Épiciers Unis Métro-Richelieu Inc., division “Éconogros” v. Collin, [2004] 3 S.C.R. 257, 2004 SCC 59
Georges Reid Appellant
v.
Épiciers Unis Métro-Richelieu Inc., division “Éconogros” Respondent
Indexed as: Épiciers Unis Métro-Richelieu Inc., division “Éconogros” v. Collin
Neutral citation: 2004 SCC 59.
File No.: 29394.
2004: June 17; 2004: October 1.
Present: McLachlin C.J. and Bastarache, Binnie, LeBel and Fish JJ.
on appeal from the court of appeal for quebec
Suretyship — Suretyship attached to performance of special duties — Termination of suretyship — Transitional law — Suretyship contracted and surety ceasing to perform duties before coming into force of Civil Code of Québec — Action to enforce suretyship brought after coming into force of new Code — Whether art. 2363 of Civil Code of Québec applicable — Effect and application of s. 131 of Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57.
Suretyship — Termination of suretyship — Discharge of surety upon cessation of performance of his duties — Interpretation and application of art. 2363 of Civil Code of Québec, S.Q. 1991, c. 64.
In 1992, the appellant acquired 35 percent of the shares in Services Alimentaires B.S.L. Inc. (“B.S.L.”) and became both a director and the secretary of that company. He also agreed to stand surety for B.S.L. in relation to a contract with the respondent. The following year, the appellant transferred his shares in B.S.L. and resigned from his positions as director and secretary of the company. His resignation was effective September 1, 1993. Over a year after his resignation, the respondent demanded that the appellant discharge B.S.L.’s debts amounting to approximately $43,400. The Quebec Superior Court dismissed the respondent’s action to enforce the suretyship. It found that the appellant had contracted his suretyship in connection with the duties he performed for B.S.L. and that, since the debts were contracted after he had ceased to perform his duties, the appellant could not be liable for the discharge of the debts. The majority of the Court of Appeal allowed the respondent’s appeal but limited the value of the claim to $15,000, given that this was the upper limit of the appellant’s undertaking.
Held: The appeal should be allowed in part.
The analysis of art. 2363 C.C.Q., which provides for the discharge of a surety upon cessation of the performance of his or her duties, must start from a review of the transitional law. The appellant’s suretyship was contracted before the Civil Code of Québec came into force on January 1, 1994, and the duties he performed for B.S.L. ceased before that date. However, the respondent brought its action to enforce the suretyship after the new code had come into force. Section 131 of the Act respecting the implementation of the reform of the Civil Code (“A.I.R.C.C.”), which applies to suretyship contracts, provides a specific solution as regards the temporal application of art. 2363. According to s. 131, a suretyship attached to the performance of special duties which ceased before January 1, 1994 terminates on that date, except with respect to existing debts.
Article 2363, the main objective of which is to protect the surety, applies to all suretyships attached to the performance of the surety’s duties, without distinction between legal and conventional suretyships. Unlike art. 2362 C.C.Q., art. 2363 does not require a surety to send the creditor any notice whatsoever before terminating the suretyship or to establish that the creditor was aware of the cessation of his or her duties. The effects of art. 2363 are produced in their entirety once the surety has proven that the suretyship was contracted in connection with the duties he or she performed. The surety bears the burden of proof. Article 2363 is not of public order; rather, it supplements the parties’ intention. It therefore applies in all cases where the parties have not overridden it by contract. Finally, under art. 2364 C.C.Q., the surety is discharged only from debts arising after the cessation of performance of his or her duties and remains liable for debts existing at that time.
This broad and liberal interpretation of art. 2363 does not mean that the article applies retroactively as a result of the effect of s. 131 A.I.R.C.C., which would be contrary to the principle set out in s. 2 A.I.R.C.C. that the provisions of the Civil Code of Québec do not have retroactive effect. The principles of retroactivity, immediate application and retrospectivity of new legislation should not be confused. Section 131 applies to a fact that has already occurred, that is, the signing of the suretyship contract, but governs only the future effects of the contract. As s. 131 does not modify legal effects that occurred before it came into force, its effect is merely retrospective, not retroactive. Section 131, which expresses the legislature’s clear intention to make art. 2363 applicable to suretyship contracts in effect when the new code came into force, is an exception to the principle of survival of the former legislation laid down in s. 4 A.I.R.C.C.
In the case at bar, it can be seen from the evidence that the appellant’s suretyship was contracted in connection with the duties he performed for B.S.L. For this reason, the appellant is discharged from his suretyship, except with respect to any debts existing when the Civil Code of Québec came into force up to $15,000. The matter is remitted to the Superior Court to consider this issue.
Cases Cited
Referred to: Doré v. Verdun (City), [1997] 2 S.C.R. 862; General Motors Products of Canada Ltd. v. Kravitz, [1979] 1 S.C.R. 790; R. v. Jarvis, [2002] 3 S.C.R. 757, 2002 SCC 73; Swift Canadian Co. v. Wienstein, J.E. 82-231; Armoires D.L.M. inc. v. Constructions Plani-sphère inc., J.E. 96-639, AZ-96021212; Entreprises Roofmart (Québec) ltée v. Filiatreault (Succession de), B.E. 99BE-906, AZ-99026441; Emco ltée v. Plamondon, B.E. 99BE-174, AZ-99036091; Banque nationale du Canada v. Reid, [2001] R.J.Q. 1349; Caisse populaire Desjardins de Plessisville v. Parent, J.E. 2000-789, AZ-00021374; Groupe Permacon inc. v. Fata, J.E. 97-1052, AZ-97031181; Métropole Litho inc. v. Groupe Propulsion inc., J.E. 94-1990; Com. November 3, 1988, Bull. civ. IV, No. 283, p. 193 (Prette v. Banque internationale pour l’Afrique occidentale (BIAO)); Com. December 6, 1988, Bull. civ. IV, No. 334, p. 225 (Crédit du Nord v. Bourlet); Com. May 30, 1989, Bull. civ. IV, No. 166, p. 110 (Crédit lyonnais v. Bonche); Com. April 24, 1990, D.1991.177, (Simon v. Banque française de l’agriculture et du crédit mutuel (BFACM), Annot. Morvan); Gustavson Drilling (1964) Ltd. v. M.N.R., [1977] 1 S.C.R. 271; Acme Village School District No. 2296 (Board of Trustees of) v. Steele-Smith, [1933] S.C.R. 47.
