Houle v. Banque Nationale du Canada, (1990) 114 N.R. 161 (SCC)

• Judge: Lamer, C.J.C., and Wilson, La Forest, L'Heureux-Dubé, Sopinka, Gonthier and Cory, JJ.
• Court: Supreme Court (Canada)
• Case Date: November 22, 1990
• Jurisdiction: Canada (Federal)
• Citations: (1990), 114 N.R. 161 (SCC);1990 CanLII 58 (SCC);24 ACWS (3d) 1199;74 DLR (4th) 577;AZ-90111119;EYB 1990-67829;[1990] RRA 883;JE 90-1697;5 CBR (3d) 1;[1990] 3 SCR 122;114 NR 161;[1990] ACS no 120;[1990] SCJ No 120 (QL)

Houle v. Nat. Bk. (1990), 114 N.R. 161 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Banque Nationale du Canada (appellant) v. Normand Houle, Réjean Houle, Rolland Houle and Bruno Houle (plaintiffs/respondents)

(No. 20634)

Indexed As: Houle v. Banque Nationale du Canada

Supreme Court of Canada

Lamer, C.J.C., and Wilson, La Forest, L'Heureux-Dubé, Sopinka, Gonthier and Cory, JJ.

November 22, 1990.

Summary:

The Banque Nationale du Canada (the bank) was the secured creditor of considerable sums it had lent to a company called Hervé Houle Limitée (the company). Four brothers were the shareholders of the company (the Houle brothers). In December of 1973, to the full knowledge of the bank, the Houle brothers commenced negotiations for the sale of their shares to Weddell Inc. They asked for $1,000,000. In the beginning of 1974, the company asked the bank to increase its credit line. The bank requested an accountants' firm to prepare a report on the company's financial situation. On February 19, 1974, the report was ready. At 11:00 A.M. that day, without warning, the bank called the loan to the company, took possession of its assets and had them sold by 2:00 P.M. The sale of the shares to Weddell Inc., nevertheless went through but the Houle brothers obtained only $300,000 for them. The four Houle brothers sued the bank in damages for the abusive realization of its security after it had called its loan hence the diminution of the share price. They sought $700,000, being the difference between their asking price, and what they actually obtained for their shares. The Québec Superior Court, in an unreported judgment, allowed the action but awarded the Houle Brothers only $250,000, being the difference between the actual fair market value of the shares at the relevant time and the price the Houle brothers obtained. The bank appealed.

The Québec Court of Appeal, in a judgment reported at [1987] R.J.Q. 1518; 9 Q.A.C. 9, dismissed the appeal. The bank appealed again.

The Supreme Court of Canada dismissed the appeal but added to the award made at first instance the indemnity under art. 1056 c. para. 2, C.C.L.C.

Banks and Banking - Topic 5208

Loans - Secured loans, general - Sale of security, duties of bank - At 11:00 A.M. a bank called a secured loan it had made to a company - The bank took possession of the company's assets and had them sold by 2:00 P.M. - Was the bank obliged to give the company time to pay or refinance the loan after it called it? - If the answer is yes, did the bank breach its obligations here and thereby commit an abuse of contractual right? - The Supreme Court of Canada answered yes to all questions - See paragraphs 163 to 186.

Banques et Opérations Bancaires - Cote 5208

Prêts - Prêts garantis, généralités - Vente de la garantie, obligations de la banque - [Voir Banks and Banking - Topic 5208].

Company Law - Topic 251

Nature of corporations - Distinct legal personality - After calling its secured loan to a company, a bank abused its contractual rights by realizing its security when it had not given the debtor company time to pay the loan or refinance it - As a result, the company's shareholders suffered a reduction in the value of their shares - They sued the bank in contract and under art. 1053 C.C.L.C. - The Supreme Court of Canada held that the shareholders could not sue in contract because a) liability for abuse of contractual rights was contractual and b) the company, being a distinct legal person from its shareholders, was the only other party to the loan contract with the bank and because of that was alone entitled to sue in contract - Also, there was no basis for the lifting of the corporate veil here - See paragraphs 103 to 107, 121 to 143, 154 to 199.

Droit des Compagnies - Cote 251

Nature des corporations - Personnalité juridique distincte - [Voir Company Law - Topic 251].

