Travelers Indemnity Company v. Foley Brothers (Canada) Limited et al., [1970] SCR 56

Supreme Court of Canada

Travelers Indemnity Company v. Foley Brothers (Canada) Limited et al., [1969] S.C.R. 56

Date: 1969-10-07

The Travelers Indemnity Company (Defendant) Appellant;

and

Foley Brothers (Canada) Limited and C.A. Pitts General Contractors Ltd. (Plaintiffs) Respondents;

and

Stormont General Contractors Limited Mise-en-cause.

1969: May 26, 27, 28, 29; 1969: October 7.

Present: Fauteux, Abbott, Judson, Spence and Pigeon JJ.

ON APPEAL FROM THE COURT OF QUEEN’S BENCH, APPEAL SIDE, PROVINCE OF QUEBEC

Insurance—Performance bond—Sub-contract for clearing and grubbing of railway right of way—Operations suspended and finally abandoned—Action claiming amount of bond—Sub‑contractor in default—Liability on the performance bond—Quantum of damages.

The plaintiffs, F and P, entered into a contract to build a railroad and awarded a sub‑contract to S for the clearing and grubbing of the right of way. S provided a performance bond issued by the defendant T in the amount of $896,723. S began operations in September 1958 and suspended them in February, alleging that it was unable to continue because of severe snow conditions. After negotiations with F and P, S resumed work but eventually abandoned all work, alleging breach of contract. F and P instituted the present action against T as S’s surety claiming the full amount of the performance bond. The trial judge and the Court of Appeal found that S was in default and was liable for the damages, and also that T was liable under its performance bond. The trial judge awarded an amount of $820,332.10, but this was reduced by the Court of Appeal to $606,873.80. The defendant T appealed to this Court and the plaintiffs F and P cross appealed.

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Held: The appeal should be dismissed and the cross-appeal allowed.

There was ample evidence to support the findings of the two Courts as to liability, and they should not be disturbed.

T’s contention that the claim of F and P for overhead, calculated at 30.62 per cent of direct costs, was excessive, must be rejected. There was evidence upon which the trial judge and the majority in the Court of Appeal could make the finding which they did as to the basis upon which overhead was calculated.

There are concurrent findings that S was not entitled to an additional credit for grubbing done outside areas designated by the owner.

The obligations undertaken by F and P in a subsequent agreement to increase the unit price for clearing were conditional obligations within the meaning of art. 1079 of the Civil Code and never took effect. It follows that the subcontract was not amended.

APPEAL and CROSS-APPEAL from a judgment of the Court of Queen’s Bench, Appeal Side, province of Quebec[1], allowing an appeal from a judgment of Robinson J. Appeal dismissed and cross-appeal allowed.

Walter C. Leggat, Q.C., and Joseph Nuss, for the defendant, appellant.

Ruston B. Lamb, Q.C., and Pierre Sébastien, for the plaintiffs, respondents.

The judgment of the Court was delivered by

ABBOTT J.—This appeal is from a majority judgment of the Court of Queen’s Bench (Appeal Side)¹, rendered on July 26, 1968, allowing the appellant’s appeal in part, and reducing the amount of the judgment at trial to $606,873.80. The judgment of the Superior Court rendered on June 25, 1965, had condemned the appellant to pay respondents $820,332.10 with interest and costs. The respondents cross-appealed and asked that the trial judgment be restored.

For convenience, I shall refer to the appellant as The Travelers, to the respondents

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as Pitts-Foley, and to the mise-en-cause as Stormont.

The facts are fully reviewed in the judgments below. Shortly stated they are as follows: On September 8, 1958, Pitts-Foley entered into a contract with Quebec Cartier Mining Company, to build a railroad from Shelter Bay on the north shore of the St. Lawrence River to a mining property located at Lac Jeannine. Pitts-Foley in turn entered into a number of subcontracts, including one with Stormont dated October 21, 1958, for the clearing and grubbing of the right of way. It was a condition of this contract that Stormont would provide a performance bond and this bond was issued by The Travelers on September 16, 1958, in an amount of $896,723.

Stormont began operations in September 1958, prior to the signing of the subcontract, and continued the work until February 27, 1959, when it suspended operations, alleging that it was unable to continue because of severe snow conditions. After negotiations with Pitts‑Foley, Stormont resumed work on April 17 and continued, after a fashion, until early in July 1959, when it abandoned all work alleging breach of contract by Pitts-Foley.

