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Supreme Court of Canada

Sale—Resolutory clause—Contractor’s privilege—Promissory note signed by the seller not constituting a renunciation—Question of fact.

The deed of sale of April 28, 1965 whereby the de Lasalle Hotel was sold to Hôtel Président Inc. stipulated that the balance of the sale price would be greater than $1,000,000 and created a hypothec and a right of resolution in favour of the seller. The rights of the seller were transferred to S.L. Caplan two weeks later. On September 9, 1965 the general contractor, Adler, began work in accordance with the terms of the contracts concluded with Hotel President Inc.; this work was carried out with the knowledge of Caplan, who used his influence and credit so that the work could move ahead as fast as possible and even, on May 6, 1966, endorsed a promissory note signed by Hôtel Président Inc., payable to Adler. On May 10, 1967 Adler registered a privilege of $101,160.21 against the building, and on June 30, 1967 he brought an action seeking recognition of its validity. Before the Court had ruled on Adler’s application, Lawrence, who had become the trustee in bankruptcy of

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Caplan’s interests, obtained cancellation of the sale on July 17, 1968 in accordance with the resolutory clause. Lawrence then intervened in the Adler action and requested that the privilege be struck out in accordance with the clause resolutory of the sale. The Superior Court, affirmed by the Court of Appeal, ordered the privilege struck out. In this Court appellant Stendel, who had been named trustee in bankruptcy of Adler, maintained that the promissory note signed by Caplan and his participation in the carrying out of the work constituted a tacit renunciation by the seller of his right to have the contractor’s privilege struck out.

Held: The appeal should be dismissed.

The Superior Court held that Caplan’s participation in the work and even his personal guarantee of payment of the promissory note to the contractor did not constitute a renunciation of the seller’s right to have the privilege struck out, and the Court of Appeal affirmed this decision. Even though the weight of the concurrent findings is less significant in this case than in one where the trial judge bases his decision mainly on the attitude and behaviour of the witnesses, the question of tacit renunciation by the seller of the preference given to him by law is an issue of fact and this Court will intervene only in cases of obvious error by the lower courts. In the case at bar Caplan’s steps to ensure that the general contractor would continue his work and his signing of a promissory note, making him jointly and severally liable with the owner, do not constitute a tacit renunciation of his rights. The signing of a personal undertaking does not necessarily imply the granting of an even more valuable security, namely a real right over the property to take precedence over the real right belonging to the seller, the hypothecary creditor. Nor does the joint and several liability created by the promissory note alter the situation. This joint and several liability can only refer to the personal obligation of the seller, but it does not deprive the new debtor of his preferential right over the immovable.

Gingras and Les Immeubles Adams Inc. v. Gagnon, [1977] 1 S.C.R. 217, distinguished; Larin v. Brière, [1965] Que. Q.B. 800; Powell v. Streatham Manor Nursing Home, [1935] A.C. 243; Dorval v. Bouvier, [1968] S.C.R. 288; Pelletier v. Shykofsky, [1957] S.C.R. 635; Boileau v. Chauret (1927), 42 Que. K.B. 344 referred to.

APPEAL from a decision of the Court of Appeal for Quebec affirming a judgment of the Superior Court ordering that a privilege be struck out. Appeal dismissed.

Alan Stein, for the appellant.

Bernard Reis, for the respondents.

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The judgment of the Court was delivered by

DE GRANDPRÉ J.—This appeal raises the following question: when the seller of an immovable obtains cancellation of the sale under the terms of a resolutory clause, what becomes of the privilege registered by the general contractor whose work contract with the buyer was performed under the eyes of the seller, who further, by a promissory note, undertook jointly and severally with the buyer to pay the cost of the work up to $60,000?

The Superior Court and the Court of Appeal answered this question by holding that the privilege disappears in accordance with the rule that the cancellation of a sale wipes out all the privileges with which the immovable may have been encumbered by the purchaser. The Quebec courts did not see in the circumstances of the case a tacit renunciation by the seller of the preference given to him by law.

The basic rule has been stated in several judgments of the Court of Appeal, including Larin v. Brière[1]. Appellant did not really challenge this and I think the trial judge was correct when he wrote:

It is common ground that when a hypothecary creditor takes over an immovable under a resolutory clause any privileges registered for work done and materials furnished subsequent to the registration of the deed creating the clause are subject to radiation.