Statutes and Regulations Cited
Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57, arts. 2, 4, 131.
Civil Code of Lower Canada, arts. 1953(5), 1954.
Civil Code of Québec, S.Q. 1991, c. 64, arts. 9, 242, 790, 1324, 2361, 2362, 2363, 2364.
Interpretation Act, R.S.Q., c. I-16, arts. 41, 41.1.
Authors Cited
Bandrac, Monique. “Sûretés”, Rev. trim. dr. civ. 1989.358.
Bélanger, André. “De la fonction de la caution en tant que terme implicite du cautionnement” (1998), 58 R. du B. 137.
Bergel, Jean-Louis. “Spécificité des codes et autonomie de leur interprétation”. Dans Le nouveau Code civil: interprétation et application — Les journées Maximilien-Caron 1992. Montréal: Thémis, 1993, 3.
Ciotola, Pierre. Droit des sûretés, 3e éd. Montréal: Thémis, 1999.
Claxton, John B. Security on Property and the Rights of Secured Creditors under the Civil Code of Québec. Cowansville, Qué.: Yvon Blais, 1994.
Côté, Pierre-André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000.
Driedger, Elmer A. “Statutes: Retroactive Retrospective Reflections” (1978), 56 Can. Bar Rev. 264.
Jutras, Daniel. “Le ministre et le Code — essai sur les Commentaires”. Dans Mélanges Paul-André Crépeau. Cowansville, Qué.: Yvon Blais, 1997, 451.
Mouly, Christian. Les causes d’extinction du cautionnement. Paris: Librairies Techniques, 1979.
Poudrier-LeBel, Louise. “L’extinction du cautionnement”. Dans Collection de droit, vol. 5, Obligations et contrats. Cowansville, Qué.: Yvon Blais, 2003, 321.
Poudrier-LeBel, Louise. “Provisions respecting suretyship in the new Civil Code of Quebec”. In Reform of the Civil Code, vol. 3B, Marine insurance, Carriage by water, Affreightment, Deposit, Loan, Suretyship, Gaming and Wagering, Transaction, Arbitration Agreements, Insurance and Annuities. Translated by Susan Altschul. Texts written for the Barreau du Québec and the Chambre des notaires du Québec. Montréal: Barreau du Québec, 1993.
Quebec. Ministère de la Justice. Projet de loi 125: Code civil du Québec. Commentaires détaillés sur les dispositions du projet, Livre V: Des obligations. Titre deuxième: Des contrats nommés, vol. II (Art. 2117 à 2628). Québec: Le Ministère, 1991.
Quebec. Ministère de la Justice. Commentaires du ministre de la Justice: Le Code civil du Québec — Un mouvement de société, t. II. Québec: Publications du Québec, 1993.
Quebec. Ministère de la Justice. Loi sur l’application de la réforme du Code civil et Commentaires du ministre de la Justice. Montréal: DACFO, 1994.
Simler, Philippe. “Le juge et la caution. Excès de rigueur ou excès d’indulgence?”, J.C.P. éd. N. 1986.I.169.
APPEAL from a judgment of the Quebec Court of Appeal, [2002] R.J.Q. 1652 (sub nom. Épiciers Unis Métro-Richelieu Inc., division “Éconogros” v. Reid), [2002] Q.J. No. 1605 (QL), reversing a decision of the Superior Court, [1998] Q.J. No. 2689 (QL). Appeal allowed in part.
Marc-André Gravel, Andrée-Claude Harvey and Hugo Lafrenière, for the appellant.
Stéphane Davignon and Jean-Marc Clément, for the respondent.
English version of the judgment of the Court delivered by
LeBel J. —
I. Introduction
1 This appeal concerns the interpretation of art. 2363 of the Civil Code of Québec, S.Q. 1991, c. 64 (“C.C.Q.”), which provides for the discharge of a surety upon cessation of the performance of his or her duties. More specifically, the categories of sureties to which this provision applies must be identified. It will be necessary to determine the provision’s scope and the effects of its application, and to resolve the issues it raises with respect to the burden of proof.
2 For the reasons that follow, it is my view that the dissenting judge of the Quebec Court of Appeal was correct in holding that the appellant was discharged from his suretyship effective January 1, 1994, owing to the cessation of his duties. However, this discharge operated only from that time onward and did not release him from paying any debts existing as of that date; unfortunately, the record does not allow us to determine if there were any.
II. Origin of the Case
3 In May 1992, the appellant Georges Reid, through a geological research firm known as Prodier Ltée (“Prodier”), acquired 35 percent of the shares in Services Alimentaires B.S.L. Inc. (“B.S.L.”), a wholesale food distributor whose principal shareholders and officers were Marcel Collin and Françoise Gagné‑Collin. The appellant also participated directly in the management of B.S.L. by sitting on its board of directors and acting as its secretary and accountant. On June 26, 1992, shortly after he took up his position at B.S.L., the appellant agreed to stand surety for B.S.L.’s debts relating to a distribution contract and line of credit with the respondent Éconogros, a division of Épiciers Unis Métro‑Richelieu Inc.
4 The appellant’s involvement in B.S.L. was short‑lived. In November 1992, he accepted a position with Revenue Canada, which meant that he had to move from the Lower St. Lawrence region to Quebec City in May 1993. On August 29, 1993, the appellant transferred the shares in B.S.L. held by Prodier and resigned from his positions as director and secretary of the company. His resignation was effective September 1, 1993.
5 After the appellant’s departure, B.S.L.’s financial health deteriorated. On April 26, 1994, B.S.L. and the respondent entered into an agreement aimed at improving B.S.L.’s situation. Under this agreement, B.S.L. became the respondent’s exclusive distributor, and the respondent was to approve any client accounts opened with B.S.L. and receive all the profits from B.S.L.’s sales plus a percentage. Despite the agreement, B.S.L.’s financial situation continued to deteriorate, and the company ceased operations on May 31, 1994.
6 In October 1994, over a year after he left B.S.L., the appellant received a call from Jean‑Pierre Charette, a representative of the respondent. Mr. Charette demanded that the appellant, as B.S.L.’s surety, discharge the company’s debts, which totalled $43,413.38. Particularly surprised to learn that B.S.L. had gone out of business, the appellant was amazed by the amount being claimed, as B.S.L.’s line of credit had a $25,000 limit. This appeal arises out of that demand.