Company Law - Topic 321

Nature of corporations - Lifting the corporate veil - Conditions - After calling its secured loan to a company, a bank abused its contractual rights by realizing its security when it had not given the debtor company time to pay the loan or refinance it - As a result, the company's shareholders suffered a reduction in the value of their shares - They sued the bank in contract and under art. 1053 C.C.L.C. - The Supreme Court of Canada held that the shareholders could not sue in contract because a) liability for abuse of contractual rights was contractual and b) the company being a distinct legal person from its shareholders was the only other party to the loan contract with the bank, and because of that, was alone entitled to sue in contract - Also, there was no basis for the lifting of the corporate veil here - See paragraphs 103 to 107, 121 to 143, 154 to 199.

Droit des Compagnies - Cote 321

Nature des corporations - Levée du voile corporatif - Conditions - [Voir Company Law - Topic 321].

Québec Obligations - Topic 10

General principles - Honesty and good faith in execution of contracts - The Supreme Court of Canada discussed the principle of abuse of contractual rights in Québec law - The court declared among others that: 1) liability for abuse of contractual rights was contractual; 2) its basis lay in the obligation of good faith contained in art. 1024 C.C.L.C.; 3) bad faith and malice in the exercise of contractual rights were no longer the only criteria to be considered in determining whether there had been abuse of a contractual right - The criteria of the prudent and reasonable man and that of the unreasonable exercise of contractual rights could also be considered - See paragraphs 1 to 153.

Québec Obligations - Cote 10

Principes généreaux - Honnêteté et bonne foi dans l'exécution des contrats - [Voir Québec Obligations - Topic 10].

Québec Obligations - Topic 2530

Effect of contracts - Between contracting parties - Persons entitled to sue for breach - After calling its secured loan to a company, a bank abused its contractual rights by realizing its security when it had not given the debtor company time to pay the loan or refinance it - As a result, the company's shareholders suffered a reduction in the value of their shares - They sued the bank in contract and under art. 1053 C.C.L.C. - The Supreme Court of Canada held that the shareholders could not sue in contract because a) liability for abuse of contractual rights was contractual and b) the company, being a distinct legal person from its shareholders was the only other party to the loan contract with the bank, and because of that, was alone entitled to sue in contract - Finally, there was no basis for the lifting of the corporate veil here - See paragraphs 103 to 107, 121 to 143, 154 to 199.

Québec Obligations - Cote 2530

Effect des contrats - Entre les parties contractantes - Personnes ayarit droit de poursuivre pour inexécution - [Voir Québec Obligations - Topic 2530].

Québec Obligations - Topic 2575

Effect of contracts - Incidental consequences (art. 1024 C.C.L.C.) - Abuse of contractual rights - The Supreme Court of Canada discussed the principle of abuse of contractual rights in Québec law - The court declared, among others that: 1) liability for abuse of contractual rights was contractual; 2) its basis lay in the obligation of good faith contained in art. 1024 C.C.L.C.; 3) bad faith and malice in the exercise of contractual rights were no longer the only criteria to be considered in determining whether there had been abuse of a contractual right - The criteria of the prudent and reasonable man and that of the unreasonable exercise of contractual rights could also be considered - See paragraphs 1 to 153.

Québec Obligations - Cote 2575

Effet des contrats - Conséquences incidentes (art. 1024 C.C.L.C.) - Abus des droits contractuels - [Voir Québec Obligations - Topic 2575].

Québec Obligations - Topic 2576

Effect of contracts - Incidental consequences (art. 1024 C.C.L.C.) - Giving debtor time to pay or refinance - At 11:00 A.M. a bank called a secured loan it had made to a company - The bank took possession of the company's assets and had them sold by 2:00 P.M. - Was the bank obliged to give the company time to pay or refinance the loan after it called it? - If the answer is yes, did the bank breach its obligations here and thereby commit an abuse of contractual right? - The Supreme Court of Canada answered yes to all questions - See paragraphs 163 to 186.

Québec Obligations - Cote 2576

Effet des contrats - Conséquences incidentes (art. 1024 C.c.B.-C.) - Donner au débiteur le temps de payer ou de refinancer - [Voir Québec Obligations - Topic 2576].

