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Flexible standard of Good Faith – There is almost no way to determine what “good faith” means – but it is required to avoid the appalling results that can come from strictly rigid rules.
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Especially used in cases of uneven bargaining power. Looking beyond the letter of the contract to the spirit of good faith.
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Can come up at any stage of the relationship, even during negotiations (Empress)
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Used as a shield against the “abusive” exercise of rights
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Bargaining in good faith
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Implied duty to perform in good faith
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Good faith as a standard of interpretation
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Defence against unfair behaviour
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Flexible standard that enables the judge to reshape the parties’ agreement and to override inflexible rules
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Often an implied duty (Empress Towers, Lady Duff-Gordon)
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Judge can basically reshape contracts with Good Faith (in order to override unfair rules). It comes down to the conscience of the judge making the decision.
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Here the fundamental principles that clash are Fairness v. Certainty
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The contract needs to be fair for both parties (in the particular dispute), but the main idea of the rule of law is to decide like cases alike. You should know what the results of doing something will be every time.
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FAIRNESS, EQUITY, AND JUSTICE into the formal field of contract law – to temper results that are felt to be unfair
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Seems to be a good thing?
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Where are the weaknesses of this idea… subjectivity? Lack of predictability? If it goes too far, it can undermine the institution of contract law – changes the relationship between the parties? Contract law should be rigid. Interference by a third person (judge) into an inherently bilateral relationship – PATERNALISTIC
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Clash of fundamental principles of “justice”:
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Fairness (fair outcome regarding the particular, unique dispute) vs. Certainty (standardization of adjudication by creating fixed rules – “treating like cases alike”)
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Not knowing how the judge will interpret clauses in a contract is a source of insecurity when drafting a contract – one cannot be sure how one will be allowed to exercise one’s contractual rights
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“Certainty in fairness” vs. “Fairness in certainty”
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Compare this process of relaxing and then tightening the rules with the idea of the pre-existing duty rule (doctrine of consideration) and promissory estoppel (equitable doctrine, shield/sword)
Schermaier, Bona Fides in Roman Law
Summum ius, summa iniuna (absolute law, absolute injustice)
Two cases, one where a Citizen sold his house knowing there was an order to make the house smaller. He sold without telling the buyer that he had to make it smaller, and the judge deemed that this was in Bad Faith – you have to tell the buyer all the defects with the house. The other case was where a Citizen bought a house and a little while later, sold it back to the initial owner. The initial owner tried to sue for the Citizen not telling him it had a defect, but the initial owner should already know, as he sold it in the first place.
Cicero’s point is that this Good Faith standard has to stay flexible so that it doesn’t become unfair itself.
Good Faith in the Civil Law
As an overarching, general principle, the doctrine of Good Faith is typically Civilian, grown out of the Roman tradition. Modern Civil Contract Law developed from the “bonae fidei iudicia”: the binding force of contracts is actually rooted in Good Faith
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In Houle, there is reference to good faith as implied in Roman law; not true – good faith was the starting point for contractual obligations
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The closer the relationship between the parties, the higher the duty
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Brief encounter – “Arm’s length” exchanges – lower standard for duty
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Duration, degree of dependence correlated with the duty of good faith
Quebec – Civil Code
Art. 6
Every person is bound to exercise his civil rights in good faith.
Art. 7
No right may be exercised with the intent of injuring another or in an excessive and unreasonable manner which is contrary to the requirements of good faith
Art. 1375
The parties shall conduct themselves in good faith both at the time the obligation is created and at the time it is performed or extinguished.
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France – Code Civil 1804
Art. 1134
Les conventions légalement formées tiennent lieu de loi à ceux qui les ont faites. Elles ne peuvent être modifiées ou révoquées que de leur consentement mutuel, ou pour des raisons que la loi autorise.
Elles doivent être exécutées de bonne foi.
(all contracts executed in good faith)
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Germany – German Civil Code - 1900
Section 242 BGB
The debtor is bound to perform according to the requirement of good faith, ordinary usage being taken into account.
