National Bank v. Soucisse et al., [1981] 2 SCR 339

SUPREME COURT OF CANADA

National Bank v. Soucisse et al., [1981] 2 S.C.R. 339

Date: 1981-09-28

National Bank of Canada (successor of the Canadian National Bank) Appellant;

and

Dame Florence Soucisse, Dame Thérèse Groulx and Maurice Robitaille Respondents.

1980: December 16; 1981: September 28.

Present: Dickson, Beetz, Estey, Chouinard and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Suretyship — Continuing and successory suretyship, revocable by the surety at any time — Death of surety — Debts prior to death — Debts subsequent to death — Duty of Bank to disclose to heirs the existence of suretyships and their revocability — Fault of Bank — Fin de non-recevoir — Civil Code, arts. 1022, 1024, 1929, 1937, 2246.

The surety died on October 20, 1963, and the Bank, in reliance on two letters of suretyship, claimed the sum of $122,249.41 from respondents, the heirs of the surety. The suretyship was continuing and successory, revocable by the surety at any time. The Bank took the initiative of contacting the estate on January 7 and April 10, 1964 to inform it of the obligations contracted by the surety. These letters referred to two other letters of guarantee, but the Bank did not tell the estate of the two letters of suretyship that are at issue, and on which it relies in claiming to be repaid certain advances.

The Superior Court allowed the Bank's action in its entirety. The Court of Appeal reversed this judgment and allowed the action only for the amount of $14,997.92, that is the amount of the debts contracted before the surety's death. Hence the appeal to this Court to decide whether the heirs should repay advances made after the death by a creditor who was aware of the death when the heirs, who were completely unaware of the suretyship, were unable to revoke it.

Held: The appeal should be dismissed.

The general and successory obligation to cover future debts is a true suretyship and passes to the heirs of the surety. The obligation pertains to the estate and is in no way purely personal. It is therefore hard for the Court to see why such an obligation would not be subject to the ordinary law, especially when the legislator took the trouble to enact a specific provision like art. 1937 C.C. Further, the surety clearly foresaw the transmission of

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his obligation to cover to his heirs, in paragraph 5 of the letters of suretyship. This stipulation is not contrary to good morals, public order or the provisions of the law.

However, the Bank was at fault with respect to the heirs of the surety by not disclosing to them the exist­ence of the letters of suretyship, and that they were revocable, before making new advances (Jeannin [Paris, 3e Ch., June 23, 1977, D. 1980. I.R. 11]). Once the Bank took the initiative in informing the estate, it assumed a duty to do this completely. By only giving the heirs partial information, the Bank unilaterally altered the situation to its advantage by making the letters of suretyship essentially irrevocable. If it were necessary to do so, the Court would not hesitate to hold that the Bank was under an obligation to disclose this informa­tion as soon as it learned of the death. The Court would hold that this obligation results from the principle that agreements must be performed in good faith (Ernault, [Paris, 15' Ch. A., April 28, 1980, D. 1981. I.R. 15]).

One possible legal basis for a fin de non-recevoir is the wrongful conduct of the party against whom the fin de non-recevoir is pleaded. In the case at bar, it seems clear that the Bank would be deriving a benefit from its own fault if courts of law lent their aid to it in obtaining repayment of debts contracted after the death of the surety. It must therefore be denied this aid.

Banque Canadienne Nationale v. Brousseau (1930), 70 C.S. 167; Banque Provinciale du Canada v. Murray et Lapierre, [1957] R.L. 7; Grace and Company v. Perras (1921), 62 S.C.R. 166; Industrial Fuel and Refrigeration Co. Ltd. v. Pennboro Coal Co., [1957] S.C.R. 160; Gabias v. Mainville (1921), 33 Que. K.B. 32; Stevenson v. Brique Champlain Ltée, [1943] Que. K.B. 196; Larouche v. La Progressive, [1952] Que. K.B. 244; Labrador Realties Ltd. v. Legault, [1960] C.S. 228; Louis et Genet Entreprises Inc. v. Dubé, [1962] C.S. 335; Punger v. Héritiers Serega, [1962] C.S. 702; Dame Schnabel v. Empire Life Insurance Co., [1970] C.S. 313; Union Electric Supply Co. Ltd. v. Bourassa, [1964] R.L. 174; Sinyor Spinners of Canada Ltd. v. Leesona Corporation, [1976] C.A. 395; W.T. Rawleigh Co. v. Dumoulin, [1926] S.C.R. 551; The Hague, July 8, 1825, Demoiselle van B ... v. Receveur général de la loterie, Pas. 1824-25. 446; Besançon, 1re Ch., February 6, 1884, Héritiers Verdant v. Consorts Tournier, D.P. 1885. II. 31; Cass. Com., November 14, 1966, Banque Franco-Chinoise pour le Commerce et l'Industrie v. Augoyard, Gaz. Pal. 1967.1.77; Cass. Civ., 1" R., December 16, 1969, Banque Franco-Chinoise pour le Commerce et l'Industrie v. Augoyard, J.C.P. 70. IV. 33;

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Amiens, 20 Ch., October 17, 1974, Banque populaire du Nord v. Castel Maurice, Lavenne Georges et autres, Gaz. Pal. 1975.1.321; Paris, 3e Ch., June 23, 1977, Banque régionale d'escompte et de dépôts (B.R.E.D.) v. Jeannin, D. 1980. I.R. 11, aff'd Cass. Civ., 1re Ch., October 17, 1979, D. 1980. I.R. 198; Paris, 15' Ch. A., April 28, 1980, Ernault et autres v. Banque populaire de la région Ouest de Paris, D. 1981. I.R. 15; Cass. Corn., November 14, 1980, Consorts Grandin et autres v. Banque nationale de Paris, Bull. civ. 1980, IV, n° 371, p. 299, referred to.