Thus the real problem is whether in the case at bar the seller’s conduct constitutes a tacit renunciation of his right to have the privilege struck out. The following are the relevant facts:

(1) on April 28, 1965 Orbit Holding Corporation sold the de Lasalle Hotel to Hôtel Président Inc. under the terms of a deed of sale stipulating that the balance of the price would be slightly greater than $1,000,000, and creating a hypothec and a right of resolution in favour of the seller; two weeks later the balance of the price was transferred to S.L. Caplan;

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(2) on September 9, 1965 the general contractor, Adler, began work in accordance with the terms of the contracts concluded with Hôtel Président Inc.; this work was carried out with the knowledge of Caplan, who used his influence and credit in the following months so that the work could move ahead as fast as possible and be completed in time for Expo 67;

(3) on May 6, 1966 the promissory note for $60,000 was signed by Hôtel Président Inc., payable to Adler, and duly endorsed by S.L. and N.H. Caplan, who clearly undertook joint and several obligations to the contractor;

(4) on May 10, 1967 a privilege of $101,160.21 was registered against the building; notice of this privilege was given to Hotel President Inc. and to Hôtel de Lasalle (1965) Inc., a company created by the buyer and to which the building had been transferred on November 17, 1965;

(5) on July 17, 1968 judgment was rendered in favour of the seller, cancelling the sale of April 28, 1965; this judgment was obtained by respondent Lawrence, the liquidator of Caplan’s interests; subsequently respondent Lawrence became the trustee in bankruptcy of these interests and it is in that capacity that he is before the Court.

On June 30, 1967 Adler brought an action against Hôtel Président Inc. and Hôtel de Lasalle (1965) Inc. seeking recognition of:

(a) his right to the sum of $101,160.21 and

(b) the validity of his privilege,

and impleaded Lawrence, as well as respondent Moidel in his capacity as trustee under the terms of a trust deed encumbering the building. During the proceedings appellant Stendel was named trustee in bankruptcy of the contractor Adler.

The Superior Court, after recalling the rule that cancellation of a sale entails the extinguishing of privileges, described the problem it had to resolve as follows:

Is this still true when the hypothecary creditor has received notice from a contractor and even undertaken

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to guarantee the payment of the debt or does his guarantee constitute a tacit renunciation of his right to have the privilege radiated?

The Superior Court answered this question as follows in a paragraph summarizing the situation:

There is no doubt, of course, that Caplan, who was financing the reconstruction of the hotel had an overwhelming interest in having the work completed in time for Expo. In order to further that interest, he used his powers of persuasion on Adler and even offered him the inducement of guaranteeing a $60,000.00 note. Adler could have asked for or Caplan might have offered an additional guarantee, to wit, the granting of priority to Adler for a possible privilege on the immovable over Caplan’s own rights under the resolutory clause. With the wisdom of hindsight, it now is apparent that such a priority would have been the most effective guaranty, since Caplan’s personal warranty has proven to be worthless, but it was neither asked for nor granted at the time. Can the Court conclude, nevertheless, from the actions of the parties that it was given by Caplan tacitly? There is little doubt in the Court’s mind that a negative answer must be given to this question for the renunciation of a right will not be presumed and must be held unproven when there is any doubt.

On appeal Casey J., speaking for himself and Beetz J. (Deschênes J. did not participate in the decision) summarized his thinking in the following paragraph:

This is an issue of fact which can only be resolved by reading the evidence and by deciding whether the actions of the Caplans necessarily lead to this conclusion. To interfere with the decision of the trial judge I would have to be convinced that he was clearly wrong. Appellant has not succeeded in convincing me of this and for this reason I would dismiss the appeal.

While recognizing the considerable weight of these concurrent judgments, appellant is asking the Court to set them aside since they are not based on a choice between contradictory versions but on a reading of testimony whose truth is not placed in doubt by anyone. Basing himself in

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particular on Powell[2], quoted in Dorval v. Bouvier[3], at p. 296, and on Pelletier v. Shykofsky[4], he argues that in a case such as that before the Court, where the facts are not really in dispute, but only the conclusion that must be drawn from them, the Supreme Court is in as good a position as the trial judge and the Court of Appeal to arrive at a decision.