Section 157 BGB
Contracts shall be interpreted according to the requirements of good faith, ordinary usage being taken into consideration.
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UNIDROIT Principles of International Commercial Contracts, Art. 1.7 (61 member states)
(1) Each party must act in accordance with good faith and fair dealing in international trade
(2)The parties may not exclude or limit this duty
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Principles of European Contract law
Art. 1.201 – Good Faith and Fair Dealing
(1)Each party must act in accordance with good faith and fair dealing.
(2) the parties may not exclude or limit this duty.
Art. 1.202 – Duty to Co-operate
Each party owes to the other a duty to co-operate in order to give full effect to the contract.
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Good Faith in the Common Law -
CML courts frequently take recourse to “Good Faith.” However, English and Canadian Common Law is reluctant to acknowledge a general principle of Good Faith underlying of all obligations.
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There is not Good Faith doctrine in the CML except in the USA:
Good Faith: USA
Exception – US Contract Law acknowledges a general principle of Good Faith:
UCC §1-203. Obligation of good faith.
Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.
Section 205, Restatement of Contracts (2nd)
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
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Good Faith: Clash of Ideologies – See “Harvard Law Review” article (receuil p. 97-101) -
Dealing at arm’s length (adversary)
Versus
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Assuming responsibility for the other party (partner) joint endeavour, “fraternité contractuelle”
Individualism v. Altruism
-
Historical Background:
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The Rise of the “Social” – the infusion of “social” ideals into the “individualistic”, will-based private law of the 19th century
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Goes beyond the ideas of “duress” or “undue influence”, “incapacity”, etc, which were already existing, recognized as compromising the autonomy of the will
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Problem: Paternalism – inroad for any kind of policy and ideology – the State knows best – meddling into private transactions
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Most extreme example: TOTALITARIANISM
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Germany the fight against the “individualistic”, “anti-social” and “Roman law” of the 19th century style civil code (BGB) was an integral part of the agenda of the Nazi party since its formation in 1920.
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Wanted something more “community” based… at the expense of ethnic minorities
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In the 20th century, the belief in “private autonomy” and “freedom of the will” has often been depicted as outdated; but many scholars have also defended these paradigms as bulwarks against totalitarian paternalism and abuse
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Backlash – e.g. Ayn Rand, Charles Fried, “Contract as Promise” – straightforward liberal ideas
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This doctrine of Good Faith overrides everything but is open-ended – this is dangerous (i.e. “reinterpretation” of German Civil Code in Nazi Germany)
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Germany – originally Nazi’s were against the “individualistic”, “anti-social” and “Roman” law of the 19th century-style civil code (BGB), however, through Good Faith and interpretation, the BGB was an integral part of the agenda of the Nazi party since its formation in 1920. – the law became an instrument of oppression (if public policy is perverted, then good faith will be perverted –German and Aryan ideals)
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In the 20th century, the belief in “private autonomy” and “freedom of the will” has often been depicted as outdated; but many scholars have also defended these paradigms as bulwarks against totalitarian paternalism and abuse
Good Faith in Quebec Case Law -
The CCLC (1866) rejected Art 1134 of French Code, faith was implied
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Later codified Good Faith in 1991 (Art. 6, 7, 1375)
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Cornerstone of development of Good Faith was BCN c. Soucisse and Houle c. CNB
BCN v. Soucisse - Corporations as legal persons
art.
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Text
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1440
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A contract has effect only between the contracting parties; it does not affect third persons, except where provided by law.