APPEAL from a judgment of the Court of Appeal for Quebec[1], reversing a judgment of the Superior Court[2]. Appeal dismissed.

Roger Reinhardt, for the appellant.

Donald W. Seal and Leonard Seidman, for the respondents.

English version of the judgment of the Court delivered by

BEETZ J.—This case concerns a continuing and successory suretyship, revocable at any time by the surety. The Court must decide whether the sure­ty's heirs should repay advances made after the latter's death by a creditor who was aware of the death when the heirs, who were completely una­ware of the suretyship, were unable to revoke it.

I — The facts

The Canadian National Bank (the Bank) is claiming from Dame Florence Soucisse-Groulx, the widow of Dr. J. R. Groulx, and from their daughters Dame Thérèse Groulx-Valois and Dame Françoise Groulx-Robitaille, some $122,249.41. Dame Françoise Groulx-Robitaille died during the proceedings, and Maurice Robitaille appeared and continued the suit in the Court of Appeal as her sole heir. The Court of Appeal inadvertently omit­ted to take this continuance of suit into consider­ation in its decision.

Dr. Groulx died on October 20, 1963. He died intestate, leaving as his sole heirs his widow and two daughters, to each a one-third share.

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The Bank's claim is based on three primary documents: a promissory note for $1,400 dated October 15, 1963, payable by Dr. Groulx to the Bank; and two letters of suretyship signed by Dr. Groulx, the first in 1959 and the second in 1961, by which Dr. Groulx guaranteed to repay to the Bank, in the first case, what Maurice Robitaille owed it or would in future owe it, up to the amount of $35,000, and in the second case, what Maurice Robitaille Autos Inc. owed it or would in future owe it up to the amount of $75,000.

The two letters are identical except with regard to the principal debtor and the maximum amount of the suretyship. The principal provisions are as follows:

[TRANSLATION] I, the undersigned, stand surety to the Canadian National Bank (hereinafter referred to as the Bank), and in this regard I guarantee it the repayment of what Maurice Robitaille (P-2),—or Maurice Robitaille Auto Inc. (P-1),—(hereinafter referred to as the customer) owes it or will in future owe it, up to the amount of thirty-five thousand dollars (P-2),—or seven­ty-five thousand dollars (P-1),—in capital, plus interest, costs and incidental expenses.

This suretyship shall be binding upon me jointly and severally with the customer and with any person who is or shall become liable with or for him to the Bank; and if it is signed by more than one person there shall in addition be joint and several liability between all signatories.

... the Bank shall be in no way required to exercise its remedies against a customer or any other person liable with or for it, nor to realize on any suretyship, to undertake any form of compensation, or to await the outcome of any liquidation of the property of the cus­tomer or of any other person liable with or for him.

This suretyship shall be continuing and remain valid for the whole, notwithstanding the repayment of the debts of the customer in whole or in part from time to time; it shall apply to the customer's debts and obligations to the Bank, which may exist at any time, and whether direct or indirect; and the Bank may claim from me immediate payment of this suretyship in full, in the event that the customer fails to pay any part of any amount owed by him.

This suretyship shall be binding on me, on my estate and on my legal heirs and assigns, so long as it has not been

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revoked by me in writing, by my estate or by my legal heirs and assigns, by notice communicated to the Bank at the office where this suretyship has been made. Such revocation shall only apply to debts and obligations undertaken by the customer after the date on which the notice is signed.

This suretyship shall not be a substitute for, but shall be in addition to any other guarantee or undertaking which the Bank holds or shall hold at any time. I waive all subrogation in the rights and guarantees of the Bank, on account of payments which I may be required to make to it, so long as the Bank has not been repaid in full any amount, whether or not provided for under the terms of this suretyship, that shall be owed it by the customer.

The amount claimed by the Bank includes two types of debt.

The first type is debts arising before Dr. Groulx's death, amounting to some $14,997.92, which includes the promissory note for $1,400 signed by Dr. Groulx, and debts guaranteed to the Bank by Maurice Robitaille, and so by Dr. Groulx.

The second type is debts arising after Dr. Groulx's death, amounting to $107,271. These are primarily advances made on notes by the Bank to Maurice Robitaille Autos Inc., or notes discounted to the Bank by Maurice Robitaille Inc. This credit was extended by the Bank between September 16, 1964 and April 1, 1966.

During the latter period, the Bank knew of Dr. Groulx's death through at least two of its branches.

On the other hand, as mentioned above, Dr. Groulx's heirs were completely unaware of any letters of suretyship.

The Bank took the initiative of contacting Dr. Groulx's estate in writing on January 7 and April 10, 1964, to inform it of Dr. Groulx's obligations to the Bank, [TRANSLATION] "so that the said estate may eventually be settled". These letters of January 7 and April 10, 1964, which are in the record, refer to the promissory note of $1,400 and two other letters of guarantee of $100,000 and

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$13,000 respectively, which, however, are unrelat­ed to the action and are not in the record. However, the Bank did not tell the estate of the two letters of suretyship that are at issue, and on which it now relies in claiming to be repaid the advances made by it after it had thus "told" the estate of its obligations.

Archambault J. of the Superior Court allowed the Bank's action in its entirety, ordering each of the three defendants to pay one-third of the claim. However, he reduced the order made against Dame Françoise Groulx-Robitaille by a third of the amount of $885.54, as he considered that this debt was prescribed as to this defendant; Dame Françoise Groulx-Robitaille had in fact been served through the newspapers more than five years after the debt had become payable.

