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Again, the fine print!  The following content is based on judgments rendered by the courts in Quebec and elsewhere in Canada, is shared as general information only, does not constitute a legal opinion on our part and does not establish a solicitor-client relationship. The law discussed here may be modified or may have been modified and the facts of the case are not necessarily the same as those that may concern you. Be prudent and consult an attorney before making an important decision. Each of our articles is based on authentic events, court cases and judgments, although we have, out of respect, attributed fictitious names to the implicated parties for publication purposes on the present web site. Your utilization of the present site is subject to the Terms and conditions of utilization. If you do not see a navigation bar at left, you may access the optimal version of our site by clicking here. To contact our Canadian law firm, click here.

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40. Sale of land: the obligation to reveal the existence of a servitude to the buyer in due time.

According to a judgment of the Quebec Court of appeals, the seller of an immovable property may be obliged to retake his property and pay damages to his buyer if he hides the existence of a servitude to him until the signing of the deed of sale.

A company we will call XYZ Inc. builds houses and is the owner of a vacant lot which is subject to a servitude in favor of the municipality, according to which no construction may be erected over the underground waste pipes situated on the lot.

Sonia and Mario, who wish to acquire a new home and install a swimming pool in the back yard, tell this to XYZ Inc., which offers to build a house on the lot in question for 107 500$. In the course of different meetings between them, never does XYZ Inc. mention the servitude to them, which renders the installation of any swimming pool impossible. Sonia et Mario accept the offer.

Then, during its construction of the house, XYZ Inc. notices that there is a manhole which connects to the underground pipe, which it covers, again without advising Sonia and Mario of the situation.

Once the construction of the house completed, Sonia and Mario are asked to pass at XYZ Inc.'s notary's office to sign the deed of sale. They are then informed, for the first time, of the fact that a servitude exists, although the notary says he is incapable of giving them any details and suggests that they think about it, while informing them of the fact that they are not obliged to conclude the transaction since the servitude had not been brought to their attention until then.

After a few hesitations, Sonia and Mario decide to acquire the property. Subsequently, in view of the fact that they cannot install the swimming pool as planned, they asked that the sale be annulled by invoking that they had been induced in error by XYZ Inc., who had maintained silence although it should have, according to them, denounced the true situation.

The Quebec Superior court dismissed the action, on the basis that XYZ Inc. had, by the intermediary of its notary, discharged itself of its obligation to divulge the existence of the servitude to Sonia and Mario in due time, while they had nonetheless chosen to buy the property after having received this information.

This judgment was reversed by the Quebec Court of appeals, which mentioned article 1375 of the Quebec Civil Code, to the effect that good faith must at all times govern the conduct of parties to a contract. The sale contract was annulled.

According to the court, although Sonia and Mario knew of the existence of the servitude when they acquired the property, they did not know its exact nature, which had been hidden from them by XYZ Inc., which thereby provoked a state of confusion and of incertitude for them at the moment of their signing of the title transfer.

XYZ Inc. was therefore ordered to reimburse the 107 500$ sale price to Sonia and Mario, plus some 9 500$ for improvements they had brought to the house, for the welcome tax and for the notary's fees, while Sonia and Mario were ordered to return the property to XYZ Inc.

Although Sonia and Mario won their case, litigation lasted approximately seven years, and people are well advised not to sign a purchase contract without first being sure of the nature, content and extent of the rights which may affect the property to be acquired.

[Posting date in the "Articles" section: 14/05/01. Court file number: 500-09-005262-977. Judgment date: 24/04/01]

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39. Share acquisition: the importance of being attentive to the company's financial statements!

By the intermediary of his company, which we will call Buy Inc., Sam, an experienced businessman, decides to acquire some of the shares held by Luke in another company we will call Sell Inc.

Before concluding the transaction, the parties asked Pete, who had training in accounting, to prepare Sell Inc.'s unverified annual statement, which Pierre did while also writing a two-page summary report in which he concluded that Sell Inc.'s shares were worth the company's retained earnings.

Luke then sold part of his shares to Buy Inc. and Sam became the company's director.