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-
Chief reason to create a corporation (incorporate) is to set the corporation’s patrimony apart from those of the shareholders (limited liability) – so shareholders cannot be sued for corporation’s debt
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With small corporations, banks will often lend money but require security on the loan from the shareholders – but in theory the patrimonies are separate
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Advantage: shareholders cannot be sued for corporation’s debt
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Disadvantage: if someone has committed a fault against the corporation, only the corporation (not the shareholders) can sue (the corporate veil); minority shareholders are often voiceless in deciding about a suit
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Corporations are treated and taxed as persons (cf. income trusts, which aren’t persons, so the money is only taxed when the unit holders receive it, rather than at the corporation and shareholder levels)
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We speak about when the corporation “knew” or “learned” of something, as if the corporation were really a person – but one branch of a bank “knowing” something may not mean that the whole bank “knows”
CVL – B.C.N. v. Soucisse, [1981] 2 S.C.R. 339: CB 295 |
Jurisdiction
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Quebec
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Facts
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Respondents are heirs of Dr. Groulx who signed one promissory note (for $1400) and 2 letters of suretyship guaranteeing repayment to Appellant bank of Maurice Robitaille’s (son in law) current and future debts. When Dr. G died, suretyship passed on to his heirs under Art. 1937 CCLC; Bank only informed heirs of promissory note obligation; heirs were not made aware of suretyship or possibility of revocation. Advances were made by bank to Maurice Robitaille’s company before ($15,000) and after ($107,000) the death of the surety. Bank is suing heirs (under inherited suretyship) for these debts.
JUDICIAL HISTORY:
S.C.: Allowed Bank’s action in entirety (debts before and after death); C.A.: Reversed decision – allowed action only for debts before death (juridical construction – “legal gymnastics”).
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Issues
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Should the heirs be made to repay advances made after Dr. G’s death by a creditor (the Bank) who was aware of the death when the heirs, who were completely unaware of the suretyship, were unable to revoke it?
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Holding
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No Soucisse. Decision of Court of Appeal affirmed (but different reasoning)
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Reasoning
| -
C.A. found that the “obligation of coverage” (ob to cover future debts) is not a true suretyship (this is totally made up! It is, in fact, a surety, according to the CcB-C) and so not passed to heirs under 1937. SCC says that it is.
Beetz J:
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Bank had an obligation as soon as it learned of the death to disclose to the heirs of the surety that these suretyships existed and were revocable – this obligation results from the principle that agreements must be performed in good faith
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Obligation of good faith is an implicit clause of the contract under 1024. In this case, obligation of good faith translates into an obligation to disclose
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The Bank took the initiative to inform the heirs. However, by only giving partial information, (advised of one guarantee but not the revocable suretyships) the bank unilaterally altered the situation to its advantage by making the suretyship essentially irrevocable. This puts them at fault.
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Because it was at fault, the Bank could not carry out its action. Respondents could plead a fin de non-recevoir (the doctrinal vehicle that protects the party “hard done by”) based on the fact that “no complaint can be based on, nor advantage derived from, one’s own action, negligence, imprudence or incapacity, much less fault, to the detriment of another.”
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Alternative, based on Belgian/French jurisprudence – counterbalancing claims. Bank can collect on heirs’ liability, and then the heirs can claim back their losses from the bank for its violation of a contractual duty of good faith. (this detour was not taken, is not jurisprudentially valid in Canadian civil law)
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Ratio
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There is an obligation of good faith in all contracts. It is grounded in Article 1024 (equity). The obligation of good faith translates into a different obligation in all cases. (here: the obligation to disclose). [Note that here contract is silent…the obligation is implied]
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Comments
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Here “good faith” is not yet in the code (it is now in the CCQ). On the spectrum, this falls between reliance and loyalty.
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The whole issue of a debtor being able to extend the suretyship past death is academic, because CCQ 2361 now says that death of the surety ends the suretyship
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Beetz cites a large amount of doctrine – likely trying to justify an extension of good faith doctrine that he’s nervous about undertaking – starts with Roman law (cannot benefit from your own fault –procedural instrument), says it is close to estoppel (which is CML)
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Beetz accepts that the document clearly showed that the suretyship was to be binding after death
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This is seen as a watershed decision – yet if the bank effectively changed the K, the decision is really just normal (we’re not too far into good faith)
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First instance – found for the bank, reluctance for the finding, but judge just applied rules of the code, and had no leeway
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Court of Appeal – found for the family – subtle construct, different types of debts to avoid liability
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SCC – for the family, relied on good faith, only here can the concept be invoked
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CVL – Houle v. CNB, [1990] 3 S.C.R. 122: CB 314 |
Jurisdiction
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Quebec
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Facts
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Hervé Houle Ltd. was a company with a rotating line of credit and a letter of credit to CNB (bank). HHL’s shareholders planned to sell their shares to another party (Wedell), but CNB decided to recall the loan and realize on the guarantees; time span from first notification to liquidation of assets was three hours. Shareholders now in a weak negotiating position; obtained fair less than prior estimated value of shares.