In August 1960, Stormont sued Pitts-Foley for $657,142.24 as damages for breach of contract and alternatively claimed $494,000 as the value of the work done. In September 1960, Pitts‑Foley countered with an action against Stormont for $1,212,648.77 as damages for breach of contract. At the same time, Pitts-Foley instituted the present action against The Travelers as Stormont’s surety claiming $896,723, the full amount of the performance bond. After issues were joined, Pitts-Foley moved to join all three actions for trial at the same time. The two actions between Pitts-Foley and Stormont were ordered to be joined for trial, but for some reason which I cannot understand the application was refused with respect to the action against The Travelers.

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The Stormont and Pitts-Foley actions were tried before Mr. Justice André Demers who, after a long trial, rendered two judgments on July 28, 1964, maintaining Pitts-Foley’s action and dismissing Stormont’s action. The amount of the damages assessed against Stormont, $843,122.48, was not an assessment by the trial judge, but resulted from a consent entered into by the parties before judgment. The Travelers, which was intervenant in Stormont’s action against Pitts-Foley, did not sign this consent and it is a common ground that it is not bound by it.

Appeals were entered by Stormont from these two judgments and are still pending, awaiting the result of the appeal in this action.

After judgment in the Stormont actions, Pitts-Foley moved to bring the present case on for trial, which took place before Mr. Justice Robinson, during a period extending from January to May, 1965; the parties agreed that all the depositions taken and all the exhibits filed in the Stormont cases would serve as evidence in this case with the right reserved to each party to call additional evidence. Both parties called additional evidence and filed additional exhibits.

Judgment was rendered on June 25, 1965, condemning The Travelers to pay $820,332.10, the amount claimed by Pitts-Foley in its action, together with interest from the institution of the action, and costs. From this judgment, The Travelers appealed to the Court of Appeal and, as I have said, judgment was rendered on July 26, 1968, allowing the appeal to the extent of $213,458.30, and reducing the judgment of the Superior Court to $606,873.80.

The learned trial judge and all the judges in the Court below were unanimous in finding (1) that Stormont was in default to perform its obligations under its subcontract with Pitts‑Foley and (2) was liable for the damages sustained by the latter—a view shared by Demers J. in the Stormont cases. The learned trial judge and all the judges in the Court of Queen’s Bench also held that The Travelers was liable under its Performance Bond.

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There was ample evidence to support those findings and I would not disturb them. There remains therefore only the question as to the quantum of damages.

On the question of quantum, the principal issues raised by The Travelers before the Court of Appeal and before this Court were (1) Pitts-Foley’s claim for overhead, calculated at 30.62 per cent of direct costs, which The Travelers contended was excessive (2) an additional credit for clearing on the basis that such credit should be calculated at the rate of $202.70 per acre, and not $157.60 per acre as provided in the subcontract, and (3) an additional credit for grubbing done outside areas designated by the owner. The additional credit claimed under this last head was $225,684.

As I have stated, the Court below was unanimous as to The Travelers’ liability. The majority (Tremblay C.J. and Montgomery J.) held that The Travelers was entitled to an additional credit for clearing, of $213,458.30, and reduced the damages awarded at trial by that amount. Montgomery J., dissenting in part, would have allowed a further credit by disallowing in part Pitts-Foley’s claim for overhead. Rivard J., dissenting, would have confirmed the trial judgment and dismissed the appeal.

From this summary, it will be seen that there are concurrent findings that Stormont was not entitled to the additional credit for grubbing. This question is fully discussed in the reasons of Rivard J., which on this point were concurred in by Tremblay C.J. and Montgomery J. I am in agreement with those reasons and there is nothing I could usefully add.

As to the basis upon which overhead was calculated, there was evidence upon which the trial judge and the majority in the Court of Appeal could make the finding which they did. I agree with that finding.

As I have stated, Pitts-Foley cross-appealed from the majority decision in the court below which reduced the damages awarded at trial from $820,332.70 to $606,873.80. That finding was

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based upon the interpretation and effect of an agreement dated April 13, 1959, under the terms of which, subject to certain conditions, the unit price to be paid to Stormont for clearing the right of way might be increased from $157.60 per acre to $202.70.