Within two months, Sam learnt that Sell Inc.'s financial situation was much less appealing than Pete's analysis indicated. Indeed, the company had unpaid rent which had not been mentioned by Pete's documents, owed back taxes and owed money to unpaid suppliers...

Sam then told Luke that he was unhappy with the situation and that he considered the share transaction null in view of "the falsehood of financial information received".

In reaction, Luke sued Buy Inc. to obtain payment of the agreed upon price for the shares, while in defense Buy Inc. asked that the action be dismissed on the basis that Sam had been induced in error as to the value of the shares that Buy Inc. had received and as to Sell Inc.'s liquidity.

At trial, evidence was to the effect that Pete's written reports, which he himself described as "drafts" in the course of his testimony, were incomplete and concluded to an erroneous share value, while Sam testified to the effect that he had no doubt that Luke had acted in good faith.

Buy Inc., then pleaded that in acquiring the shares for a price negotiated on the basis of false or erroneous information, it has committed an error which justified that the transaction be annulled in accordance with the following sections of the Quebec Civil Code:

1399. Consent may be given only in a free and enlightened manner. It may be vitiated by error, fear or lesion.

 

1400. Error vitiates consent of the parties or of one of them where it relates to the nature of the contract, the object of the prestation or anything that was essential in determining that consent. An inexcusable error does not constitute a defect of consent.

The court rejected Buy Inc.'s arguments and granted Luke's action, in concluding that since Buy Inc. had accepted to deal on the basis of incomplete statements rather than proceeding with an attentive examination of Sell Inc.'s financial statements, the error it invoked was inexcusable and could not cause annulment of the share transaction.

[Posting date in the "Articles" section: 08/05/01. Court file number:200-22-010236-990. Judgment date:09/02/01]

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38. Instruments of work may be exempt from seizure

According to section 2648 of the Quebec civil Code, objects which you use in the course of your work are exempt from seizure if they constitute "instruments of work needed for the personal exercise of a professional activity".

An electrician owed about 18 000$ to Revenu Quebec, which, being unpaid, seized his truck and tools.

In reaction, the electrician contested the seizure by invoking section 2648. As to the truck, he specified that he needed it for his work as an electrician, to move from one place to another and to transport his tools and different materials, and that without the truck it would be impossible for him to work and earn a living.

Revenu Quebec argued that the objects seized did not constitute "instruments of work", but rather means for the electrician to generate revenue, and that they were therefore not exempt from seizure.

In view of these arguments, the court had to determine if the truck and the tools were instruments of work needed for the electrician's personal exercise of a professional activity.

According to applying jurisprudence, the object which only facilitates the exercise of a professional activity or which only constitutes a means of generating revenue, without being "needed" for this activity may be seized. For example, as opposed to a taxi driver's cab, a salesman's car does not constitute an "instruments of work" but only a means of facilitating the exercise of his activities, since the salesman gets his revenue from sales and not from the utilization of his car. Consequently, the salesman's car may be seized, while the taxi driver's may not.

In the electrician's case, his revenue was not generated by his truck, but rather from his work as electrician per se, so the truck did not constitute an instrument of work within the meaning of the law, but simply a means of facilitating the accomplishment of his work. The court therefore maintained the truck's seizure, by mentioning the following:

"It must be noted that the notions of necessity and of usefulness must not be confounded. A truck may be very useful for an electrician's work, but one may work as an electrician without necessarily requiring a truck. In a case where the instrument of work is a vehicle, the word 'needed' takes on a particular sense. The courts indicate that a vehicle will be considered as a needed instrument, and shall therefore be exempt from seizure, if, in addition to being utilized personally by the worker himself, it is his source of revenue."

As to the tools, the seizure was quashed by the court since they were clearly needed for the electrician's to be able to do his work, rather than simply being useful instruments which only facilitated his work.

Posting date in the Articles section: 25/04//01. Court file number:410-02-001256-988. Judgment date:25/01/01.

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37. Summit of the Americas: Canada publishes its positions and proposals.