Québec Responsibility - Topic 1214

Fault - Duty of care - Conduct toward client - After calling its secured loan to a company, a bank abused its contractual rights by realizing its security when it had not given the debtor company time to pay the loan or refinance it - The company's shareholders who, to the knowledge of the bank, were negotiating a sale of their shares, were forced as a result to accept a reduced price - They sued the bank in contract and under art. 1053 C.C.L.C. - The action under art. 1053 C.C.L.C. was allowed - The Supreme Court of Canada held that the bank had a duty to act in a prudent and diligent manner, as any individual, to avoid causing prejudice to its client shareholders - The bank's actions here constituted a breach of this duty thereby engaging its liability under art. 1053 C.C.L.C. - See paragraphs 200 to 217.

Québec Responsabilité - Cote 1214

Faute - Obligation de diligence - Conduite envers les clients - [Voir Québec Responsibility - Topic 1214]

Québec Responsabilité - Topic 2130

Damages - Wrong giving rise to compensation - Direct damage, diminution of share price - After calling its secured loan to a company, a bank abused its contractual rights by realizing its security when it had not given the debtor company time to pay the loan or refinance it - The company's shareholders who, to the knowledge of the bank, were negotiating a sale of their shares, were forced as a result to accept a reduced price - They sued the bank in contract and under art. 1053 C.C.L.C. - The Supreme Court of Canada held that the loss suffered by the shareholders was a direct result of the bank's actions and was therefore compensable - See paragraphs 218 to 221.

Québec: Responsabilité - Cote 2130

Le dommage - Préjudice admissible à la compensation - Dommages directs, réduction du prix d'actions - [Voir Québec Responsibility - Topic 2130].

Québec Responsibility - Topic 3585

Damages - Interest on damages - Additional indemnity under art. 1056c C.C.L.C. - The Supreme Court of Canada held that, although a court had discretion with respect to awarding the additional indemnity under art. 1056c para. 2 C.C.L.C., the indemnity should be awarded unless there were compelling reasons not to - See paragraphs 226 to 232.

Québec Responsabilité - Cote 3585

Le dommage - Intérêts - Indemnité additionnelle eu vertu de l'art. 1056c C.c.B.-C. - [Voir Québec Responsibility - Topic 3585].

Cases Noticed:

Salomon v. A. Salomon and Co., [1987] A.C. 22 (H.L.), consd. [para. 13].

Boisjoli v. Goebel, [1982] C.S. 1, refd to. [para. 31].

Doerr v. Keller, 1855, D.P. 1856.2.9, refd to. [para. 37].

Brodeur v. Choinière, [1945] C.S. 334, consd. [para. 44].

Air-Rimouski Ltée v. Gagnon, [1952] C.S. 149, refd to. [para. 45].

Blais v. Giroux, [1958] C.S. 569, refd to. [para. 45].

Laperrière v. Lemieux, [1958] R.L. 228 (S.C.), refd to. [para. 45].

Quaker Oats Co. of Canada v. Côté, [1949] K.B. 389, consd. [para. 59].

St. Laurent v. Lapointe, [1950] K.B. 229, consd. [para. 60].

Fiorito v. Contingency Insurance Co., [1971] C.S. 1, consd. [para. 61].

Noivo Automobile Inc. v. Mazda Motors Canada Ltd., [1974] C.S. 385, refd to. [para. 62].

Latreille Automobile Ltée v. Volvo (Canada) Ltd., [1978] C.S. 191, refd to. [para. 62].

Godbout v. Provi-Soir Inc., [1986] R.L. 212; 4 Q.A.C. 4 (C.A.), consd. [para. 62].

Equipements Select Inc. v. Banque Nationale du Canada, J.E. 87-189 (C.S. Qué.), consd. [para. 92].

White v. Banque Nationale du Canada, J.E. 86-339 (C.S. Qué.), dist. [para. 94].

Miville v. Québec (Ville), J.E. 82-609 (C.P. Qué.), consd. [para. 95].

Langlois v. Farr Inc., [1988] R.J.Q. 2682 (C.A.), consd. [para. 97].

Des Cheneaux v. Miron Inc. (1987), 20 Q.A.C. 157, refd to. [para. 98].

Caisse populaire de Baie St-Paul v. Simard, J.E. 85-943 (C.S. Qué.), refd to. [para. 98].

Stewart v. Standard Broadcasting Corporation, J.E. 90-75 (C.S. Qué.), refd to. [para. 98].