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Issues
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Did CNB abuse its K’ual rights? Is CNB liable for difference in shares’ value?
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Holding
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Yes and yes Houle.
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Reasoning
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L’Hereux-Dubé J:
Breach of K leading to delictual liability (1st possibility): CCQ 1440, 1457
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K’ual, not delictual, liability is the foundation for abuse of K’ual rights
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Fairly tenuous to argue that someone breaching a K generated ECO liability to a third party – esp. because tort law is aimed at RII, but K’ual damages are for expectations
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Refusal to lift corporate veil
Abuse of rights leading to delictual liability (2nd possibility): CCQ 6, 7, 1375, 1457
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Doctrine of abuse of rights increasingly accepted; good faith and reasonableness permeate the theories of rights and obligations
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Doctrine of abuse of rights serves social and economic functions in controlling the exercise of K’ual rights (presumption of good faith preserved)
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“The time has come to assert that malice or the absence of good faith should no longer be the exclusive criteria to assess whether a K’ual right has been abused”
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“Reasonableness” is an acceptable and applicable standard underlying all Ks
Case at bar
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CNB had the right to recall the loan on demand and realize securities without notice (key security for a creditor institution) after a reasoned decision – but had to exercise its right in a reasonable manner
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If the “length of the delay between the demand for payment and the realization of the securities or liquidation of assets be found to be unreasonable, an abuse of such K’ual right may still occur”
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Reasonable length of time must consider all contextual and circumstantial factors: “reads down” CNB’s K’ual discretion
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“Flagrant abuse of the bank’s K’ual right to realize its securities after the demand for payment of its loan was not met”
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BUT: shareholders were not parties to the K, and cannot anchor their claims (CCQ 1440) – corporate veil cannot be lifted, so no right of action based on the K itself
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INSTEAD: “a K’ing party may also incur delictual liability towards a third party who is outside the K’ual sphere”
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CNB knew of the upcoming sale of shares, had 50 years of dealings with HHL, and acquired ECO obligation to “provide a reasonable delay” fault
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Ratio
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Implied obligation of good faith in every K that may override an express clause. A K’ual party can be liable to third parties extra-K’ually. Adds an additional criterion to assess breach of K rights: lack of good faith (unreasonableness) and bad faith (acting with malicious intent)
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Comments
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Much effort to show that there are deep roots in CVL for doing what L’Heureux-Dubé is about to do
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CCQ now deals with this case in some provisions (reasonable delay [CCQ 1596]; Book 6 of Hypothecs [CCQ 2757, 2758] on seizure of property serving as security) – so this case is less about the specific points of law than the duty of good faith
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L’Heureux-Dubé’s discussion is one big obiter, designed to adjust the law of K; she references her own decisions in the QC CA
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In theory, the new shareholders could sue the Bank for the (found) breach of K’ual duty – multiple payments for same action, which is why courts are reluctant to find breach of K leading to delictual liability
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CNB’s behaviour is so egregious that assessing reasonableness is easy (though there is no particular regime for assessing such reasonableness expressed by L’Heureux-Dubé)
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Good faith may not ultimately help the consumer, if constraints involving good faith inspire banks to raise interest rates to maintain security
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CVL – Provigo Distribution v Supermarche ARG. [1998] R.J.Q. 47 (C.A.): CB 344 |
Jurisdiction
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Quebec
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Facts
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Supermarche ARG (the Gagnon Group) owned 4 supermarkets affiliated with Provigo. Under their franchising agreement, Gagnon bought 90% of everything from Provigo and in return, they benefited from Provigo's advertising expertise and business practices. Provigo opened a discount grocery warehouse (Heritage) in Granby that was in direct competition with the Gagnon Group. Provigo aggressively marketed their new Heritage store without any concern for their franchisee's interests in the region, brushing off Gagnon's concerns. The franchising agreement allowed the opening of new stores in competition with existing franchisees.