III. Judicial History
A. Quebec Superior Court, [1998] Q.J. No. 2689 (QL)
7 At trial, the appellant argued that the respondent had not proven the existence of its claim. In the alternative, he added that, even if its existence had been proven, the demand was without merit because he had left B.S.L.
8 Cohen J. of the Quebec Superior Court first found that the respondent had not established the existence of its claim against B.S.L. In her opinion, the agreement of April 26, 1994 had extinguished all of B.S.L.’s obligations to the respondent.
9 The trial judge also found that, even if the claim had been established, the appellant could not be liable for it. According to Cohen J., the appellant had contracted his suretyship in connection with the duties he performed for B.S.L. Since B.S.L.’s debts were contracted after the cessation of his duties, and since the respondent was aware that he had left, the appellant could not be liable for the discharge of the debts. Cohen J. held that the suretyship, which was limited to B.S.L.’s operating debts, did not apply to the respondent’s claim, which related only to debts contracted after B.S.L. had gone out of business. She therefore dismissed the respondent’s action to enforce the suretyship.
B. Quebec Court of Appeal, [2002] R.J.Q. 1652
10 On appeal, Mr. Reid made two main submissions. He argued, first, that the suretyship had terminated when the Civil Code of Québec came into force on January 1, 1994, as he had ceased to perform his duties at B.S.L. in 1993, and, second, that the respondent’s action was barred because the respondent had breached its duty to provide information.
11 The Court of Appeal was divided on the disposition of the appeal. Gendreau and Dussault JJ.A. allowed the appeal, while Chamberland J.A., dissenting, would have dismissed it.
12 Gendreau J.A., writing on behalf of the majority, addressed only the first of the appellant’s submissions. After analysing the legislative history of art. 2363 C.C.Q., Gendreau J.A. gave the provision a narrow reading; in his opinion, an overly broad interpretation would be contrary to the principle of consensualism, according to which a contracting party may not resiliate a contract unilaterally. He concluded that art. 2363 C.C.Q. is the equivalent of art. 1954 of the Civil Code of Lower Canada (“C.C.L.C.”). Thus, according to the majority of the Court of Appeal, art. 2363 C.C.Q. applies primarily to legal suretyships, that is, to suretyships required by law for the performance of special duties. As for a case in which a suretyship attached to the performance of a special duty was not imposed by law, Gendreau J.A. considered that it would have to be proven that the creditor had agreed to make termination of the suretyship contingent upon cessation of the performance of the surety’s duties. He felt that, in the case before him, it had not been shown that the respondent had agreed that cessation of the performance of the surety’s duties would be the term of his suretyship. Gendreau J.A then turned to the value of the claim, limiting the amount of the award to $15,000, as this was the upper limit of the appellant’s undertaking.
13 Chamberland J.A., dissenting, began by varying certain of the trial judge’s findings. In his opinion, the trial judge had made a patently unreasonable error in finding that there was no evidence of the claim’s existence. Chamberland J.A. valued the claim at $38,000.84. He also found that the agreement of April 26, 1994 had not extinguished the claim.
14 On the question of the interpretation of art. 2363 C.C.Q., Chamberland J.A. disagreed with the majority. He concluded that art. 2363 C.C.Q. should be construed broadly to ensure that its objective of protecting the surety’s interests is attained. In his view, art. 2363 C.C.Q. is not merely the equivalent of art. 1954 C.C.L.C. Under art. 2363, suretyships attached to duties, whether they be legal or conventional suretyships, have as their term the cessation of the performance of the duties. According to Chamberland J.A., a surety who wishes to take advantage of this term must prove that the suretyship was contracted in connection with the duties he or she performed for the business. The dissenting judge therefore considered it unnecessary to prove that the creditor conferred on the surety the power to terminate the obligation upon cessation of the performance of his or her duties. He also noted that art. 2363 C.C.Q. is not of public order and that the parties can accordingly agree in their contract that it will not apply. Finally, Chamberland J.A. mentioned that sureties remain liable for debts existing at the time the suretyship terminates.
15 Chamberland J.A. held that, in this case, the appellant’s suretyship was attached to the performance of his duties for B.S.L. and that the appellant should accordingly not be liable for B.S.L.’s debts.
IV. Legislative Provisions
16 Civil Code of Québec, S.Q. 1991, c. 64
9. In the exercise of civil rights, derogations may be made from those rules of this Code which supplement intention, but not from those of public order.
2361. Notwithstanding any contrary provision, the death of the surety terminates the suretyship.
2362. Where the suretyship is contracted with a view to covering future or indeterminate debts, or for an indeterminate period, the surety may terminate it after three years, so long as the debt has not become exigible, by giving prior and sufficient notice to the debtor, the creditor and the other sureties.
This rule does not apply in the case of a judicial suretyship.
2363. A suretyship attached to the performance of special duties is terminated upon cessation of the duties.
2364. Upon termination of the suretyship, the surety remains liable for debts existing at that time, even if those debts are subject to a condition or a term.
Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57
2. The new legislation has no retroactive effect; it applies only to the future.
It does not, therefore, change the conditions for creation of a previously created legal situation, nor the conditions for extinction of a previously extinguished legal situation, and it does not alter the effects already produced by a legal situation.
4. In contractual situations which exist when the new legislation comes into force, the former legislation subsists where supplementary rules are used to determine the extent and scope of the rights and obligations of the parties and the effects of the contract.
However, the provisions of the new legislation apply to the exercise of the rights and the performance of the obligations, and to their proof, transfer, alteration or extinction.
131. A suretyship attached to the performance of special duties which ceased before 1 January 1994 terminates on 1 January 1994, except with respect to existing debts.
Interpretation Act, R.S.Q., c. I‑16
41. Every provision of an Act is deemed to be enacted for the recognition of rights, the imposition of obligations or the furtherance of the exercise of rights, or for the remedying of some injustice or the securing of some benefit.
Such statute shall receive such fair, large and liberal construction as will ensure the attainment of its object and the carrying out of its provisions, according to their true intent, meaning and spirit.
41.1. The provisions of an Act are construed by one another, ascribing to each provision the meaning which results from the whole Act and which gives effect to the provision.