The Summit of the Americas to be held in Quebec City from the April 20 to April 22, 2001 constitutes a very important step towards the integration of our hemisphere's markets, from the Arctic to Chili, which is destined to lead to the creation of the most important free-trade zone in the world, with a combined population of more than 800 million people (Free Trade Area of the Americas, or FTAA).

According to statistics published by the Canadian government, 92% of the country's trade is held with the 33 countries which will be represented at the Summit and more than 40 % of all goods and services we produce are exported, while one job in three in Canada depends on international trade.

Whether your business is implicated in import-export or not, the ongoing trade negotiations are so extensive and comprise so many parameters that they will most likely have a direct and immediate impact on your interests, so you are well advised to keep abreast of developments in this matter.

Indeed, these negotiations cover numerous elements, including the following:

• economic, social and political integration and cooperation;

• trade liberalization (better access to markets, amendments to border procedures, equal access for suppliers of goods and services to public markets of foreign governments, procedures pertaining to government procurement and tenders);

• intellectual property, licensing, technology transfers and electronic commerce;

• investment protection;

• grants, antidumping and compensation measures;

• competition, cartels, dominance abuses, anti-competitive mergers and corruption;

• respect of fundamental labor rights;

• social programs and cultural protection;

• environment protection;

• agriculture and sanitary measures;

• dispute settlement procedures;

• poverty, discrimination, education, human rights and democracy;

• betterment of the transparency of the ZLEA's process.

Additions to our Web site.

As you may notice in our site's "Articles" section, if you are interested by the different legal aspects of the business world and if links leading to pertinent articles on the Internet would be useful to you, at the beginning of every week our site will be updated to post hyperlinks leading to recent legal publications on Quebec business issues (we regret that most will be in French only).

Our links will lead to government notices, legislative proposals, judgments other than those which are the subject of our weekly summaries, as well as to articles from the Quebec Bar Association or from other legal firms, to media reports or to new legal sites dealing with business considerations. In so doing, Beaulieu Normandeau seeks to keep you informed of additional developments which may maintain and facilitate your business' operations and growth.

[Posting date in the Articles section: 17/04//01]

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36. One may not retard things and then invoke the expiration of a delay.

Matisse offers to buy land owned by a company, at the following conditions:

a) sale price: 153 000$, with a 3 000$ up-front deposit;

 

b) signing of the deed of sale "at the latest" within 75 days of the company's accepting the offer;

 

c) Matisse has 20 days following the company's accepting the offer to be fully satisfied with its titles to the land, and if he is not satisfied he must so advise the company, in which case the offer is reputed null and void and his deposit returned to him.

The company accepted the offer and Matisse instructed his notary to undertake examination of the land's titles. Having noticed irregularities (old mortgages to be stricken, etc.), on several occasions the notary communicated with the company's lawyer to have the required corrections made, but things took time.

In fact, after another individual expressed interest in acquiring the land, the company's lawyer delayed in transmitting documents and other relevant information to the notary, who on several occasions mentioned that Matisse still wished to acquire the land after the required corrections were made, so the 75 day delay had expired when everything was settled.

Since the company then refused to sign the deed of sale, Matisse sued it to have the court order it to sell him the land at the agreed upon price.

In defense, the company alleged that Matisse's legal action had to be dismissed since the 75 day delay had not been respected. This argument was rejected by the court, which referred to section 1732 of the Quebec Civil Code, to the effect that a vendor may never exempt himself from his personal fault, to mention the following:

"To determine if a delay mentioned in a offer to buy is mandatory, it must be considered in view of all circumstances pertaining to the transaction, including the parties' behavior. The party which, by its fault or incapacity to act, causes a delay may not invoke the delay's expiration to avoid facing its legal obligations."

The court also mentioned that one could deduce, from the exchange of documents and of information between the notary and the lawyer, that Matisse and the company had manifested a joint intention to correct the title defects to conclude the transaction, and that they had thereby tacitly agreed to delay the signing of the deed of sale.

