alleges were due to the medical care she found necessary
by reason of the anxiety occasioned by the circumstances above set
forth. However, this expense must be the obligation of Gignac to pay
and cannot be claimed by plaintiff against defendant under any event.
Consequently the perceivable, if not the only claim for damages are
for or by reason of the allegation concerning alienation of affection. In
this respect the plaintiff has alleged she has suffered ridicule, humiliation,
that she has become a nervous wreck and that her social, marital and
household relations with her husband have been completely destroyed.
Before considering whether an action in damages for alienation of
affection can be taken by a wife against her husband’s paramour the
Court intends to deal briefly with the quantum should such an action
exist. It has been noted above that plaintiff has not lost the financial
support of her husband, Gignac, who has continued to contribute to her
support and that of their children. As to the allegations of loss of
health in the Court’s opinion the proof insofar as
it relates to the
circumstances above is not sufficient. The most that can be said for
it is that according to the medical evidence plaintiff’s nervous condition
corresponded in time with the anxiety caused by the said liaison. This
in my estimation is not conclusive.
The sole question remaining then is the one of humiliation, ridicule
and loss of social and marital life. Again I can find no evidence of
humiliation or ridicule. On the contrary what evidence exists in this
line would seem to be one of sympathy with plaintiff.
What remains then is the question of the destruction of the social
and marital life. In this respect, at the most, the Court, for reasons
No. 4]
UNREPORTED JUDGMENTS
which will be referred to under the question of the right of action,
finds that the damages are minimal and can estimate them at no more
than $200.00.
The question of whether a right of action exists under the circum-
stances disclosed above is one of considerable complexity. Most actions
for damages by reason of alienation of affection are taken by the husband
against his wife’s lover. Even in these some, if not considerable, doubt
arises as to the right of action. In some instances the Courts have
declared the right to exist for the somewhat startling consideration that
a wife is the chattel of her husband, and, consequently if he is deprived
of her, his action exists for much the same reason as if he had been
deprived of a cow, sow or some other moveables, (Laferriare v. Ribardy,
(1874), 5 R.L. 742 (C.S.); see also Beauregard v. Charron, (1934), 72
C.S. 45).
In order to condemn the adulterous accomplice of an erring wife
it is necessary to prove that he was the source of the adultery and
that had he not acted as he did the wife would have remained faithful,
(Andr6 Nadeau, Droit Civil, Tome 8, p. 177, referring to the judgment
of Perrier, J. apparently not reported) in Harbec v. Lebrun, dated the
4th. of May 1948, no. 242,849 of the Superior Court of Montreal.
“Infid&litd d’une dpouse qul n’avait jamais eu d’affection pour sox
mar et abandon du foyer conjugal non provoqu6 par le ddfendeur;
action rejetde sans frais.”
The learned author continues to say:
“S’il r~sulte des faits que la femme a tromp6 son mar de son
plein gr6 et en pleine connaissance de cause, on ne voit pas comment
le coauteur de l’adult~re, puisse rdpondre en dommages h l’6gard
du mar, m6me si sa conduite est moralement rdprdhensible.”
As mentioned above the Court can find no evidence of the seduction
of plaintiff’s husband by defendant. But even if it were so could the
action exist? Certainly not, in the Court’s opinion, if the grounds for
damages given in the Laferriare v. Ribardi and Beauregard v. Charron
cases are the foundation thereof. No one in our society, nor insofar
as the undersigned is concerned, in any modern society of European
origin, has ever suggested that, as distinct from the wife, the husband
could be taken to be the chattel of his legal consort.
Nevertheless, in Keator v. Welch et Binmore, (1938), 41 R.P., 414,
it was held that a wife who complains that her husband’s affection has
been alienated by another woman, has a valid action against the latter.
Surveyer, J. in rendering his judgment quotes first article 1053 C.C.
He refers to Fuzier-Herman Rdp. Vo. Adultere, no. 320, after having
cited article 1382 C.N., corresponding to the learned judge to article 1053,
who said:
“Or, il est 6vident que 1’6poux, victime de l’adult~re, 6prouve un
dommage; donc il lui est dft une rdparation p6cuniaire.”
and he goes on to say:
“Le complice de l’adult~re peut 6tre condamn h des dommages
envers l’dpoux auquel l’adult~re de son conjoint a caus6 un pr6-
judice matdriel ou moral.”
McGILL LAW JOURNAL
[Vol. 16
He then refers to the Pandectes belges, Vo. Adult;re, no. 248. But it
is to be noted there that M. Lelive refers particularly to the right of
a husband saying:
“Aucun texte special ne lui attribue expressdment ce droit, mais
les principes g6ndraux suffisent.”
The learned judge, referring to the defendant’s contention that although
such an action lies in favour of the aggrieved husband no such action
lies in favour of the wronged wife, says:
“No text of law justifies such distinction; that the authors either
speak in general terms of the consort or mention the husband
ex eo quod plerumque fit, but without refusing a similar answer
to the wife, who has an additional grievance, since, by spending
his money with a third party, the guilty husband deprives his
family of so much.”