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Issues
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Did Provigo breach their good faith obligations to the Gagnon Group?
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Holding
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Yes Supermarche ARG.
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Reasoning
| -
No clause about no-competition policy can be found in any of the contract between Provigo and Gagnon, but parties' obligations are not restricted to those mentioned in contracts: they derive from the nature of the contract, equity, custom or the law.
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In this case, violation of these implicit obligations, liability is not extra-contractual, but contractual in nature.
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Not a fiduciary duty from the part of Provigo: this common law principle is not relevant to civil law.
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1376 CCQ: Good faith: contracts should be negotiated, executed and terminated in good faith.
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6 CCQ: Good faith as the basis for contractual morality.
4 Faults:
1) P forced G to keep its price up as the result of G's obligation to buy 90% of its products from P.
2) P radically changed its commercial strategy.
3) P refused to give certain marketing tools that would have enabled G to fight competition.
4) Aggressive advertising campaign against G's store.
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Fault is not competition: P cannot systematically refuse to compete, otherwise massive economic losses.
-
Fault lies in the fact that P did not fulfill its duty as a franchisor: technical and commercial assistance in a context of partnership, hence collaboration throughout the contract. P had the expertise and had to maintain the whole network at a high level of performance.
Causality:
-
The necessary condition to the existence of a contractual obligation is the presence of causality.
-
Determine if P's actions have led to low sales for G: this was not determined for the first G store, but was established for the second store.
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Ratio
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Provigo and Gagnon's contract is a partnership. Under this contract, Provigo had a good faith obligation to provide Gagnon with assistance when they opened their new Heritage store. If they couldn't prevent economic prejudice for the Gagnon Group, they had at least an obligation to minimize the impact of the store on the Gagnon stores in the immediate region (3 of the 4). Provigo failed in their contractual duties towards the Gagnon Group and thus, owe compensation.
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Comments
| -
Explicitly refused to go to CML fiduciary duty, but similar to Honda. Under the new CCQ.
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What does Good Faith Mean?
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Opposite of bad faith (no middle ground); anytime where there is no malice that can be proven; concerned with deterring malice, avoiding intentional harm (subjectively assessed)
-
“Reasonableness” in relation to the interests of others (fair dealing, avoid disappointing reliance, etc) Art. 6 and 7, CCQ – Houle
Altruistic Behavior – fiduciary relationships: act exclusively in the interests of the other
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It could even lead to an extension of duties owed to each other to the pre-contractual phase (Walton)
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“The role of Good Faith is […] hard to define. Good Faith is ubiquitous […]. Canadian [sc.: Common Law] courts have had tremendous problems with the concept of Good Faith, particularly in the context of negotiations.” Swan, Canadian Contract Law, 4.2.2.1
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Increasingly demanding standard is tied, in all jurisdictions, to an assessment of the relationship
Special relationship in Houle, McKinlay, Provigo (the closer the relationship – the higher the standard of Good Faith)
-
Instance of each are found in all jurisdictions, but Common Law jurisdictions typically imposes a lower standard of Good Faith on parties to a contract.