The Court of Appeal reversed the trial judgment and allowed the Bank's action only for the amount of $14,997.92, that is the amount of the principal debts contracted before the guarantor's death. It ordered defendants each to pay one-third of this amount, finding that the prescription as to the debt of $885.54 had been interrupted.

Respondents did not appeal from this decision, so that in this Court the issue turns solely on repayment of the principal debts contracted after the surety's death. Counsel for the Bank however conceded that there had not been sufficient evi­dence that the prescription had been interrupted as to the debt of $885.54, merely indications, and he recognized that the decision of the Court of Appeal should be revised on this point, although there had been no cross-appeal.

II — The judgment of the Superior Court

The judgment of the Superior Court has been published[3]. It was the subject of a critical com­ment by Mr. Tancelin, "Chronique de jurispru­dence", (1970) 11 C. de D. 382. It has also been commented on in a learned and valuable monographe,

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recently published, Les causes d'extinction du cautionnement, Paris, 1979, by Christian Mouly, at pp. 458-59.

It is a very elaborate judgment, which reviews a great many civil and even common law authorities. The trial judge would have preferred to reach other conclusions; however, he was prevented from doing so by the wording of the letters of suretyship, which in his opinion is explicit and allows for no evasion.

The trial judge interpreted the wording of these letters as follows [at pp. 124-25]:

[TRANSLATION] . .. the stipulations of the contract could not be more clearly expressed, and no contrary usage has been alleged or proven. Can an interpretation be found that would have the effect of limiting the liability of the heirs only to the debts existing at the time of the death or the time of knowledge by the Bank of the surety's death? The Court does not believe it can give an affirmative answer.

Not only do we find no provision of the law under which the obligation is said to be extinguished by the surety's death or by the fact of knowledge of this event by the Bank, but we are dealing here with a contractual stipulation which has specifically provided for the event of death and continuance of the obligation against the heirs. Like the surety, they will be guarantors. Like him, they will be able to revoke the suretyship for the future by sending a written notice to the branch of the Bank where the letters were prepared. The heirs collectively take the place of the deceased. The obligation continues indefinitely in time, as an accessory to present and future debts. It is not possible to limit this obligation solely to transactions which have arisen at the time of the death or with knowledge of it. As stipulated, the surety survives his principal and passes to his heirs (607, 1937 C.C.).

The trial judge acted with extreme reluctance in ordering defendants to repay the principal debts contracted after the death of the surety. This reluctance is explained by his sympathy for the position of the defendants, and also because he hesitated to approve a surety obligation which, when the principal debtor is a corporate entity, may continue forever. He explained his reasoning as follows [at pp. 128-29]:

[TRANSLATION] The lengthy references to old law and to the common law indicate the hesitation, not to

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say repugnance, of the Court at being unable to find any provision in our laws that might assist defendants caught in the throes of an obligation which they personally neither desired nor knew of, either in its existence and effects during the lifetime of their principal or in its extension with the same effects long after the opening of his estate.

This in fact leads to the conclusion that for all practi­cal purposes prescription does not exist in this area in the case of a continuing suretyship, guaranteeing future debts not limited in time.

... this leads to a conclusion which might seem, in equity at least, to be an absurdity, but which is strictly correct in law. At twenty-one years of age a person may sign a continuing suretyship contract to guarantee the future debts of a limited company. Fifty years later, the company may suddenly make use of this letter to obtain credit from the Bank guaranteed, go into bankruptcy several years later and drag down with it the heirs of the surety, who died accidentally three years after signing, after marrying and becoming a father, without revoking the letter, there being nothing to cause his future wife and unborn child to suspect the latter's existence.

As the Court has been unable to find an equitable solution for such an unfortunate situation in our law, it expresses the hope that our jurists responsible for revis­ing the Civil Code, at a time when current banking transactions are very often accompanied by such exorbi­tant terms, will deal with this genuine social problem, if only to limit the freedom to go beyond the provisions of the Code designed to protect the surety, or by imposing a certain time limit on actions based on suretyship of this kind regarding future debts at least.

(The Civil Code Revision Committee has heard the plea of the trial judge, since in art. 861 of its proposal it has the following provision:

Suretyship terminates upon the death of the surety, notwithstanding any provision to the contrary.

However, the heirs are responsible for all existing debts, even if the debts are subject to a term or condition.)

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III — The judgment of the Court of Appeal

The principal reasons of the Court of Appeal[4] were written by Owen J.A., concurred in by Bélanger J.A. who wrote additional reasons. Lajoie J.A. concurred with his two colleagues.

Although I have come to the same conclusions as the Court of Appeal, I disagree with its reasons and I feel it is necessary to explain why.

In the opinion of Owen and Bélanger JJ.A., Dr. Groulx undertook two distinct obligations. The first was as surety of existing debts; the second was as surety of future debts. They concluded that only the first is a true suretyship. The second is only a quasi-suretyship or a promise to guarantee if the Bank in fact extends credit to the principal debtor. As Dr. Groulx was never called on as surety under the second obligation, this does not pass to his heirs under art. 1937 of the Civil Code, since this provision applies only to the obligations of sureties. Bélanger J.A. added that a surety is an incidental contract which necessarily assumes a principal debt; although one may act as a surety of future debts, the obligation of the surety only arises when the principal debt comes into existence.

Finally, Bélanger J.A. concluded that because the suretyship cannot be presumed, a continuing suretyship postulates a continuing consent by the surety. This consent must exist at the time each principal debt originated. In the case at bar, this consent had ceased when the future debts arose, since the surety was dead and his heirs were unaware of the existence of the suretyship.