I agree with appellant that the weight of the concurrent findings is less significant here than in a case where the trial judge has had to weigh the testimony of each witness and draw a conclusion from his behaviour on the witness stand, his manner of expressing himself, his hesitations, his expression and so forth. However, since the question of tacit renunciation by the seller, the hypothecary creditor, of the preference given to him by law, is only an issue of fact, our Court will intervene only in cases of obvious error by the lower courts. Has such an obvious error been demonstrated?

The case cannot be examined without reference to the judgment of this Court in Gingras and Les Immeubles Adams Inc. v. Gagnon[5]. Beetz J., speaking for the majority, wrote:

Tacit renunciation results from unequivocal facts which necessarily imply an intention by the creditor to cancel claims on the immovable. Further, the renunciation is strictly interpreted if there is any doubt as to its scope. (Underlining mine.)

The facts were different in Gingras but the principle remains the same. In that case it was necessary to determine the consequences of the intervention of the respondent Gagnon in a duly authenticated document, and the majority of this Court concluded that the document in itself constituted an undertaking to renounce the security held on the immovable. Beetz J. had nevertheless first taken care to point out:

As a general rule the question of whether the actions of a creditor demonstrate his intention to waive his security is a question of fact which is best decided by the judges of fact.

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In the light of these principles I do not see how we can reach a different conclusion from that of the Quebec courts. Caplan’s steps to ensure that the general contractor would continue his work and his signing of a promissory note, making him jointly and severally liable with the owner, obviously do not constitute an express renunciation of his rights. Nor do they seem to me to constitute a tacit renunciation since, like the trial judge and the Court of Appeal, I feel that the signing of a personal undertaking does not necessarily imply the granting of an even more valuable security, namely a real right over the property to take precedence over the real right belonging to the seller, the hypothecary creditor. That is the essential difference between the case at bar and the facts presented in Gingras: here a reading of the evidence does not necessarily lead us to conclude that the seller renounced his right.

Appellant naturally argued strongly that Caplan’s participation in decisions affecting the work in progress prevented the cancellation of the sale from extinguishing the contractor’s privilege. In his submission, the case is essentially the same as the situation dealt with by Guillouard in his Traités de la Vente et de l’Échange, 1890, vol. 2, at p. 140:

[TRANSLATION] Secondly, the resolutory action must be dismissed if the original buyer has agreed to a resale, or if he has granted a servitude or a hypothec with the assistance or consent of the seller: a seller who has instigated, authorized or ratified these instruments cannot then, by a resolutory action wipe out rights that were created with his consent. In effect, the resolutory action is created in the private interest of the seller, and he may renounce it as any individual may renounce rights introduced in his favour.

He also suggests that the Court deal with the matter in the spirit that guided the Court of Appeal in Boileau v. Chauret[6]. I cannot accept this suggestion because our situation is not the same as that described therein. In the case at bar, the contractor did not need either the assistance or consent of the seller for the creation of his privilege. Moreover, the consent of the seller was neces-

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sary for rescission of the sale not to involve cancellation of the privilege; and the evidence has not established that such consent existed.

Nor do I see how the joint and several liability created by the promissory note alters the situation. This joint and several liability can only refer to the personal obligation of the seller. Certainly it favours the contractor by giving him a second debtor but it does not go as far as to deprive this new debtor of his preferential right over the immovable.

In the current state of our law, the conclusion reached by the Quebec courts seems to me to be correct. I wonder, however, if it would not be advisable for the legislator to amend the basic rule so as to prevent a seller who takes his immovable back under the terms of a resolutory clause from being able to enrich himself at the expense of the person who by his work has considerably increased the value of the immovable.

I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Stein & Stein, Montreal.

Solicitors for the respondents: Chait, Salomon, Gelber, Reis, Bronstein & Litvack, Montreal.

 



[1] [1965] Que. K.B. 800.

[2] [1935] A.C. 243.

[3] [1968] S.C.R. 288.

[4] [1957] S.C.R. 635.

[5] [1977] 1 S.C.R. 217.

[6] (1927), 42 Que. Q.B. 344.

 

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