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Good Faith is a Sliding scale ranging from Harm to Altruism
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Rigid Rules are sign of trying to minimize the arbitrariness (role of the judge), but rigid rules can lead to unfair results
Sliding Scale of Good Faith
Extreme Fiduciary
Duty, i.e. Banks
provide independent
McKinlay v Honda Walton v Maher BCN v Soucisse legal counsel
No Malice, Acting selflessly
Dishonesty, Taking account of Loyalty and in the interest
Bad Faith: reliance of other part cooperation of the other
Dolus (Promissory Estoppel) party
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Common Law and Good Faith -
No general duty of good faith in a CML K: some contradictory developments, but no consistent jurisprudence in favour
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But: discretionary powers must be used reasonably (McKinlay); cooperation is expected to bring the K forward; unethical strategies to get out of K are punishable
-
CML also edgy about compensating pure economic loss
CML – McKinlay Motors Ltd. v. Honda Canada Inc. (1989), 46 B.L.R. 62 (Nfld. S.C.): CB 308 |
Jurisdiction
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Newfoundland
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Facts
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MML had a dealership K with HCI, had a good reputation, and sold many cars. MML’s premises were old and poorly designed, but originally approved by Honda – but new zone manager requested improvements. MML began improvements, but not very quickly (in light of expected import restrictions).
Under new allocation system, each dealer assigned fewer and fewer cars zone manager had more cars to allocate by discretion, and he sent few to MML. HCI gives notice of termination to MML.
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Issues
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Did HCI act in bad faith in allocating cars to MML? Is HCI liable for damages?
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Holding
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Yes and yes McKinlay Motors Ltd.
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Reasoning
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Wells J:
-
MML’s delays were based on prudent business practice and the reduced allocation of cars.
-
Poor sales performance was not a genuine factor in the termination - the determining factor leading to termination was dissatisfaction with the premises (decided beforehand).
-
Allocation system lacked a means by which a dealer could increase his allocation through good performance – only through discretion (and zone manager didn’t like MML – wanted MML to be out of business).
-
“The system was being deliberately operated to the disadvantage of McKinlay.”
-
Damages need to be awarded for losses arising from the breach (expected earnings from cars that would have been sold)
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Ratio
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Necessary requirement that business dealings be conducted in good faith, even if not explicitly mentioned in contract.
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Comments
| -
In CVL (CCQ 1375), could find good faith duty in enforcement and termination of K; here, Wells is nervous about the possibility of finding a good faith duty in termination (esp. given that there is a termination clause in the K) – but he is willing to find that there were implications to use the discretion provided by the K reasonably.
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Wells is also very quick to reject the idea of punitive damages (narrow idea of good faith)
-
The K’ual text does state that Honda left itself a lot of discretion, the allocation formula was perhaps too complex to adjudicate its fairness, and business practices often require harsh dealings.
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HCI worked hard to “oust” MML, even when they had generous termination possibilities arising from the K – so were they admitting a certain obligation, or just trying to maintain that “they don’t fire dealers”?
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It was a bad business decision to oust MML (because he sold well), but we may not want judges to adjudicate bad business decisions
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If it was a breach of K not to use discretion in good faith, MML could have sued for breach even before termination of K.
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CML – Martel v. Canada, [2000] 2 S.C.R. 860: CB 336 |
Jurisdiction
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Ontario
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Facts
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Gvt leased space in Martel's building. When lease was coming to an end, Gvt expressed interest in renewing lease and asked for a proposed rental rate. Various meetings were held and Martel was made to understand that Gvt wouldn't proceed to tender if lease could be renegotiated with Martel. Martel made strong effort to renegotiate lease to satisfy gvt's request, but gvt proceeded with tendering. Martel bid on the project but it was not awarded the K.
MBL sued in K (Department breached implied term to renew the lease) and in tort (Department breached duty to negotiate in good faith, was negligent in negotiation and tender processes).
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Issues
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1) Duty of care not to harm those who could suffer damages, does this duty apply to negotiations? 2) Does the tort of negligence extend to pure economic loss incurred during negotiation? 3) Did Gvt Dept breach a duty of care in the tendering process?
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Holding
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1) No; 2) No; 3) No. Canada.
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Reasoning
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Iaccobucci and Major JJ:
Duty of Care in Negotiations
-
Purely economic loss has a high scrutiny threshold in CML, and is usually confined to categories, which MBL’s claim falls outside; new categories should only be admitted based on policy considerations.