As second argument, the company submitted that, according to its very terms, the offer to buy was null since Matisse had demonstrated his dissatisfaction with the land titles. The court also rejected this argument, on the basis the this only constituted an option in Matisse's favor to annul the offer if he was not satisfied, whereas he also had the right to accept, or to try to correct, title problems, which he had done.

Matisse's action was therefore granted by the court and he got the land for the agreed upon price.

[Posting date in the Articles section: 10/04//01. Court file number: 500-05-047609-993. Judgment date:15/01/01]

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35. Proof of a 15 000$ loan: a photocopy of the contract may not be enough.

If you loan money, be sure to safeguard the original document establishing the agreement.

In a case decided by the Cour du Québec, Renée alleged that she had loaned 15 000$ to her daughter Janelle and to her brother Pierre, who operated a company together. Not being reimbursed, Renée sued Pierre to obtain payment of half of this amount and tried to file as exhibit a photocopy of that which, according to her allegations, was the loan contract which had been signed when she advanced the money.

In defense, Pierre denied having signed such a contract and added that if there had been a loan, the borrower was the company in which he held shares with Janelle.

By invoking the "best evidence rule", at the trial's beginning Pierre's attorney objected that the photocopy be filed as evidence and demanded the filing of the original version of the purported loan contract.

In reply, Renée's attorney relied on the second half of section 2860 of the Quebec Civil Code and argued that Renée could file the photocopy as secondary evidence since the original had been lost. This section reads as follows:

"A juridical act [for example, a loan contract, a deed of sale, a shareholder agreement, etc.] set forth in a writing or the content of a writing shall be proved by the production of the original or a copy which legally replaces it [example: the true copy of a notarized document].

However, where a party acting in good faith and with dispatch is unable to produce the original of a writing or a copy which legally replaces it, proof may be made by any other means."

However, the court underlined the fact that section 2862 of the Code prohibited that the loan invoked by Renée be established by testimony:

"Proof of a juridical act may not be made, between the parties, by testimony where the value in dispute exceeds $1 500.

 

However, failing proof in writing and regardless of the value in dispute, proof may be made by testimony of any juridical act [carried out by a person] in the ordinary course of business [...]."

In fact, Renée did not allege that she had loaned money to the company, regarding which testimony would have been admissible in accordance with the second part of section 2862, but rather that she had granted a personal loan to Pierre and Janelle.

Furthermore, the court mentioned that for section 2860 to apply and secondary evidence allowed, it had to be convinced of the existence of the original loan document which was being relied upon.

The only indication of the existence of an original, which nobody had, was Janelle's testimony to the effect that she had written the contract, had signed it, had had Pierre sign it and had then made photocopies of it, which she gave to each party. However, Janelle's testimony contained several implausible aspects and the court did not believe her when she testified to the effect that she did not know who had kept the original version of the contract (Renée and Pierre stated that they had never had it in their possession).

Finally, two handwriting experts who had examined Renée's photocopy were heard as witnesses: one testified to the effect that Pierre's signature had been forged, while the other said that nothing justified such a conclusion.

In light of these elements and since the 15 000$ had been transferred directly from Renée's bank account to the company's, the court declared itself incapable of determining who was right and concluded:

- that Renée had failed in her obligation to establish the existence of the original (which would have allowed her to invoke section 2860) and had been negligent since she did not even know if an original of the loan contract existed; and

 

- that the evidence did not show that Renée had loaned money to Pierre personally rather than to the company.

Renée's action was therefore dismissed.

In other words, keeping the original version of an agreement in a safe place is important.

[Posting date in the Articles section: 03/04//01. Court file number: 480-22-000027-985. Judgment date:11/12/00]

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34. Unilateral cancellation of distribution contract to gain clientele and claim for damages.

Can Ltd. is the subsidiary of a Japanese multinational and is specialized in the sale of industrial pneumatic products, as is Que Inc.

Can Ltd. then grants a non exclusive distribution contract to Que Inc. for the province of Quebec, without there being any written contract. When Que Inc. starts distributing the multinational's products, they are for all practical purposes unknown of in the province, but thanks its efforts, energy and dynamic marketing, Que Inc. makes numerous sales in the following years.