IV — Analysis of the Court of Appeal judgment

On the basis of these two arguments, especially the first, the Court of Appeal arrived at the solu­tion favoured by Mr. Tancelin (supra). This solu­tion may be desirable but in order to attain it, and I say this with the greatest respect, one must be the legislator. Furthermore, this solution comes into conflict with the explicit wording of the letters

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of suretyship. Even a writer like Mouly (supra), who also favours this solution, recognizes at p. 461 that only legislative intervention can prohibit stipulations like those found in the two letters of suretyship.

I agree with the Court of Appeal that there is a distinction between the special obligation to pay existing principal debts which, to use Mouly's terminology, I will call the obligation of settlement; and the general and successive obligation to cover future debts which, to use the same ter­minology, I will call the obligation of coverage. The principal difference lies in the fact that the obligation of settlement depends on a single condi­tion, namely that the debtor does not pay the principal debt, whereas the obligation of coverage depends on two conditions, namely that the credi­tor makes advances and that the debtor does not repay them. The amount of the obligation of cov­erage is in addition uncertain up to the maximum provided, if any. However, these special character­istics do not prevent the obligation of coverage from constituting a true suretyship corresponding to the definition given in art. 1929 of the Civil Code:

1929. Suretyship is the act by which a person engages to fulfil the obligation of another in case of its non-fulfil­ment by the latter.

The person who contracts this engagement is called surety.

This article does not distinguish between present and future obligations, between those that are certain and uncertain. They are all capable of being guaranteed, for we should avoid making a distinction where the law makes none. The obliga­tion to cover depends on a suspensory condition, like the principal obligations the performance of which it guarantees, but the surety is nonetheless bound once he has undertaken his obligation, sub­ject to fulfilment of the condition and provided there is no prior revocation.

The position would be no different for some other kind of obligation contracted by a debtor subject to a suspensory condition. His obligation would pass to his heirs under the ordinary law even if the condition were to occur after his death.

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Since the obligation to cover is a true suretyship, art. 1937 of the Civil Code must be applied to it:

1937. The obligations of the surety pass to his heirs, except the liability to coercive imprisonment when the obligation of the surety was such that he would have been subject to it.

 

1937. Les engagements des cautions passent à leurs héritiers, à l’exception de la contrainte par corps, si l’engagement était tel que la caution y fût obligée.

This provision appears to overlap with art. 1030, but as the ancient Roman law and certain French customs held that the surety's obligations ended on his death, the codifiers thought it wiser to be explicit.

Article 2017 of the Code Napoléon is identical. Some French authors, citing the suppression of coercive imprisonment, fail to mention the words referring to it and contend that the surety's heirs are not required to pay obligations contracted after the death, because they are not [TRANSLATION] "obligations binding on the surety". (See for example: (1967) 65 Rev, trim. dr. civ. 627 and (1970) Rev. trim. dr. comm. 459.) This interpreta­tion is incorrect. The last part of the sentence refers clearly and solely to coercive imprisonment; and if the French wording were not clear, the English wording certainly leaves no doubt.

I therefore consider, unlike the Court of Appeal, that the obligation of coverage is a true suretyship and passes to the heirs of the surety. By its nature it pertains to the estate and is in no way purely personal. It is therefore hard to see why it would not be subject to the ordinary law, especially when the legislator took the trouble to enact a specific provision like art. 1937 of the Civil Code.

In my opinion the theory of continuing consent stated by Bélanger J.A. is not in keeping with the very purpose of continuing or successory suretyships. Such suretyships ordinarily secure lines of credit or bank overdrafts, and the purpose of this type of surety is to avoid having to renew the surety's obligation every time there is a change in the balance in the account.

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Additionally, to argue that the heirs of the surety should renew their consent to the obligation to cover amounts to saying, in different language, that they must consent to a new suretyship because the obligation to cover cannot be transmitted. Once again, I see no reason why this obligation cannot be transmitted.

Finally, though the Court of Appeal cites the principal provisions of the letters of suretyship, it does not analyse them in any detail. It seems to me that they were correctly interpreted by the trial judge, and that the surety clearly foresaw the transmission of his obligation to cover to his heirs, expecially [sic] in paragraph 5 of these letters, where the guarantor stipulates:

[TRANSLATION] This suretyship shall be binding on me, on my estate and on my legal heirs and assigns, so long as it has not been revoked by me in writing, by my estate or by my legal heirs and assigns ..

This stipulation is not contrary to good morals, public order or the provisions of the law. At least, no one has argued that it is. In my view, the Court of Appeal overlooked this provision.

V — Textbooks and precedents

Quebec writers have been chary of commenting on the question of the continuing suretyship. In Le droit civil canadien, Vol. 8, Montreal, 1909, at p. 342, Mignault says the following, which appears to agree with the direction taken by the Court of Appeal but is in my opinion only a particular way of speaking:

[TRANSLATION] A person can even act as surety for a debt which does not yet exist, but which the debtor intends to undertake. In that case, the obligation of the surety only begins to exist when the debt originates. This is the case with the letter of guarantee for future advances that is often found in practice.

There are not many decisions on the point by the Quebec courts. They include two judgments of the Superior Court cited by the trial judge, which come to the same conclusions as his own: Banque Canadienne Nationale v. Brousseau[5] and Banque Provinciale du Canada v. Murray et Lapierre[6].

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In the latter case, Drouin J. also felt some hesitation in ruling against the surety's heir and he exercised his discretion to mitigate costs.