V. Issues
17 The case now before this Court involves three issues. First, it will be necessary to interpret art. 2363 C.C.Q. To this end, it must be determined whether the interpretation of the majority of the Court of Appeal can be endorsed or whether Chamberland J.A.’s interpretation should be preferred. In addition, the appellant has raised two other issues that were not considered by the Court of Appeal. The appellant submits, first, that the respondent breached its duty to provide him with information and, second, that the respondent’s subrogatory remedy is now illusory as a result of the respondent’s own actions. These last two issues are of no assistance for the purposes of this appeal. At any rate, the appellant’s submissions in this regard have little merit. The interpretation and application of art. 2363 C.C.Q. are sufficient to decide this case.
VI. Analysis
18 This appeal ultimately hinges on the interpretation of art. 2363 C.C.Q. It will therefore be necessary to give careful consideration to this issue, which divided the Quebec Court of Appeal.
19 In the case at bar, the analysis of art. 2363 C.C.Q. must start with a review of the transitional law. The appellant contracted his suretyship before the Civil Code of Québec came into force on January 1, 1994, and he ceased to perform his duties for B.S.L. before that date. However, the respondent brought its action to enforce the suretyship after art. 2363 C.C.Q. had come into force. The transitional law must therefore be considered to determine whether that provision applies. Section 131 of the Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57 (“A.I.R.C.C.”), provides a specific solution as regards the temporal application of art. 2363 C.C.Q. Under s. 131 A.I.R.C.C., a suretyship attached to the performance of special duties which ceased before the coming into force of art. 2363 C.C.Q. terminates on January 1, 1994, except with respect to debts existing as of that date. I will discuss the application of this provision in greater detail after interpreting art. 2363 C.C.Q.
A. Approach to Interpreting the Civil Code of Québec, Interpretation of Article 2363 C.C.Q. and Effects of the Application of That Article
(1) Approach to Interpretation
20 The approaches to interpreting the Civil Code of Québec and the statute law of the common law provinces have traditionally been different, indeed totally opposite (P.‑A. Côté, The Interpretation of Legislation in Canada (3rd ed. 2000), at pp. 26 et seq.). In the common law provinces, statutes were considered exceptions whose nature often justified a narrow and at times quite formalistic interpretation. In contrast, the Civil Code of Québec, which sets out the jus commune of that civil law province, must be interpreted liberally. In Doré v. Verdun (City), [1997] 2 S.C.R. 862, Gonthier J. addressed this point, stating that “unlike statute law in the common law, the Civil Code is not a law of exception, and this must be taken into account in interpreting it. It must be interpreted broadly so as to favour its spirit over its letter and enable the purpose of its provisions to be achieved” (para. 15); see also: General Motors Products of Canada Ltd. v. Kravitz, [1979] 1 S.C.R. 790, at p. 813; J.‑L. Bergel, “Spécificité des codes et autonomie de leur interprétation”, in Le nouveau Code civil: interprétation et application — Les journées Maximilien‑Caron 1992 (1993), 3, at pp. 8 et seq.
21 However, this distinction between the approaches to interpreting civil law and statute law has become blurred as methods for interpreting legislation have evolved. The distinction is practically non‑existent today, as statute law is no longer automatically given a narrow reading. This Court has discussed its preferred approach to interpreting legislation on numerous occasions. This approach, generally referred to as the modern approach to statutory interpretation, was defined clearly by Iacobucci and Major JJ. in R. v. Jarvis, [2002] 3 S.C.R. 757, 2002 SCC 73, at para. 77:
The approach to statutory interpretation can be easily stated: one is to seek the intent of Parliament by reading the words of the provision in context and according to their grammatical and ordinary sense, harmoniously with the scheme and the object of the statute (Interpretation Act, R.S.C. 1985, c. I‑21, s. 12; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; R. v. Gladue, [1999] 1 S.C.R. 688; E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87).
22 This preferred approach is reinforced by the second paragraph of s. 41, and s. 41.1, of Quebec’s Interpretation Act, which provide that “[a] statute shall receive such fair, large and liberal construction as will ensure the attainment of its object and the carrying out of its provisions, according to their true intent, meaning and spirit” and that “[t]he provisions of an Act are construed by one another, ascribing to each provision the meaning which results from the whole Act and which gives effect to the provision.” Thus, in interpreting a provision of the Civil Code of Québec, a court should refer to, inter alia, other provisions of the Code, related acts, the legislative objectives and the circumstances surrounding the drafting of the provision.
23 This being said, it is now time to address the interpretation of art. 2363 C.C.Q. in order to define its scope. I will begin by reviewing the legislative origins of the provision to make it easier to understand the various theories regarding the scope of art. 2363 C.C.Q. I will then discuss these theories, which can be found in the parties’ submissions, as well as in Quebec court decisions and academic commentaries. Next, I will briefly outline the position of the French courts and commentators. This will bring me to a definition of the scope of art. 2363 C.C.Q.
(2) Interpretation of Article 2363 C.C.Q.
(a) Legislative Origins of the Provision
24 The legislative antecedents of arts. 2362 and 2363 C.C.Q. are found in arts. 1953(5) and 1954 C.C.L.C.:
1953. The surety who has bound himself with the consent of the debtor may, even before paying, proceed against the latter to be indemnified:
. . .
5. After ten years, when the term of the principal obligation is not fixed, unless the principal obligation, such as that of a tutor, is of a nature not to be discharged before a determinate period.
1954. The rule contained in the last paragraph of the preceding article does not apply to sureties given by public officers, or other employees, in order to secure the fulfilment of the duties of their office; such sureties have a right at all times to free themselves from future liability under their suretyship by giving sufficient notice unless it has been otherwise agreed.
25 In 1982, the Quebec Court of Appeal rendered what was at that time the seminal decision on the interpretation of these provisions of the C.C.L.C. and on the issue of suretyships attached to the performance of duties: Swift Canadian Co. v. Wienstein, J.E. 82‑231. In that case, the court reversed the decision of the Superior Court judge, who had found that the suretyship of the three directors and officers of a bankrupt debtor, Marché Union Inc., had terminated upon cessation of their duties. The Court of Appeal held that a suretyship did not terminate simply because the surety had ceased to perform his or her duties. The agreement could be terminated for this reason only upon proof of a common intention of the parties that the suretyship attached to the performance of the surety’s duties would terminate upon cessation of the performance thereof. What the decision meant was that a termination such as this would have to be provided for in the contract.