Suddenly, Can Ltd. decides to sell the multinational's products directly to Que Inc.'s clients and Que Inc. sees its market considerably reduced following Can Ltd.'s increasingly aggressive interventions.

Then, Can Ltd. notifies Que Inc. of the fact that it's distribution contract is cancelled because it has exceeded its line of credit, while advising Que Inc.'s clients of the situation. Afterwards, Can Ltd. refuses to honor Que Inc.'s purchase orders, even if Que Inc. confirms it will pay upon delivery (C.O.D.). Que Inc. then has no choice but to cease distributing Can Inc.'s products, thereby loosing 70% of its business.

In the course of legal proceedings undertaken against Can Ltd.., Que Inc. alleges that the reason invoked for its unilateral contract cancellation (exceeded line of credit) is nothing but a pretext since Can Ltd. had, according to Que Inc., tried to eliminate it as intermediary to seize its clientele in the Quebec marketplace, thereby profiting from the exceptional results obtained by Que Inc., which had deployed numerous efforts over the years to promote and distribute the multinational's products in Quebec.

In view of applying circumstances (clientele very satisfied with Que Inc.'s services, repeated overdraws on its credit line in the past without Can Ltd. complaining, Que Inc.'s willingness to pay for its future purchases cash down, etc.), the court concluded that Can Ltd. had acted with flagrant disloyalty regarding Que Inc. and had indeed tried, by making direct sales, to seize the clientele it had developed, thereby acting maliciously, abusively and illegally.

Considering evidence submitted as to damages caused and after having subtracted from Que Inc.'s claim the 285 000$ it owed to Can Ltd. on credit, the court ordered Can Ltd. to pay 260 000$ to Que inc., including 50 000$ for loss of reputation (Que Inc.'s inability to continue servicing its clientele).

This judgment has been appealed from (discussions will surely allude to the fact that the case implicates a non exclusive distribution agreement) and we will keep you posted on future developments, while mentioning that it is much more preferable in such circumstances to have a written contract set up at the very beginning of the business relationship, so that each party knows what to expect.

[Posting date in the Articles section: 27/03/01. Court file number: 500-05-037558-978. Judgment date: 07/06/00]

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33. Filing for bankruptcy to simply avoid facing one's obligations is not allowed.

This principle was reiterated by the Quebec Court of appeals in a case where a 40 year-old man who had held the same job for about twenty years with a well established company had borrowed almost 25 000$ from a bank, which was to be reimbursed by monthly installments of 599$.

A few months later, the man had requested that one of the installments be deferred to the end of the year, which the bank had accepted. A few weeks afterwards, he made the same request for another installment, but this time the bank refused, in accordance with its policy to the effect that a client could only ask for one deferment per year. However, the bank suggested that he pay his installment the following month.

In response, the man went to see a trustee and filed for assignment (bankruptcy), by declaring that his only debt was the money he owed to the bank, that his salary was about 45 000$ per year and that in addition to the 24 500$ owed to the bank, his monthly expenses were of about 1 700$ (including alimony payments of 300$), while his assets were of 3 300$ in total.

According to section 49 of the Bankruptcy and Insolvency Act, an insolvent person may, with the court's permission, make an assignment of all his property. Section 2 of the Act specifies that an "insolvent person" is, notably, a person whose liabilities to creditors amount to at least one thousand dollars and whose property, if it were sold, would not be sufficient to enable payment of all of that person's obligations.

This means that, technically, the man's situation fell within the Act's provisions for assignment.

However, section 181 of the Act is to the effect that where, in the opinion of the court, an assignment ought not to have been filed, the court may annul the bankruptcy. The bank invoked this section to have the bankruptcy set aside by the Quebec Superior court.

First, the court mentioned that the Act's objective is to allow an honest, but unlucky person to rehabilitate himself or herself and rejoin the economic circle, but that a person may not simply use the Act's provisions as a means of getting rid of his or her obligations.