On the other hand, the Court was referred to a number of French and Belgian precedents. These judgments have appreciable weight because the Napoleonic law which they apply is the same as our own. Additionally, they are judgments of appellate courts and of the Cour de cassation. I feel it is necessary for me to review them. The oldest judgments are the most strict and they clearly favour the position of the guaranteed credi­tor. The more recent qualify the earlier position based on particular circumstances, and they tend to protect the surety's heirs.

The oldest of these cases dates from July 8, 1825 and is summarized in the Pasicrisie belge. It is a decision by the Court of The Hague, Demoi­selle van B ... v. Receveur général de la loterie[7]. In 1798, the Sieurs van B ... stood surety for the Sieur van H ... , collector of the lottery, to gua­rantee his administration up to the amount of 35,000 florins. At the time of their deaths, in 1803 and 1808, van H ... owed nothing as a result of his administration. However, in 1810 he became insolvent which resulted in an unpaid balance of 33,450 florins. The receiver of the lottery sued Demoiselle van B ... the heiress for a sixth part to one of the sureties. The report does not state whether the suretyship was revocable, and it does not mention whether the heiress of the surety knew of the suretyship. However, the Court of The Hague held that the undertakings made by sureties pass to their heirs without distinction between a suretyship of an existing debt and one given for a future and contingent debt: the non-existence of the debt at the time of the surety's death does not result in relieving the heirs of this obligation; the undertaking made by the surety, though in pen­denti, nonetheless exists in fact at the time the deed of suretyship is concluded and is therefore part of the estate when the surety dies.

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Héritiers Verdant v. Consorts Tournier[8], a judgment of the Court of Appeal of Besançon, dated February 6, 1884, is perhaps the harshest of all so far as the surety's heirs are concerned.

On January 11, 1874 Verdant senior acted as surety for his son Francis, a merchant, with the Tournier Bank in the following terms: [TRANSLA­TION] "I undertake to guarantee advances on current account or on promissory notes which the house of Tournier may make to my son Francis, up to an amount of approximately 25,000 francs. I bind my heirs jointly and severally to this obliga­tion." Verdant senior died on April 2, 1876 and his estate was divided by the Court between his chil­dren without the matter of this suretyship having been raised. Business relations continued between the Tournier Bank and Francis Verdant until 1881, when Francis Verdant went into bankruptcy owing the bank over 50,000 F. The bank accord­ingly brought an action against the Verdant heirs for payment of 25,000 F., and its claim was allowed at first instance and on appeal. The Court of Appeal held that in the absence of any statement as to time, the suretyship was revocable, but as it had not been revoked either by Verdant senior or by his heirs, its effects continued to apply as long as the principal obligation existed. The Court of Appeal considered that it was unfortunate that appellants did not know of the existence of this suretyship when their father died, because they might have denounced it to the bank or at least deducted, when liquidating the estate, the amount of the suretyship from the share which passed to Francis Verdant, and thus protected themselves against his becoming insolvent. However, the Court held that they had only their principal to blame, as he was wrong not to bring this suretyship to the attention of his children or to leave a copy of the deed of January 11, 1874 among his papers.

In Banque Franco-Chinoise pour le Commerce et l'Industrie v. Augoyard[9], the Augoyards acted as joint and several sureties for the bank in 1954, with no limitation as to the amount or time of

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repayment of advances made by the bank to a commercial company, in the form of an overdraft or otherwise. The wife died in 1955, leaving three minor children. When the commercial company current account was wound up in 1958 it showed that it owed a considerable amount, the bank took as security for its claim a provisional inscription of a hypothec on the immoveables of the minors. The bank had sued [TRANSLATION] "the father [of the minor children] in his capacity as tutor [...] for payment of its debt and to validate the hypothec inscription". The appellate judges replaced the tutor by a subrogated tutor, on the ground that the interests of the father were opposed to those of his children, as he was a joint debtor with the same creditor and had failed to notify the obligation assumed by the surety within the proper time. The Cour de cassation ruled in favour of the bank not once, but twice, relying essentially on art. 2017 of the Code Napoléon.

In Banque populaire du Nord v. Castel Mau-rice, Lavenne Georges et autres[10] the Court of Appeal of Amiens held, inter alia, in a decision of October 17, 1974, that the obligation of the surety passes to his heir in view of art. 2017, even though the closing of the guaranteed current account, which alone determines the amount of the debt, is subsequent to the death of the surety. The case does not mention, however, whether the suretyship was revocable or if the heir of the surety was aware of the suretyship.

The severity of the earlier judgments began to be mitigated in B.R.E.D. (Banque régionale d'es­compte et de dépôts) v. Jeannin, decided by the Court of Appeal of Paris on June 23, 1977[11] and the 1st Civil Chamber of the Cour de cassation, which affirmed the judgment, on October 17, 1979[12]. The B.R.E.D. was the beneficiary of a suretyship not limited as to time which it had been given in 1951 and which had been confirmed in 1964. The surety died in 1973 and the bank claimed from his widow and their minor children an amount of over 120,000 F., citing art. 2017 of

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the Code Napoléon. The widow maintained that the bank had not told the notary administering the estate of the existence of the suretyship when the notary approached the bank for information regarding the situation of the deceased. The widow argued that if she had been informed she could have validly revoked the obligation assumed by her husband in time. The bank limited itself to provid­ing a statement of the accounts of the deceased. The Court of Appeal held that the bank had been at fault in not disclosing the existence of the suretyship to the notary. The Court found that the obligation was over twenty years old and had been contained in a single copy, which was kept by the bank. The Court first ordered the surety's heirs to pay the 120,000 F., so that it would not be argued that it had failed to apply art. 2017, but it thereupon ordered the bank to pay an equal amount as damages, and imposed a compensation.