26 In the wake of that decision, the Civil Code Revision Office proposed that arts. 1953 and 1954 C.C.L.C. be amended to provide for the nature and term of suretyships attached to duties. The first legislative proposals in this regard can be found in clauses 2348 and 2349 of Bill 125. They were accompanied by the following commentaries prepared by the Minister of Justice for the National Assembly’s Subcommittee on Institutions:
[translation]
2348. Where a suretyship is contracted for an indeterminate period or amount, the surety may terminate it after three years, so long as the debt has not become exigible, by giving prior and sufficient notice to the debtor, the creditor and the other sureties.
This rule does not apply to judicial suretyships.
. . .
commentary: This article is based on article 862 C.C.R.O., which was itself based on articles 1953(5) and 1954 C.C.L.C. It allows a suretyship contracted for an indeterminate period or amount to be revoked even if there is no clause to this effect in the contract. It seemed contrary to public order that such an agreement could be perpetual. Thus, rather than merely allowing the surety to sue the debtor even before paying, as did the fifth paragraph of article 1953 C.C.L.C., article 2348 allows the surety, where the period or amount for which the suretyship was contracted is indeterminate, to terminate the suretyship after three years by giving prior and sufficient notice to those concerned.
Judicial sureties do not have this power to revoke a suretyship, as the amount and period of the suretyship are fixed by the judgment.
supplementary note: The various types of suretyships referred to in article 1954 C.C.L.C. are covered by sector‑specific legislation respecting public servants.
2349. A suretyship attached to the performance of special duties is terminated upon cessation of the duties.
. . .
commentary: This article is new law and puts an end to the debate surrounding the validity of a tacit revocation of a continuing suretyship (Swift Canadian Co. v. Wienstein, (1977) C.S. 12; C.A. Montréal, 500‑09‑000406‑777, January 28, 1982 (J.E. 82‑231)).
A suretyship contracted by a person in connection with special duties he or she performs is terminated upon cessation of the duties. It was felt that the cessation of the fundamental element of the agreement, namely the special duties performed by the surety, constituted the term of the suretyship.
(Projet de loi 125: Code civil du Québec, Commentaires détaillés sur les dispositions du projet, Book V: Des obligations. Title II : Des contrats nommés (1991), vol. II, at pp. 775-76)
27 The Civil Code of Québec restates the text proposed by the Civil Code Revision Office. However, the commentary for art. 2363 C.C.Q. no longer mentions Swift:
Art. 2362. Where the suretyship is contracted with a view to covering future or indeterminate debts, or for an indeterminate period, the surety may terminate it after three years, so long as the debt has not become exigible, by giving prior and sufficient notice to the debtor, the creditor and the other sureties.
This rule does not apply in the case of a judicial suretyship.
. . .
[translation]
Commentary
This article is based on articles 1953(5) and 1954 C.C.L.C. It allows a suretyship contracted with a view to covering future or indeterminate debts, or for an indeterminate period, to be revoked even if there is no clause to this effect in the contract. It seemed contrary to public order that such an agreement could be perpetual. Thus, rather than merely allowing the surety to sue the debtor even before paying, as in the fifth case listed in article 1953 C.C.L.C., article 2362 allows the surety to terminate the suretyship after three years by giving prior and sufficient notice to those concerned.
Judicial sureties do not have this power to revoke a suretyship, as the amount and period of the suretyship are fixed by the judgment.
As for the various types of suretyships referred to in article 1954 C.C.L.C., they are attached to the performance of special duties and are for this reason covered by article 2363 or by special Acts.
Art. 2363. A suretyship attached to the performance of special duties is terminated upon cessation of the duties.
[translation]
Commentary
This article is new law.
A suretyship contracted in connection with special duties performed by the surety or the principal debtor is terminated upon cessation of the duties. It was felt that the cessation of the fundamental element of the agreement, namely the special duties, constituted the term of the suretyship.
(Commentaires du ministre de la Justice: Le Code civil du Québec — Un mouvement de société (1993), vol. II, at pp. 1482‑83)
(b) Debate Over the Interpretation and Scope of Article 2363 C.C.Q.
28 Since the coming into force of the final version of art. 2363 C.C.Q., the Quebec legal community has been unable to agree on the scope it should be given. The arguments of the parties in the instant case illustrate the two ends of the spectrum of possible interpretations of this provision.
29 At one end of the spectrum, the appellant submits that the interpretation of the majority of the Court of Appeal is incorrect. According to him, art. 2363 C.C.Q. should be given a broad and liberal interpretation so as to further its objective of protecting the surety. The appellant thus contends that, where there is a connection between the suretyship and the surety’s duties, the cessation of the performance of those duties terminates the suretyship. In his opinion, the provision supplements the intention of the parties and, unless the contract states otherwise as regards their intention, art. 2363 C.C.Q. should produce its full effect. Thus, Mr. Reid argues that there is no need to prove that the parties agreed on the term of the suretyship when they signed the contract.
30 At the other end of the spectrum, the respondent contends that art. 2363 C.C.Q. should be given a narrow reading. Thus, art. 2363 C.C.Q. applies only to legal suretyships involving, for example, tutors (art. 242 C.C.Q.), liquidators of successions (art. 790 C.C.Q.) and administrators of the property of others (art. 1324 C.C.Q.). According to this submission, art. 2363 C.C.Q. does not apply to cases in which a person stands surety for the obligations of a third party principal debtor. In these specific cases, the respondent submits, it must be proven, by showing that the surety’s special duties were the fundamental element of their agreement, that the parties intended that the cessation of the surety’s duties would terminate the suretyship. Thus, the provision does not apply to suretyships attached to the duties of directors of business corporations. In the alternative, if art. 2363 C.C.Q. were interpreted in such a way that it might apply to duties of this nature, it would still have to be shown that the creditor agreed that its agreements with the surety included this power to resiliate.