-
Anns Test for duty of care in an area not previously categorised: 1) was there sufficient proximity so that carelessness might damage the other party (yes); 2) are there limiting policy considerations (yes).
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1) Proximity: Was there a sufficiently close relationship between M and Gvt so that the latter's carelessness might cause damage to M? If proximity established, Gvt is under an obligation to be mindful of M's legitimate interests = prima facie duty of care. In this case, there was proximity due to pre-contractual arrangements and communication between the parties.
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2) Policy: there are policy reasons to conclude that one commercial party should not have to be mindful of the other's interests in negotiation. Although department is Gvt, it was exercising operational rather than policy functions. Gains are realized at the expense of the other negotiating party. Although one party may suffer, another gains: transfer of wealth that does not make society worse off. Extending duty of care to negotiations could deter socially and economically useful conduct. Advantageous bargaining position as a result of withholding information not possessed by the opposing party: key to successful negotiation. Martel could have concluded that the Department was not serious or interested in concluding a renewal of the lease: suffered from innocence and optimism. Extend tort of negligence into commercial negotiations would force courts to scrutinize commercial relations too much. Fraud, misrepresentation and deceit already supervised by the courts in negotiation. Multiplicity of lawsuits in tort of negligence.
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No duty to bargain in good faith in CML: negotiation works against recovery (and there is exchange rather than net loss); would deter socially useful conduct (like hard bargaining based on monopoly on information); would make tort law insurance against failures to act with due diligence; would make courts regulate negotiations minutely; would encourage needless litigation
-
“Any prima facie duty is significantly outweighed by the deleterious effects that would be occasioned through an extension of a duty of care into the conduct of negotiations”
-
4 of the 5 reasons: (1) unlike other torts, society as a whole is not worse off if one party loses. This is just a transfer of wealth; (2) the very essence of negotiations suggests that there are good reasons NOT to disclose certain information (i.e. it allows a party to maintain a competitive advantage); (3) there are other causes of action available to provide rederess against bargains obtained (or not obtained) as a result of improper negotiation (e.g. undue influence, duress, unconscionability, negligent misrepresentation, fraud) (4) there is an efficient outcome.
Case at Bar:
-
Martel’s claim resembles the assertion of a duty to bargain in good faith. A duty to bargain in good faith has not been recognized to date in Canadian CML.
-
Implied duty of care to treat all bidders fairly (custom, usage, officious bystander)
-
Department had wide K’ual latitude in evaluating tenders, and used it consistent with a duty of care
-
MBL cannot be given special consideration based on its previous relationship with the Department
-
Not Department’s unfair addition of costs, but rather other expenses, that made MBL’s bid more expensive – no causation here
-
K analysis subsumes any duty under tort – but even tortious claim would fail because it relies on the same duty of care
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Ratio
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There is no obligation of good faith (K) or duty of care (tort) in the context of negotiations in the common law. There are many other ways to protect parties who suffer in the context of negotiations (undue influence, duress, unconscionability, negligent misrepresentation, fraud).
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Comments
| -
Just goes to show, much more open to Good Faith in the CVL than the CML
-
Cf. CVL duty of good faith (CCQ 1375) even when Ks formed, and cf. all the CVL cases above: more willingness to intervene
-
Also different from the majority judgment in Empress Towers
-
Perhaps a sense that if the government treats Ottawa landlords too badly, it’ll pay for it in the long run
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This case alternates between claims in K and in tort – you can do this in CML (not in CVL: CCQ 1458 para. 2 – but here there is more freedom to sue in K: CCQ 6, 7, 1375)
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SCC is a lot less willing to recognize good faith than other courts
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Calls for tenders
Often calls for tenders inspire huge effort – can seem unfair if there are no norms regulating what happens when these proposals are received; must be a sense that there are some criteria
Traditional: call for tenders is not offer, but an invitation for others to make offer
Now: KA and KB (see Martel above), BUT the source of obligation in KA is contractual, depending on interpretation of tender documents possible to limit/exclude liability by drafting well enough
Duty of “good faith” in tendering is more about tenderers’ reasonable expectations than intention/motive of business calling for tenders
CML – Transamerica Life Canada Inc. v. ING Canada Inc., [2004] 68 O.R. 457 (C.A.): CB 352 |
Jurisdiction
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Ontario (Court of Appeal)
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Facts
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ING sold one of their subsidiaries to Transamerica. After closing, Transamerica claimed that ING misrepresented the company through error (ING claimed that TA had been wilfully blind and had gone ahead with it anyway). ING claimed that Transamerica had a good faith obligation to disclose their error to them before closing, since they knew about it as a result of their due diligence.