These two decisions by the Court of Appeal of Paris and the Cour de cassation carry great weight. They may seem questionable in their approach because the heirs, having paid by com­pensation with their own claim the debt of the principal debtor, have a remedy against the latter and might thereby be enriched at his expense (see "Cautionnement et responsabilité du banquier (créancier) envers la caution au titre des rensei­gnements fournis", Gaz. Pal. 1980. 1, Panor. p. 14, note Jacques Dupichot). However, if the approach is questionable, the principle is not, and in Quebec law it can be implemented by a fin de non-recevoir against the action of the bank, rather than by compensation of an order to pay damages. I will discuss this matter further below.

The Court of Appeal of Paris rendered a surprising judgment on April 28, 1980 in Ernault et autres v. Banque populaire de la région Ouest de Paris[13]. The president of a company had personal­ly guaranteed for the bank [TRANSLATION] "payment of all monies which the company [...] owes or may in future owe this bank, with no limitation as to amount, on account of any undertakings and any operations and in general for any reason, in particular any current account balance". The

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surety died, and eleven years after the suretyship was given, the bank claimed from his widow and their minor children the outstanding balance of a current account opened after the death of the surety. The Court of Appeal held that the debt was not passed on to the heirs because the current account was opened after the surety's death. This was a departure from reasonably well-settled precedent. The Court of Appeal was conscious of this, because it added other reasons. In its opinion the bank had a duty to inform the widow of the suretyship, and as tutor for her minor children she would of necessity have revoked it. The Court went so far as to say that the unfair silence maintained by the bank constituted a breach of art. 1134 of the Code Napoléon, which provides that agree­ments must be performed in good faith. It added, doubtless referring to the Jeannin judgments, that even if it was admitted that the surety's obligation passed on to the heirs, the latter would be entitled to make a counter-claim to the claim for payment, seeking damages in the same amount.

Finally, in a judgment of November 14, 1980, affirming a judgment of the Court of Appeal of Paris of May 9, 1978, Consorts Grondin et autres v. Banque nationale de Paris[14], the Commercial Chamber of the Cour de cassation ruled that the Court of Appeal correctly held that the contract of suretyship of a current account was passed on in its entirety to the heirs of the surety, who were bound with respect to the final balance of this account, and not merely the provisional balance existing on the day their principal died. The bank had advised the notary responsible for liquidating the estate on his appointment that the suretyship existed, and there was no basis for holding the bank liable on this point. This was a reaffirmation of the principle that the obligation of coverage can be passed on and a confirmation a contrario of the compromise of the Jeannin judgment.

VI — Fault by the Bank

In my view, in the case at bar as in Jeannin, the Bank was at fault with respect to the heirs of the surety by not disclosing to them the existence of

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the letters of suretyship, and that they were revo­cable, before making new advances to the principal debtors.

Counsel for the Bank sought to distinguish the two cases on the ground that in Jeannin, the notary for the surety's estate had questioned the bank on the situation of the deceased and had only obtained partial information, whereas in the case at bar the heirs of the surety put no questions to the Bank. However, they did not have to do so since it was the Bank which took the initiative in giving them only partial information, through the two letters of January 7 and April 10, 1964 to which I referred above. Even at such a late date as August 30, 1966, when they wrote the surety's estate a letter of notification, counsel for the Bank claimed only payment of the promissory note of $1,400 and made no reference to the letters of suretyship.

If it were necessary to do so, I would not hesitate to hold that, to the extent that it wished to make new advances after the surety's death on the basis of the letters of suretyship, the Bank was under an obligation as soon as it learned of the death itself to disclose to the heirs of the surety that these suretyships existed and were revocable. Like the Court of Appeal of Paris in Ernault, I would hold that this obligation results from the principle that agreements must be performed in good faith. It is true that no provision is to be found in our Civil Code which states this express­ly, like art. 1134 of the Code Napoléon, but Mignault (op cit., Vol. 5, at pp. 261 and 264) properly observes that the principle is axiomatic and that agreements must be performed in good faith because [TRANSLATION] "we no longer have, as in Roman law, contracts bonae fidei and contracts stricti juris". Trudel (Traité de Droit civil du Québec, Vol. 7, at pp. 328-29), for his part, in his analysis of art. 1022 of the Civil Code, is of the opinion that our legislators found such a provision superfluous [TRANSLATION] "in a legal institution which is based on confidence and [good] faith". He cites Domat: [TRANSLATION] "There is no species of agreement in which it is not implied that one party owed good faith to the other party, with

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all the consequences which equity may demand, in the manner of stating the agreement as well as in the performance of what is agreed upon and all that follows therefrom". This is in keeping with art. 1024 of the Civil Code:

1024. The obligation of a contract extends not only to what is expressed in it, but also to all the consequences which, by equity, usage or law, are incident to the contract, according to its nature.

In any event, once the Bank took the initiative in advising the estate of the surety's obligations toward it, it assumed a duty to do this completely, because partial information is misleading informa­tion. The Bank especially could not simply disclose what it was to its advantage to disclose and withold [sic] what was in its interest to conceal.

The Bank is an enterprise engaged in the busi­ness of giving credit. It is obviously in its interest for loans which it makes to be secured by the best possible means. In not disclosing to the surety's heirs the existence and the revocable nature of the letters of suretyship, the Bank unilaterally altered the situation to its advantage by making the letters of suretyship essentially irrevocable. It thus placed itself in a more favourable position than it had had during the surety's lifetime. It also increased its security, since the chances were greater that, if they were unaware of the suretyship, the heirs would simply accept the surety's estate and so become personally responsible for guaranteeing the principal debts. By keeping silent, the Bank thus obtained three additional suretyships secured by three new patrimonies in addition to that of the deceased surety.