31 The decisions of the Quebec courts are divided on the scope of art. 2363 C.C.Q. One line of cases advocates a broad interpretation of art. 2363 C.C.Q. According to these cases, where a surety proves that the suretyship is attached to the performance of his or her duties in a company, the agreement is terminated upon cessation of the performance of those duties (Armoires D.L.M. inc. v. Constructions Plani‑sphère inc., J.E. 96-639 (Sup. Ct.), AZ-96021212; Entreprises Roofmart (Québec) ltée v. Filiatreault (Succession de), B.E. 99BE-906 (Sup. Ct.), AZ-99026441; Emco ltée v. Plamondon, B.E. 99BE‑174 (C.Q.), AZ-99036091). In Armoires D.L.M., supra, Thibault J. (as she then was) held that, once this has been proven, the end of the suretyship is not dependent on the creditor’s actually knowing about the cessation of the performance of the surety’s duties. De Pokomandy J.C.Q. went even further in his interpretation of art. 2363 C.C.Q. in Banque nationale du Canada v. Reid, [2001] R.J.Q. 1349, another case concerning Mr. Reid in the matter of a suretyship contracted in favour of the National Bank of Canada when he was a director of B.S.L. De Pokomandy J.C.Q. held that a suretyship undertaken by an officer or director of a company was presumed to be attached to the performance of the surety’s duties (p. 1356). Opposed to this line of cases is a second line that advocates a narrow reading of art. 2363 C.C.Q. According to the second line of cases, the application of art. 2363 depends on proof that the parties agreed that the suretyship attached to duties was to be terminated upon cessation of the performance of those duties (Caisse populaire Desjardins de Plessisville v. Parent, J.E. 2000‑789 (Sup. Ct.), AZ-00021374; Groupe Permacon inc. v. Fata, J.E. 97‑1052 (C.Q.), AZ-97031181; Métropole Litho inc. v. Groupe Propulsion inc., J.E. 94‑1990 (Sup. Ct.)).
32 The debate concerning the interpretation of art. 2363 C.C.Q. is also reflected in the academic commentaries. Professor Bélanger favours a liberal construction of art. 2363 C.C.Q. that protects both the surety and the creditor. According to him, although it is not enough to merely show a connection between the suretyship and the duties performed by the surety, art. 2363 C.C.Q. should apply in cases where it is proven that the suretyship was contracted in connection with the surety’s duties (A. Bélanger, “De la fonction de la caution en tant que terme implicite du cautionnement” (1998), 58 R. du B. 137, at pp. 141‑42; see also the comments of Professor P. Ciotola, Droit des sûretés (3rd ed. 1999), at p. 67). Other authors, however, have expressed concern about the scope of the provision. They fear that an overly broad interpretation would weaken the effectiveness of the security and wonder whether, to give the provision an effect similar to the one suggested by the appellant, it would not have been necessary to frame it more clearly (L. Poudrier‑LeBel, “Provisions respecting suretyship in the new Civil Code of Quebec”, in Reform of the Civil Code (1993), vol. 3B, at p. 12). Claxton feels that art. 2363 C.C.Q. should be given a narrow reading and should apply only in exceptional cases where the suretyship is not contracted in return for payment (J. B. Claxton, Security on Property and the Rights of Secured Creditors under the Civil Code of Québec (1994), at pp. 308‑9).
(c) French Law and the Problem of Suretyships Attached to Duties
33 In contrast to Quebec law, French civil law has no provision comparable to art. 2363 C.C.Q. In France, the commentators and the courts are in disagreement on the problem of suretyships terminated as a result of the cessation of the performance of the surety’s duties: most of the commentators are in favour of such a term’s being implicit in suretyships, but the Court of Cassation has categorically rejected this position.
34 A theory developed by Professor Mouly seems to have met with general acceptance among French commentators. According to it, the cessation of the performance of the surety’s duties is considered an indeterminate extinctive term of the suretyship (C. Mouly, Les causes d’extinction du cautionnement (1979), at pp. 347 et seq.). As Professor Simler points out, there is nothing that would prevent this term from being tacit:
[translation] In this case, the term is indeterminate. There is no reason why the term could not also be tacit. It is perfectly obvious that if a senior officer stands surety for his or her company, it is not by accident, nor a coincidence. The connection between this personal undertaking and the duties performed by the officer is a consideration that has undeniably entered into the realm of contracts as an implicit element of a contract. Any creditor claiming otherwise would patently do so in bad faith.
(P. Simler, “Le juge et la caution. Excès de rigueur ou excès d’indulgence?”, J.C.P. éd. N. 1986.I.169, at p. 175)
35 While some trial courts have accepted this theory, the Court of Cassation has consistently refused to endorse it (see, for example: Com. November 3, 1988, Bull. civ. IV, No. 283, p. 193 (Prette v. Banque internationale pour l’Afrique occidentale (BIAO)); Com. December 6, 1988, Bull. civ. IV, No. 334, p. 225 (Crédit du Nord v. Bourlet); Com. May 30, 1989, Bull. civ. IV, No. 166, p. 110 (Crédit lyonnais v. Bonche); Com. April 24, 1990, D. 1991.177 (Simon v. Banque française de l’agriculture et du crédit mutuel), Annot. Morvan). The court’s decision of April 24, 1990 is clear: [translation] “a suretyship contracted by a senior officer of a company [is] limited to the term of his or her duties only if such a limitation is set out in the suretyship contract”. Thus, according to the Court of Cassation, the cessation of the surety’s duties is an extinctive term of the suretyship only if the parties have expressly provided for this (M. Bandrac, “Sûretés”, Rev. trim. dr. civ. 1989.358, at p. 361).
(3) Effect of Applying Article 2363 C.C.Q.
36 Despite the difficulties caused by this provision and the concerns expressed about its effect on legal and commercial practices, it would appear that in Quebec law, as Chamberland J.A. concluded, the effect of art. 2363 C.C.Q. is that all suretyships attached to the performance of special duties have the cessation of the performance of those duties as their term.
37 This provision cannot be limited to legal suretyships without disregarding the broad and liberal approach to interpretation applicable to the Civil Code of Québec. As Chamberland J.A. pointed out, the main objective of this provision is to protect the surety (para. 97). The Minister of Justice stated in his commentaries on the Civil Code of Québec’s chapter on suretyships that the suretyship provisions were intended [translation] “to provide enhanced protection for sureties and limit the abuses that have been denounced on many occasions” (Commentaires du ministre de la Justice, vol. II, supra, at p. 1465). Although a balance must be maintained between protecting sureties’ interests and protecting creditors’ interests, the majority of the Court of Appeal gave the provision too narrow a scope. Thus, contrary to the respondent’s contention, art. 2363 C.C.Q. cannot be interpreted and applied as if it were a mere renewal of art. 1954 C.C.L.C. that applied only to legal suretyships.