With great respect I cannot agree that no text of law justifies the
distinction mentioned. The codifiers of our Civil Code certainly made
such a distinction apparently on an accepted text of law when by
article 188 it was laid down that “a wife may demand the separation
on the ground of her husband’s adultery, if he keep his concubine in
their common habitation.” (My underlining) – On the other hand article
187 C.C. states:
“A husband may demand the separation on the ground of his wife’s
adultery.”
One must, therefore, concede that at least at the time of the promulgation
of the Code, and for that matter at the time of the date of the above
judgment, the 23rd of May 1938, a very marked distinction was made
between the adultery of the husband and that of his wife. It is true
that in 1954 the last clause of article 188 was struck by amendment,
(3-4 Eliz. II, c. 48). Again the learned judge has referred to the Pandectes
frangaises Vo. Adult~re, no. 317, quoting with approval the following:
“Bien que la plupart des arr&s relatifs h des actions en dommages-
intdr~ts pour cause d’adult~re soient relatifs ht l’adult~re de la femme,
on peut concevoir que, dans les cas oti la loi autorise celle-ci
t
faire condamner le mari pour la m6me cause, elle n’a pas moins
droit que lui h une rdparation p6cuniaire de l’offense.”
But does the law authorize the husband’s action? From what appears
above his action is founded on something approaching a right of property
in his wife. In this day and age can one consider that a right of action
can be allowed a husband on such a premise? The Court cannot conceive
that it could be so. Consequently, a wife can no more have such a right.
In any event in strict law is adultery a fault as conceived by article
1053 of the Civil Code? That it is immoral must be conceded. That
it is condemned by the Mosaic law, the 7th commandment, is also beyond
question. Nevertheless, as to this latter, it might be submitted that the
prohibition against adultery was not so much on strictly moral grounds
as it was to insure the purety of race and descent. Under the Criminal
Code adultery per se is not a crime although conspiracy to induce a
woman to commit adultery
the
participation in adultery in the presence of a child which endangers the
(section 408(c)) and
is indictable
No. 4]
UNREPORTED JUDGMENTS
morals of the child is also an indictable offence, (section 157(1)). In
other than the Judaic-Christian ethic adultery, i.e. the voluntary sexual
intercourse of married persons with one who is not his or her lawful
spouse, where concubinage is an accepted social custom, has undoubtedly
a very different connotation. Husband (and wife) mutually owe each
other fidelity, succor and assistance, (173 C.C.). A husband is obliged
to supply his wife with all the necessities of life according to his means
and conditions, (176 C.C.). But if the husband proves unfaithful surely
the recourse of the offended wife is in separation as to bed and board
or divorce. In law love and/or affection is required by neither party
to the marriage. So, if the husband commits adultery it
is difficult
if not impossible to see that in doing so he has committed a fault under
1053 C.C. For that article requires the fault be to another, i.e. in the
instance the wife. Such fault must be committed by positive act,
imprudence, neglect or want of skill. Insofar as adultery is concerned
only “positive act”, applies. But adultery insofar as the offended wife
is concerned is, in my opinion, the antithesis of a “positive act”; it is
rather the absence of fidelity and therefore does not qualify as coming
under 1053 C.C. A positive act must be one which is instantly apparent.
Under our concept of the law respecting responsibility, damages must
arise from the fault, causa causans, and not sine qua non. But the
effect of adultery arises only if and when the fact becomes known.
If it does not become public knowledge the effect is nil. Hence it is
impossible to state that the act of adultery can be the direct cause of
damage. This, in the Court’s opinion, disposes of the possibility that
adultery can be considered a positive act within the meaning of 1053 C.C.
Be that as it may, even if adultery is to be taken as a fault under
1053, the reasoning that the accomplice is also responsible, jointly and
severally, for the damages, in my view, is questionable. An obligation
is not presumed to be joint and several, it must be expressly declared
to be so. This, however, does not prevail in cases where joint and
several obligation arises of right by virtue of some provisional law,
(1105 C.C.). Certainly there is no expressed declaration that adultery
entails a joint and several obligation, despite the arguments
to the
contrary, most or all of which are founded, in my humble opinion,
not on the legal but on the moral aspect. Nor is there any such right
arising by virtue of some provision of law; on the contrary as submitted
above, adultery by the husband and the wife were taken to be of different
consequences. Where there is a common offence the obligation is joint
and several, (1106 C.C.). But again, in my opinion, the offence must be
one, when damages are claimed, which comes under the provisions of
1053 C.C. and adultery, as I understand it, is neither an offence or quasi-
offence.
FOR THESE REASONS I am of the opinion that an action in damages
for alienation of affection taken by the wife against the paramour of the
husband does not exist.
Consequently the present action is dismissed, but as the defendant
did not chose to continue her defence, without costs.