It is not unusual for the heirs of a surety to be unaware of the existence of suretyship and for the creditor to be the only person able to provide them with this information. This is indicated by most of the cases which I have mentioned and is inherent in the nature of a suretyship, which is a unilateral contract usually written in a single copy, kept by the creditor to himself, as was the case here according to what the Court was told.

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I think it is too harsh to reproach the surety with failing to keep a copy of the letters of suretyship among his papers or failing to inform his heirs. A surety may have legitimate reasons for not disclosing the suretyship to his heirs. This may sometimes be the price of family harmony. As regards copies of contracts, there is no certainty that the persons responsible for settling the estate will find them: they may be burnt, stolen or lost without any fault by the surety.

Could the Bank object that it is uncertain whether the heirs of the surety would have revoked the letters of suretyship if they had known of them? All that is certain is that they refused to honor them when they did know of them, as can be seen from the pleadings. Additionally, if a choice must be made between these two possibilities, I do not see why it should not be for the alternative favourable to the innocent party in preference to that which benefits the party at fault.

Because the Bank was at fault in not disclosing the existence of the letters of suretyship to the heirs of the surety and, so preventing them from revoking, the Bank is in my opinion not in a position to argue that it made new advances to the debtors in reliance on these letters. Its action against the heirs of the surety is also inadmissible because no one should profit from his own fault or seek the aid of the courts in doing so.

It should be noted that there is here no question of prescription in relation to this fault, in view of art. 2246 of the Civil Code: Quae temporalia sunt ad agendum perpetua sunt ad excipiendum.

It should also be noted that, without using the expression "fin de non-recevoir" or "irrecevabilité" ["inadmissibility"], respondents nonetheless pleaded this defence by alleging, for example, in paragraphs 39 to 45 and in paragraph 51 of their pleading, that the Bank sought to profit from its guilty silence. Moreover, the trial judge thought this argument might be upheld. He finally dismissed it because the existence of a custom imposing on banks a duty to inform heirs of a surety was not proven. He might well have concluded

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otherwise if he could have found a source for this duty, not in custom but in the conduct of the Bank itself.

VII — Fins de non-recevoir

In his Traité des obligations (Oeuvre de Pothier, Vol. 2, 3rd ed. by M. Bugnet, Paris, 1890, at p. 371), Pothier describes fins de non-recevoir in the most general way:

[TRANSLATION] Fins de non-recevoir against debts consist of certain causes which prevent a creditor from coming to court to enforce his claim.

He adds (at p. 373):

[TRANSLATION] Fins de non-recevoir do not extin­guish the debt, but they make it ineffective by preclud­ing the creditor from bringing the action to which it gives rise.

In his Traité de la procédure civile (op. cit., Vol. 10, at p. 20), he compares them to exceptions;

[TRANSLATION] ... by defences is meant arguments which go to the substance of the claim, which tend to prove that it is incorrect, that it is without basis.

We call exceptions or fins de non-recevoir arguments which, without going to the substance of the claim, tend to prove that the plaintiff should not be heard to present it.

The latter definition is similar to that of Denisart Collection de décisions, Vol. 8, Paris, 1789, at p. 638:

[TRANSLATION] A fin de non-recevoir is a kind of peremptory exception, by which someone defending an action can have it dismissed, without going into the substance of the claim.

This is the definition which L.L.F. Lemerle (Traité des fins de non recevoir, Nantes, 1819, at pp. 2-3) adopts, for all practical purposes:

[TRANSLATION] Fins de non-recevoir are peremptory exceptions by which a litigant can have an action dismissed without discussion of its merit; and peremptory exceptions are grounds for exclusion of the action so complete that they extinguish that action.

As these definitions indicate, fins de non-recevoir are to be distinguished from a defence in that they do not go to the substance of the action. There may however be fins de non-recevoir which tend to the dismissal of defences without any

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discussion of their merits. However, fins de non-recevoir should be distinguished from procedural exceptions or motions to dismiss, such as the declinatory exception, the exception of litis pendens, the dilatory exception and the exception to the form which tend to delay the action rather than to have it dismissed.

The more limited the comprehension of these definitions, the more widely they are extended. Commentators classify as fins de non-recevoir the most numerous and diverse exceptions, which have nothing in common but this definition. For exam­ple, they include res judicata, the absence of an interest in the plaintiff or his lack of capacity, compensation, reconciliation in an action for sepa­ration from bed and board, waivers, ratifications and tacit confirmations, and so on, Denisart (supra) writes (at p. 645):

[TRANSLATION] Any attempt to list all the kinds of fins de non-recevoir that might arise could continue indefinitely.

Lemerle, the writer who seems to have examined the question most carefully, gives nearly fifty cases of fins de non-recevoir in the Code Napoléon alone, not counting a large number of cases of fins de non-recevoir not codified. His study is much more a list and classification of fins de non-recevoir than an attempt at systematic analysis. Indeed, it does not appear that such an attempt has ever been undertaken in ancient or modern civil law, by commentators or by the courts, with the result that there does not seem to exist any coherent theory of fins de non-recevoir as there is, for example, for unjust enrichment in civil law, or the theory of estoppel in English law.