38 The respondent argues that art. 2363 C.C.Q. does not apply to suretyships of company directors because the reference to Swift does not appear in the Minister of Justice’s commentary on the final version of the provision. This cannot be inferred from the Minister of Justice’s commentary. These commentaries, which were drafted before and after the Civil Code of Québec was enacted, are of course not official and have no more weight than comments by academic authors (D. Jutras, “Le ministre et le Code — essai sur les Commentaires”, in Mélanges Paul‑André Crépeau (1997), 451, in particular at pp. 455 and 464; see also: Côté, supra, at p. 552, in which the author states that, when interpreting the Civil Code, the Minister’s commentaries have the weight of “official doctrine”). This Court has indeed stated, in Doré, supra, at paras. 12‑14, that it is possible to use the Minister of Justice’s commentaries to interpret a provision of the Civil Code of Québec, but Gonthier J. was quick to add that “the commentaries are not an absolute authority. They are not binding on the courts, and their weight can vary, inter alia, in light of other factors that may assist in interpreting the Civil Code’s provisions” (para. 14).
39 Article 2363 C.C.Q. cannot have so narrow a scope simply because the reference to Swift was omitted from the Minister of Justice’s commentary. The commentary also states that art. 2363 C.C.Q. is new law and applies to the various suretyships referred to in art. 1954 C.C.L.C. Article 2363 C.C.Q. could not be new law if it applied to only those suretyships mentioned in art. 1954 C.C.L.C. The legislature included those suretyships in the scope of art. 2363 C.C.Q. but did not limit it to them. Such an interpretation of art. 2363 C.C.Q. would introduce a distinction between legal and conventional suretyships, whereas the provision, as worded, makes no such distinction. Chamberland J.A. was therefore correct to conclude that art. 2363 C.C.Q. is not merely the equivalent of art. 1954 C.C.L.C. (para. 95). The provision applies to all suretyships attached to the performance of the surety’s duties, without distinction between legal and conventional suretyships.
40 Moreover, unlike art. 2362 C.C.Q., which requires a surety to give notice to the creditor before terminating the suretyship, art. 2363 C.C.Q. includes no such requirement. Although the legislature could have included words to this effect, none appear in the provision in question. Thus, for art. 2363 C.C.Q. to operate, the surety need not send the creditor any notice whatsoever or establish that the creditor was aware of the cessation of his or her duties.
41 The effects of art. 2363 C.C.Q. are produced in their entirety once the surety has proven that the suretyship was contracted in connection with the duties he or she performs. Thus, as Chamberland J.A. concluded on this issue, the surety bears the burden of proof (paras. 90‑91). Contrary to the opinion of the majority of the Court of Appeal, a surety is required to prove neither that the creditor required the suretyship solely because of his or her capacity nor that the parties intended to make the termination of the suretyship conditional on the cessation of the performance of his or her duties (para. 28). Since the parties could always provide that the suretyship would terminate at the same time as the employment, to require such proof would, as Chamberland J.A. mentioned, render art. 2363 C.C.Q. essentially meaningless (para. 98). Since art. 2363 C.C.Q. already provides that the suretyship terminates upon cessation of the performance of the surety’s duties, there is no need for the parties to provide for this in their contract. It is enough for the surety to show that the duties he or she performed constituted one of the reasons why the creditor requested the suretyship.
42 When the scope of this provision and the risks it may entail for creditors are being assessed, it is important to note that art. 2363 C.C.Q. is not of public order; rather, it supplements the parties’ intention within the meaning of art. 9 C.C.Q. To justify a narrow reading of art. 2363 C.C.Q., the respondent contended that the provision was in fact of public order because of the Minister of Justice’s commentary regarding s. 131 A.I.R.C.C., which reads as follows:
[translation] This section is of the same nature as the section preceding it. In existing contractual situations, the section provides for the immediate application of the imperative provisions of the new legislation requiring that a suretyship contracted in connection with special duties performed by the surety or the principal debtor terminate upon cessation of the duties. The suretyship will be terminated, except with respect to debts already existing at the time, when the new provisions come into force provided that the special duties constituting the fundamental element of the agreement have already ceased at that time.
This section is also consistent with the principle laid down in section 5. [Emphasis added.]
(Loi sur l’application de la réforme du Code civil et Commentaires du ministre de la Justice (1994), at p. 348)
43 For reasons that I will also present in analysing s. 131 A.I.R.C.C., I think this argument is unsound. The wording of art. 2363 C.C.Q. is very different from that of art. 2361 C.C.Q., in which the legislature expressly provided that the death of the surety would terminate the suretyship “[n]otwithstanding any contrary provision”. The fact that the legislature did not include such a clarification in art. 2363 C.C.Q. indicates that its intention was not for this provision to be one of public order. There is therefore an error in the Minister of Justice’s commentary regarding s. 131 A.I.R.C.C., since it does not take into account the clear difference in wording between arts. 2361 and 2363 C.C.Q. Thus, art. 2363 C.C.Q. applies in all cases where the parties have not overridden it by contract. As the academic commentators have noted, the parties are always free to include in their suretyship contract the stipulations needed to exclude or alter the application of art. 2363 C.C.Q. The creditor might agree with the surety on a clause regarding, inter alia, the term of the suretyship or a notification procedure, in order to enhance the protection he or she obtains in requiring this personal security (Claxton, supra, at p. 309; Poudrier‑LeBel, supra, at p. 12; L. Poudrier‑LeBel, “L’extinction du cautionnement”, in Collection de droit, vol. 5, Obligations et contrats (2003), 321, at p. 323; Bélanger, supra, at p. 144).
44 As Chamberland J.A. correctly pointed out, the effect of art. 2363 C.C.Q. is to discharge the surety but not the principal debtor (para. 96). Moreover, under art. 2364 C.C.Q., the surety is discharged only from debts arising after the cessation of performance of his or her duties and remains liable for debts existing at that time (para. 99).