Modernfold (Bas St-Laurent) Ltée v. New Castle Products (Canada) Ltd., [1973] C.S. 220, refd to. [para. 99].

Banque Nationale du Canada v. Soucisse, [1981] 2 S.C.R. 339; 43 N.R. 283, consd. [para. 110].

Banque de Montréal v. Leong, [1989], 2 S.C.R. 429; 100 N.R. 203; 26 Q.A.C. 20, refd to. [para. 111].

Marcotte v. Assomption Cie mutuelle d'assurance-vie, [1981] C.S. 1102, consd. [para. 138].

Macaulay v. Imperial Life Assurance Co. of Canada, J.E. 84-423 (C.S. Qué.), consd. [para. 139].

Drouin v. Electrolux Canada Ltée, [1988] R.J.Q. 950; 13 Q.A.C. 81, consd. [para. 140].

Germain c. Sergaz Inc., J.E. 81-334 (C.S. Qué.), refd to. [para. 140].

Caisse populaire St-Simon de Drummond c. Lalumière, J.E. 82-1105 (C.S. Qué.), refd to. [para. 140].

Carignan c. Infasco Division Ivaco Inc., J.E. 89-286 (C.S. Qué.), refd to. [para. 140].

Air Canada c. McDonnell Douglas Corp., [1989] 1 S.C.R. 1554; 98 N.R. 1; 24 Q.A.C. 216, consd. [para. 145].

Wabasso Ltd. c. National Drying Machinery Co., [1987] 1 S.C.R. 578; 38 N.R. 224, consd. [para. 147].

Ross c. Dunstall (1921), 62 S.C.R. 393, consd. [para. 150].

Alliance Assurance c. Dominion Electric Protection, [1970] S.C.R. 168, consd. [para. 151].

Bernard c. Cloutier, [1982] C.A. 289, refd to. [para. 151].

Pole Lite Ltée c. Banque Provinciale du Canada, [1984] C.A. 170, consd. [para. 169].

Banque Royale du Canada c. Nettoyeur Terrebonne (1985) Inc., J.E. 88-61 (C.S. Qué.), refd to. [para. 171].

Charland c. Banque canadienne impériale de commerce, J.E. 86-142 (C.S. Qué.), refd to. [para. 172].

Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., [1982] 1 S.C.R. 726; 42 N.R. 181; 135 D.L.R.(3d) 1, consd. [para. 174].

Massey v. Sladen (1868), L.R. 4 Ex. 13, refd to. [para. 174].

Toms v. Wilson (1863), 4 B. & S. 442, 122 E.R. 524, refd to. [para. 174].

Mister Broadloom Corp. (1968) Ltd. v. Bank of Montréal (1979), 25 O.R.(2d) 198 (H.C.), consd. [para. 175].

Mister Broadloom Corp. (1968) Limited v. Bank of Montréal (1983), 44 O.R.(2d) 368, consd. [para. 176].

Vicply Inc. v. Banque Royale du Canada, [1989] R.R.A. 11 (C.S. Qué.), refd to. [para. 178].

Burland v. Earle, [1902] A.C. 83, consd. [para. 192].

Silverman v. Heaps, [1987] C.S. 536, consd. [para. 193].

Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2; 74 N.R. 360, consd. [para. 195].

Corriveau and Péloquin v. Travelers Insurance Co. of Canada, [1982] 2 S.C.R. 866; 49 N.R. 81, consd. [para. 229].

Trottier c. British American Oil Ltd., [1977] C.A. 576, refd to. [para. 230].

Godin c. Trempe, J.E. 85-822 (C.A. Qué.), refd to. [para. 230].

Statutes Noticed:

Civil Code of Lower Canada/Code civil du Bas-Canada, art. 1023, art. 1024, art. 1040a, art. 1053, art. 1056c, art. 1065, art. 1075.

Civil Code of Québec/Code civil du Québec, art. 6, art. 7 (not yet in force).

Supreme Court of Canada, Rules of the/Cour suprême du Canada, Règles de la, SOR/83-74, rule 29(1).

Supreme Court Act/Cour suprême, Loi sur la, R.S.C. 1985, c. S-26, sect. 48.

Authors and Works Noticed:

Angus, David, Abuse of Rights in Contractual Matters in the Province of Québec (1962), 8 McGill L.J. 150, generally [para. 43].