There is nonetheless no question that fins de non-recevoir do exist in Quebec civil law and are sometimes confused with estoppel, despite the warning of Mignault J. in Grace and Company v. Perras[15], at p. 172:

... I venture to observe that the doctrine of estoppel as it exists in England and the common law provinces of the Dominion is no part of the law of the Province of Quebec. This, however, does not mean that in many cases where a person is held to be estopped in England, he would not be held liable in the Province of Quebec.

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Article 1730 of the civil code is an example of what, in England, is referable to the principle of estoppel, and where a person has by his representation induced another to alter his position to his prejudice, liability in Quebec, could be predicated under articles 1053 and following of' the civil code. Whether such liability could be relied on as a defence to an action, in order to avoid what has been called a "circuit d'actions," is a proposi­tion which, were it necessary to discuss it here, could no doubt be supported on the authority of Pothier. May I merely add, with all due deference, that the use of such a word as "estoppel," coming as it does from another system of law, should be avoided in Quebec cases as possibly involving the recognition of a doctrine which, as it exists today, is not a part of the law administered in the Province of Quebec.

Mignault repeated this warning some years later in an article ("The Authority of Decided Cases", (1925) 3 Can. Bar Rev. 1) in which he wrote (at p. 23):

We find [...] cases from Quebec in which estoppel is relied on. Estoppel, as understood and applied in the English system, is unknown to the civil law, although we have certain fins de non recevoir in our system, like the old maxim nemo auditur turpitudinem suam allegans.

Taschereau J.—as he then was—speaking for himself and for Abbott J., in Industrial Fuel and Refrigeration Co: Ltd. v. Pennboro Coal Co.[16] at p. 163, also expressed the view that there is only one case of estoppel in Quebec civil law, that provided for by art. 1730 of the Civil Code, under the title "Of mandate". (As to this see also the following articles: "Estoppel in the Law of Quebec" by A.D.P. Heeney, (1930) 8 Can. Bar Rev. 401 and 500; "The Doctrine of Fins de Non-recevoir in Quebec Law (with a Comparative Analysis of the English Doctrine of Estoppel)" by Gertrude Wasserman, (1956) 34 Can. Bar Rev. 641.)

In any event, the Quebec courts have upheld fins de non-recevoir in a great many cases, sometimes designating them as estoppels and sometimes using both words. A few examples will suffice:

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Gabias v. Mainville[17]; Stevenson v. Brique Champlain Ltée[18] at pp. 203 and 209; Larouche v. La Progressive[19] at pp. 248-49; Labrador Realties Ltd. v. Legault[20] at p. 230; Louis et Genet Entreprises Inc. v. Dubé[21] at p. 337; Punger v. Héritiers Serega[22] at p. 704; Schnabel v. The Empire Life Insurance Co.[23] at p. 317.

One possible legal basis for a fin de non-recevoir is the wrongful conduct of the party against whom the fin de non-recevoir is pleaded. Mignault J. refers to this in the above-cited passage from Grace and Company v. Perras (supra) when he refers to arts. 1053 et seq. of the Civil Code. This is noted by Lemerle at p. 144 of his treatise, where he writes:

[TRANSLATION] 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, This proposition is based on the fact [...] that no one should derive a benefit from a fault committed by him: on the contrary, he should repair the damage he has caused.

The Superior Court and the Court of Appeal of Quebec have applied these principles in Union Electric Supply Co. Ltd. v. Bourassa[24] at pp. 181-82 and Sinyor Spinners of Canada Ltd. v. Leesona Corporation[25] at p. 398. It is true that in W. V. Rawleigh Co. v. Dumoulin[26], this Court declined to allow a fin de non-recevoir based on the negligence of two sureties. While it recognized the existence of fins de non-recevoir in the civil law, the Court nonetheless upheld the cancellation of the suretyships based on mistake as to the nature of the contract, without taking into account the fact that this mistake was in part due to the negligence of the sureties. However, Mignault J., rendering judgment for the Court, explained the

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reason at pp. 556-57: Roman law did not allow rescission in the case of gross mistake; and art. 992 of the Civil Code does not admit this distinction. Accordingly

[TRANSLATION] The fin de non-recevoir in question here is not recognized but on the contrary is by implica­tion excluded, by the Civil Code.

Additionally, the mistake in that case was also caused by a fraud on the debtor, which was in no way attributable to the creditor whose debt was guaranteed.

The case at bar is quite different. There is no question of mistake. I therefore see no reason not to apply the principles. It seems to me that, taking all the circumstances into account, the Bank would be deriving a benefit from its own fault if courts of law lent their aid to it in obtaining repayment of principal debts contracted after the death of the surety. It must therefore be denied this aid.

VIII — Conclusions

I would dismiss the appeal with costs of a claim of $107,271 in this Court and the Court of Appeal. Appellant shall nonetheless be entitled to costs of an action for $14,682.74 in the Superior Court, but taking into account the common defence of defendants Dame Florence Soucisse and Dame Thérèse Groulx and the other factors which the trial judge ordered should be taken into account.

The judgment of the Court of Appeal should, however, be varied as follows: the name of Maurice Robitaille will be substituted for that of Dame Françoise Groulx in the style of cause; respondents Dame Florence Soucisse and Dame Thérèse Groulx will be ordered to pay appellant the sum of $4,992.64 each with interest at six per cent per annum from November 6, 1968; respond­ent Maurice Robitaille will be ordered to pay appellant the sum of $4,697.46, with interest at six per cent per annum from November 6, 1968.

Appeal dismissed with costs.

Solicitors for the appellant: Reinhardt, Dorais, Deschamps, Lebel & Hudon, Montreal.

Solicitors for the respondents: Seal & Associés, Montreal.