At the hearing, the man had admitted that he had not tried to negotiate with the bank besides requesting the additional extension which had been refused, while evidence was to the effect that he had not tried to meet the bank's representatives to discuss possible solutions to the reimbursement of his debt, that the bank had not pressured him (not even a summons) and was willing to accommodate him, and that he had not made any true effort to settle the payment of his debt.

In light of these circumstances, the court concluded that there had been improper use of the Bankruptcy and Insolvency Act at the detriment of the bank and of the public interest, and that this was an exceptional case where the annulment of the assignment was justified. Consequently, the court set the assignment aside, which had the effect of reviving the debt. 

This judgment was confirmed by the Quebec Court of appeal, which mentioned that the power to annul assignments in bankruptcy must be exercised prudently and in exceptional circumstances and that the courts should prevent unscrupulous persons from abusing the Bankruptcy and Insolvency Act in trying to simply get rid of their obligations.

[Posting date in the "Articles" section: 22/03/01. Court file number: 200-09-001872-982. Judgment date: 14/02/01]

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32. Acquisition of shares and loss of money invested: a badly written contract hurts.

If you decide to invest in a company by acquiring shares, it is important that you bring particular attention to the drafting of the sale contract, unless you do not mind losing your investment.

In a case decided by the Quebec Superior court, a businessman had approached another we will call Joseph, who was the only shareholder of a company, to buy 75% of his shares in this company for 75 000$.

Following negotiations, both men signed a contract written by the buyer, the drafting of which was so poor we will only mention that the contract seemed to specify that the 75 000$ would be paid to the company (not to Joseph) in two installments, a first of 40 000$ and a second of 35 000$, with the acquired shares to be transferred upon the first payment.

Four days after the signing of the contract, without the shares being transferred, the buyer emitted a check of 40 000$ to the company's order, which Joseph deposited in the company's bank account. Subsequently, for different reasons, the transaction was not completed, the share transfer was not executed and Joseph terminated the company's activities by liquidating its assets.

In reaction, the buyer sued Joseph to obtain reimbursement of his 40 000$ investment.

At the trial, the parties submitted contradictory arguments as to the contract's meaning and as to their respective obligations, regarding which the judge mentioned that the contract was so badly written that it was very difficult, in reading it, to sustain one argument or the other:

"This contract, filed as exhibit P-1, should be used as an example by the Quebec Bar Association in its regular promotional campaigns before the public to encourage people to consult an attorney. At the very least, this document, even after having been read twice, three times or even four times, brings little light as to the parties' intentions."

The court therefore dismissed the buyers action against Joseph, since the 40 000$ had been paid to the company and not to Joseph personally, since nothing showed that this money had been utilized by Joseph rather than by the company and since there was no evidence to the effect that Joseph had personally obliged himself to reimburse the 40 000$ invested if the transaction was not finalized. The court also mentioned that things may have been different if the company had been sued.

This means that in these types of transactions, a buyer is certainly well advised to retain the services of a professional to assure that the sale contract is set up correctly and that all required dispositions are taken to protect the buyer's interests in light of pertinent circumstances.

[Posting date in the "Articles" section: 06/03/01. Court file number: 410-05-000230-938. Judgment date: 03/10/00]

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31. Security and confidentiality of electronic exchanges: e-mails and identification certificates.

You surely have noticed that when you access certain Web sites, such as that of a financial institution, a small icon such as a key, a lock or a keyhole appears on your navigation bar at the bottom of your screen to indicate that the site is "secure", i.e. that it utilizes communication protocols and "digital identification certificates" to guarantee its authenticity and the security of transactions made on it.

The equivalent exists for e-mail, where the certificate constitutes an electronic I.D., the purpose of which is to allow people and businesses who have one to communicate with one another by e-mail while assuring themselves of their respective identities and of the confidentiality of their exchanges, to prevent imposture and the reading or alteration of their data by third parties. Interestingly, several specialists consider this mode of communication just as safe as the personal delivery of a sealed envelope, although others will tell you that nothing is absolutely certain in such matters.

Example of a digitally signed e-mail from Hugo to Brigitte

Example of an encrypted e-mail from Hugo to Brigitte

Example of a digitally signed and encrypted e-mail from Hugo to Brigitte

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