Appleton, Ch. Les exercices pratiques dans l'enseignement du droit romain et plan d'un cours sur l'abus des droits, (1924) 78 Revue internationale de l'enseignement 142, generally [para. 33].

Baudouin, Jean-Louis, Contrat -- Application de la théorie de l'abus de droit en matières contractuelles, (1971) 31 R. du B. 335, generally [para. 115].

Baudouin, Jean-Louis, La responsabilité civile délictuelle, 3e éd., 1990, generally [para. 119].

Baudouin, Jean-Louis, Les obligations, 3e éd., 1989, generally [para. 106].

Baudouin, Louis, Le droit civil de la Province de Québec, 1953, generally [para. 129].

Caron, Maximilien, Précis de droit des effects de commerce, 7e éd. rév. par Albert Bohémier, 1978, generally [para. 156].

Charmont, J. L'abus du droit, (1902) 1 Rev. trim. dr. civ. 113, generally [para. 38].

Cornu, Gérard, Droit civil (Introduction: Les personnes -- Les biens), 4e éd., 1990, generally [para. 40].

Corpus Juris Civilis, 11e éd., 1881 par C.M. Galisset, generally [para. 32].

Crépeau, Paul-André, Le contenu obligationnel d'un contrat, (1965) 43 Can. Bar. Rev 1, generally [para. 57].

Crépeau, Paul-André L'intensité de l'obligation juridique ou des obligations de diligence, de résultat et de garantie, 1989, generally [para. 210].

Crépeau, Paul-André, Théorie générale de l'obligation juridique: éléments d'une introduction, 1987, generally [para. 114].

Domat, Jean, Oeuvres de J. Domat, t. 4, 1e éd. in-octavo par M. Carré, 1823, generally [para. 36].

Ghestin, Jacques et Gilles Goubeaux, Traité de droit civil, t. 1, Introduction générale, 3e éd., 1990, generally, [para. 55].

Jobin, Pierre-Gabriel, L'abus de droit contractuel depuis 1980, dans Congrès annuel du Barreau du Québec (1990), 127, generally [para. 65].

Josserand, Louis, A propos de la relativité des droits (1929) 49 Rev. cri. lég. et jur. 227, generally [para. 80].

Josserand, Louis, De l'abus des droits, 1905, generally [para. 80].

Josserand, Louis, De l'esprit des droits et de leur relativité, 2e éd., 1939, generally [para. 34].

L'Heureux, Nicole, Le droit bancaire, 1988, generally [para. 114].

Lalou, Henri, Traité pratique de la responsabilité civile, 6e éd., 1962, generally [para. 86].

Martel, Paul, L'arrêt Banque Nationale du Canada c. Houle; Lumières nouvelles sur l'abus de droit et le "voile corporatif", (1987) 33 McGill L.J. 213, generally [para. 165].

Marty, Gabriel et Pierre Raynauld, Droit civil: Les obligations, t. I, 2e éd., 1988, generally [para. 37].

Massuë, Hubert de la, Responsabilité contractuelle et responsabilité délictuelle sous la notion de l'abus du droit, (1948) 46 Rev. trim. dr. civ. 29, generally [para. 127].

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Mazeaud, Henri et Léon, et André Tunc, Traité théorique et pratique de la responsabilité civile délictuelle et contractuelle, t. I, 6e éd., 1965, generally [para. 32].

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Nadeau, André et Richard Nadeau, Traité pratique de la responsabilité civile délictuelle, 1971, generally [para. 129].

Payette, Louis, Prise de possession: demande de paiement et délai raisonnable, in Meredith Memorial Lectures 1981, generally [para. 156].

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Counsel:

Serge Guérette and Roger Reinhardt, for the appellant;

Jean-Yves Fortin, Richard Nadeau and Lise Beaudoin, for the respondents.

Solicitors of Record:

Matineau, Walker, Montréal, Québec, for the appellant;

Bélanger, Sauvé, Montréal, Québec, for the respondents.

This appeal was heard on May 3, 1990, by Lamer, Wilson, La Forest, L'Heureux-Dubé, Sopinka, Gonthier and Cory, JJ., of the Supreme Court of Canada.

The judgment of the Supreme Court of Canada was delivered in both official languages on November 22, 1990, by L'Heureux-Dubé, J.