B. The Transitional Law
45 The respondent submits that the effect of the above interpretation of art. 2363 C.C.Q. is that the article applies retroactively in light of s. 131 A.I.R.C.C., which is contrary to the principle established by s. 2 A.I.R.C.C. that the provisions of the Civil Code of Québec do not have retroactive effect. The respondent argued before this Court that, when the suretyship contract was signed, the rule in Swift was the law. The respondent added that the parties could not have foreseen that art. 2363 C.C.Q. would have the effect of terminating the suretyship upon cessation of the performance of the appellant’s duties and that the provision accordingly could not supplement their intention. I cannot agree with this argument.
46 The principles of retroactivity, immediate application and retrospectivity of new legislation must not be confused with each other. New legislation does not operate retroactively when it is applied to a situation made up of a series of events that occurred before and after it came into force or with respect to legal effects straddling the date it came into force (Côté, supra, at p. 175). If events are under way when it comes into force, the new legislation will apply in accordance with the principle of immediate application, that is, it governs the future development of the legal situation (Côté, supra, at pp. 152 et seq.). If the legal effects of the situation are already occurring when the new legislation comes into force, the principle of retrospective effect applies. According to this principle, the new legislation governs the future consequences of events that happened before it came into force but does not modify effects that occurred before that date (Côté, supra, at pp. 133 et seq. and pp. 194 et seq.). When new legislation modifies those prior effects, its effect is retroactive (Côté, supra, at pp. 133 et seq.). Professor Driedger gave a good explanation of this distinction between retroactive and retrospective effect:
A retroactive statute is one that operates as of a time prior to its enactment. A retrospective statute is one that operates for the future only. It is prospective, but it imposes new results in respect of a past event. A retroactive statute operates backwards. A retrospective statute operates forwards, but it looks backwards in that it attaches new consequences for the future to an event that took place before the statute was enacted. A retroactive statute changes the law from what it was; a retrospective statute changes the law from what it otherwise would be with respect to a prior event. [Emphasis in original.]
(E. A. Driedger, “Statutes: Retroactive Retrospective Reflections” (1978), 56 Can. Bar Rev. 264, at pp. 268‑69)
47 In the case at bar, s. 131 A.I.R.C.C. has retrospective effect. It applies to an event that has already happened, namely the signing of the suretyship contract, but governs only the future effects of the contract. Thus, under this provision, the suretyship is terminated upon cessation of the performance of the surety’s duties, except as regards debts already in existence when the new legislation came into force. As s. 131 A.I.R.C.C. does not modify legal effects that occurred before it came into force, its effect is merely retrospective, not retroactive.
48 This application of the new legislation might have been avoided by applying the principle of survival of the former legislation (Côté, supra, at pp. 152 et seq.). As Professor Côté points out, the signing of a contract usually creates rights and obligations, which are considered vested rights and which, generally speaking, remain subject to the former legislation (Côté, supra, at p. 163). This specific case of survival of the former legislation has even been addressed in the first paragraph of s. 4 A.I.R.C.C. However, this principle is not absolute and may be subject to certain exceptions expressly or implicitly provided for by the legislature (Gustavson Drilling (1964) Ltd. v. M.N.R., [1977] 1 S.C.R. 271, at p. 282; Acme Village School District No. 2296 (Board of Trustees of) v. Steele‑Smith, [1933] S.C.R. 47). For example, in the second paragraph of s. 4 A.I.R.C.C., the legislature provided that the exercise of rights and performance of obligations, and the proof, transfer, alteration or extinction thereof, would be governed by the new legislation rather then the former legislation. Section 131 A.I.R.C.C. is another exception that applies specifically to the case at bar. In the case before us, the former legislation has not survived, so the new legislation applies retrospectively. Section 131 A.I.R.C.C. expresses the legislature’s clear intention, namely that, by the operation of s. 131, art. 2363 C.C.Q. applies to suretyship contracts in effect when the new code came into force.
49 As I noted above, to apply art. 2363 C.C.Q. retrospectively like this does not make the provision an imperative one. The legislature intended merely to rectify certain abuses so as to better protect sureties who contract suretyships in connection with the performance of their duties and to adopt a consistent approach to situations of this nature in the future.
C. Application of Article 2363 C.C.Q. and Section 131 A.I.R.C.C. to the Facts of the Case at Bar
50 Article 2363 C.C.Q. applies in the case at bar, as it has been shown that the appellant’s suretyship was contracted in connection with the duties he performed for B.S.L. After investing in the company through Prodier, the appellant became a director and the secretary of B.S.L. The trial judge found that the appellant had contracted the suretyship in connection with the duties he performed. Cohen J. accepted the testimony of Mr. Charette, the respondent’s representative, that the respondent required only the individuals involved in the company’s management and administration to stand surety (para. 15). Chamberland J.A. correctly held that the trial judge’s conclusion in this regard was well founded. He mentioned the testimony of Mr. Collin, a shareholder in B.S.L., that the respondent [translation] “[wanted] to have everyone who was part of the company and was a director of the company”, and the appellant’s testimony that he had contracted his suretyship [translation] “as an owner‑director of the company” (para. 92). Chamberland J.A also noted that the testimony of the appellant and Mr. Collin had not been contradicted and, moreover, that it would appear from Mr. Charette’s testimony that the respondent checked into Mr. Reid’s creditworthiness only after requiring him to stand surety. Although the evidence was somewhat limited, the trial judge’s findings of fact are nonetheless valid and cannot be varied by this Court. The evidence thus establishes that the appellant’s suretyship was contracted in connection with the duties he performed for B.S.L. For this reason, the appellant is discharged from his suretyship, except with respect to debts existing when the Civil Code of Québec came into force on January 1, 1994. As too many uncertainties still remain as to whether any debts existed at that time and, if so, what their value might be, and since these uncertainties could not be cleared up at the hearing, the matter should be remitted to the Superior Court to consider and decide this issue.
VII. Conclusion
51 The appeal is allowed in part. The appellant is discharged from his suretyship, except with respect to any debts existing on January 1, 1994. The matter is remitted to the Quebec Superior Court to determine the amount of any balance due at that date and order the appellant to pay that amount, if any, to the respondent up to the limit of his suretyship, which has been fixed at $15,000. The whole with costs to the appellant.
Appeal allowed in part with costs.
Solicitors for the appellant: Gravel Bédard Vaillancourt, Sainte-Foy.
Solicitors for the respondent: Clément Davignon, Montréal.