Stormont in breach of its subcontract had abandoned work at the end of February 1959 giving as its reason severe weather conditions. It seems clear, however, that the real purpose of the suspension was to force price concessions from Pitts-Foley. Be that as it may, the latter made every effort to get Stormont back on the job and a series of proposals and counter-proposals culminated in an agreement evidenced by a letter dated April 13, 1959.

That letter reads:

Stormont General Contractors Limited,
2345 Viau Street,
Montreal, P.Q.
Attention: Mr. J.G. Joncas,

President.

Gentlemen:

This will confirm the arrangements made between us concerning the clearing to be done by you in connection with the construction of the railway facilities from Shelter Bay, Quebec to Lac Jeannine under the contract between ourselves dated October 21, 1958. Subject to compliance by you with all the conditions stipulated in this letter and in the event of your actual cost for such clearing exceeding the contract price at the specified rate of $157.60 per acre, we shall, in lieu of such contract price, pay you your actual cost for such clearing not exceeding $202.70 per acre as determined and certified by our auditors.

Future payments for clearing shall be made as follows:

I. We shall make progress payments under Article IV of the contract on the basis of the unit price of $157.60 per acre;

II. When all acres to be cleared under the contract have been felled and stacked we shall within 30 days of acceptance of such acres by the owners pay such additional sum as may be required to adjust the unit per acre to your actual cost for clearing, to the extent above provided, as determined and certified

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by our auditors, less all amounts withheld by the Owners to cover burning not completed;

III. When all burning has been completed and accepted by the Owners we shall pay any balance then due to you for burning.

The conditions stipulated are that:

(a) You shall recommence on or before the 20th day of April, 1959, continue without interruption and complete all your work under the contract in accordance with work schedules to be submitted by you and approved by us as conforming with the requirements of provision 16 of Appendix “A” to the contract;

(b) You shall supply evidence acceptable to us on or before the 20th day of April 1959 that the principal amount of the Performance Bond with The Travelers Insurance Company, provided by you under the contract, covers complete performance of the work and payment therefor as provided above;

(c) You shall give our auditors access to your books and records at any time during business hours for the purpose of determining your actual costs of clearing.

Also subject to your compliance with the above conditions, we undertake to deduct from the total clearing to be performed by you under the contract the total of the acres cleared by us for you during the suspension of your operations since March 2, 1959. We shall assume the entire cost of such clearing done by us and retain all payments received by us from the Owners in respect thereof.

This letter, when accepted by you, will constitute a binding agreement between us and except as expressly modified hereby our contract of October 21, 1958 shall remain in full force and effect.

If this letter is acceptable to you, kindly sign the enclosed copy and return it to us.

Very truly yours,

PITTS-FOLEY

mc:

L.G. Lofholm,

Vice-President.

ACCEPTED this      day of          1959.

STORMONT GENERAL CONTRACTORS LIMITED

per: J. Gerard Joncas

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The Travelers Indemnity Company hereby consents to the modification outlined in this letter.

Oscar H. Gaudet

OSCAR H. GAUDET

Attorney-in-fact

The obligations undertaken by Pitts-Foley in that letter, in my opinion, were conditional obligations within the meaning of art. 1079 of the Civil Code and never took effect. Rivard J. stated the position accurately and concisely when he said:

[TRANSLATION] Work started again on April 13, 1959, but was abandoned for good on July 6, 1959. Grubbing was resumed only on May 23 and was obviously stopped also on July 6. The conditions laid down by Pitts-Foley in the April 13 agreement were not complied with by Stormont, and Pitts-Foley cannot be considered in default by paying to Stormont only the prices stipulated in the original contract.

It follows that the subcontract between Stormont and Pitts-Foley was not amended and, in establishing its claim for damages, Pitts-Foley was not obliged to pay or to credit Stormont with any unit price for clearing other than that provided for in the subcontract dated October 21, 1958.

For the foregoing reasons and for those of Rivard J., with which I am in agreement, I would dismiss the appeal and allow the cross-appeal in both cases with costs.

Appeal dismissed with costs; cross-appeal allowed with costs.

Solicitors for the defendant, appellant: Foster, Watt, Leggat, Colby, Rioux & Malcolm, Montreal.

Solicitors for the plaintiffs, respondents: Lafleur & Brown, Montreal.