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Issues
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Can ING use good faith to have the Court imply a term of disclosure into their contract?
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Holding
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Yes ING.
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Reasoning
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O’Connor JA:
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Breach of good faith (though very discretionary – “given the complex and sophisticated nature of the agreement and the extensive dealings between the parties before the closing of the transaction, the issue of the admissibility of this type of evidence is better left to the trial.”
Laskin JA [dissenting]:
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ING and Transamerica are both large companies with equal bargaining power. They have a 69-page agreement meticulously detailing everything, including three articles about good faith and one about ING’s responsibility for disclosure. It’s not like they just missed Transamerica’s good faith obligations or disclosure.
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The court is not meant to use “the rubric of good faith to rewrite their bargain for them.”
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DOCTRINAL ARGUMENT: Terms can only be implied into a contract if they are quite obvious, such as if they are 1) based on custom/usage; 2) they are incidental to a particular type of contract; 3) if the term is necessary to give the contract business efficacy (something both parties intended/assumed, but didn’t state).
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Ratio
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Comments
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Breach of good faith (though very discretionary – “given the complex and sophisticated nature of the agreement and the extensive dealings between the parties before the closing of the transaction, the issue of the admissibility of this type of evidence is better left to the trial.”
Ratio:
Comments
(Dissent by Laskin) Does not wish to read in Good Faith
“ING asserts an implied duty of good faith not just to police performance of an existing obligation but also to add a substantive term to the parties’ express bargain. […] This is not a contract between unequals where one party is vulnerable to the bargaining strength of the other. Both ING and Transamerica are large, powerful insurers. Both were represented on the transaction by major Toronto law firms. And together they negotiated a sophisticated share purchase agreement, which sets out each party’s rights and obligations in excruciating detail. Yet nowhere in their single spaced 69-page agreement is Transamerica under an obligation to disclose to ING errors it may discover during the Interim Period, though as a practical matter one may ask why it would opt not to do so and instead “lie in the bushes” until after closing.” (352)
ING had clause to disclose information, but not so for the other party, as Laskin points out sophisticated business agreement, drawn up by legions of lawyers – one can’t correct and rewrite the left out duty of disclosure because it is up to the seller to disclose everything
Duty is there because the seller is in a better position hence due diligence (if you come up with something before closing the deal, you can disclose it – to find something and not disclose is strange)
“It is not for the courts, under the rubric of good faith, to rewrite their bargain for them.” 353
Classical Common Law test - business efficacy and the officious bystander test – Empress Towers (good faith, negotiation, duty – need the officious bystander test)
The dissent shows extreme reluctance for good faith – interpretation problem –in creating promises or implying new things we are crossing the line
Public Policy, Nullity and Voidness
Review – Last Semester
Contract Enforcement: Lending State Authority to the Will of the Parties
Contracts must have the following to be binding
Offer and Acceptance (meeting of the minds)
Intention to create legal relations
Formalities if required by law or the parties (more in CVL)
Consideration (CML)
State will not enforce a contract if the contract is objectionable to public policy, or if the consent has been vitiated (flawed formation – fraud or duress).
Regarding public policy: there is a certain line that a contract must not cross if the state will lend its authority to its enforcement
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