Banque nationale de Paris (Canada) v. 165836 Canada Inc., 2004 SCC 37, [2004] 2 SCR 45

Banque nationale de Paris (Canada) v. 165836 Canada Inc., [2004] 2 S.C.R. 45, 2004 SCC 37

Vera Ortner Mandel                                                                                        Appellant

v.

Banque nationale de Paris (Canada)                                                            Respondent

Indexed as:  Banque nationale de Paris (Canada) v. 165836 Canada Inc.

Neutral citation:  2004 SCC 37.

File No.:  29523.

2004:  February 11; 2004:  June 10.

Present:  McLachlin C.J. and Bastarache, Binnie, Arbour, LeBel, Deschamps and Fish JJ.

on appeal from the court of appeal for quebec

Obligation — Performance of obligation — Default and putting in default — Transaction — Creditor denying existence of transaction — Failure by debtor to deposit amounts owing pursuant to transaction — Court of Appeal confirming validity of transaction and ordering debtor to pay creditor interest at legal rate and additional indemnity — Whether Court of Appeal erred in ordering payment of interest and additional indemnity where no deposit made — Whether debtor put in default by creditor for non-payment of amounts stipulated in transaction — Civil Code of Québec, S.Q. 1991, c. 64, arts. 7, 1586, 1594, 1617, 2631.

The respondent bank sued the appellant M on a hypothecary suretyship. Before the trial and following its refusal of M’s offer of settlement, the bank made a counter-offer and, furthermore, agreed verbally to a short extension so that M might fulfill some of the conditions in the counter-offer.  However, in breach of its undertakings, the bank withdrew the counter-offer to settle, claiming that M had failed to meet all of the conditions within the mandatory deadline stipulated in the offer to settle.  The bank denied that a transaction had even intervened.  The trial judge found  that M had fulfilled the conditions for the acceptance of the settlement within the appropriate deadline and that there was in fact a valid transaction and ordered the bank to accept the payment of the amounts set out in the transaction.  The Court of Appeal confirmed the validity of the transaction and, because of M’s failure to deposit the payments owing under the transaction, ordered M to pay the bank interest at the legal rate and the additional indemnity as of October 25, 1994, the day the transaction was to take effect.

Held (Bastarache and Deschamps JJ. dissenting in part): The appeal should be allowed.  The conclusions in the Court of Appeal’s judgment respecting interest and the additional indemnity should be struck out.

Per McLachlin C.J. and Binnie, Arbour, LeBel and Fish JJ.: The bank is not entitled to interest.  Interest never began to run against M because she had not been, in any way or at any time, put by the bank in default for non-payment of the amounts stipulated in the transaction.  First, the transaction makes no mention of  interest and does not stipulate that M would be in default by the mere lapse of time. Second, the bank’s judicial demand in the lower courts contained no conclusion with respect to the transaction.  Third, because of the bank’s refusal to recognize the transaction, M was at no time, either pursuant to the transaction or by operation of law, in default and she has never been put in default by the respondent’s action or by extra-judicial notice.  She was therefore under no obligation to deposit the monies owing in order to be released from the payment of interest.  In any event, the bank cannot invoke absence of a deposit in order to claim interest on the monies owing under an obligation whose performance it had rendered impossible by its steadfast refusal to recognize the existence of the transaction.  It would be grossly excessive in these circumstances, and contrary to the spirit of art. 7 C.C.Q. and to the established principles in this respect, to grant interest to the bank and allow it to profit in this way from its persistent and unjustified refusal to comply with the terms of the transaction entered into by the parties in a timely manner.  The bank, therefore, cannot claim interest on the monies owing by M under the transaction.  The conclusion is the same with respect to the additional indemnity.

Per Bastarache and Deschamps JJ. (dissenting in part):  When the Court of Appeal rendered its decision, it could, pursuant to art. 523 C.C.P., have issued any order to safeguard the rights of the parties.  That power came directly into play, first because there were no conclusions in the Superior Court’s judgment against M and also because two of the conclusions sought in the cross‑appeal required the Court of Appeal to exercise its discretion.  In ordering M to make payment in accordance with the terms of the transaction, the Court of Appeal could enquire as to the effect of the passage of time and, consequently, whether it was necessary to provide for the payment of interest.  Although deposit was not mandatory, the Court of Appeal was correct to refer to this mechanism and to assign the interest to the bank because of M’s failure to deposit the money owing.  Through the conclusion set out in her defence, M herself asked the Superior Court to order her to comply with the transaction and expressed her readiness to pay the amounts set out in the transaction.  If M had made a tender and deposited the money, she would have had the benefit of art. 1586 C.C.Q., which provides that a deposit releases the debtor, for the future, from the payment of interest or income yielded.

Under art. 1617 C.C.Q. it is the default itself, and not the notice of default or extrajudicial demand, that determines the date as of which interest is calculated.  Article 1594 C.C.Q. provides that default may take four forms: contract, extrajudicial demand, judicial demand and operation of law.  In her defence, which included a subsidiary cross-claim asking the Superior Court to confirm the transaction, M herself made a judicial demand that made superfluous any extrajudicial demand by the bank.  The time of the default is therefore the date on which M’s judicial demand was made, that is, October 24, 1994, and the delay in performing the obligation began on October 25, 1994, the point when M agreed to pay the money owing.

An additional indemnity may be granted only if it is expressly requested. Because the record is silent on this matter, the conclusion of the Court of Appeal respecting the indemnity must be deleted.

Cases Cited

By Fish J.

Referred to:  Beauregard v. Sœurs de la charité de Sainte-Marie, [1995] Q.J. No. 440 (QL); Bettan v. 146207 Canada Inc., [1993] R.D.J. 489; Bray v. Houlachi, [1997] Q.J. No. 3657 (QL); Bhandari v. 129440 Canada Inc., [1989] R.D.I. 729; Gelber v. 128613 Canada Inc., [1988] R.D.J. 267.

By Deschamps J. (dissenting in part)

Gatineau (Ville) v. Raymond, [1996] Q.J. No. 951 (QL); Girard v. Gariépy, [1975] C.A. 706; Denis v. Moreau, [1974] C.A. 249; Côté v. Sternlieb, [1958] S.C.R. 121; Compagnie d’assurance Missisquoi v. Bessette, [1999] R.R.A. 823; Plomberie West Island ltée v. Société de construction des musées du Canada inc., [1999] Q.J. No. 14 (QL); Racette v. Di Salvio, [1995] Q.J. No. 771 (QL); Gersten v. Luxenberg, [1987] R.J.Q. 533; Raymond v. McColm, [1987] Q.J. No. 82 (QL).

Statutes and Regulations Cited

Act to reform the Code of Civil Procedure, S.Q. 2002, c. 7, s. 7.

Civil Code of Lower Canada, arts. 1069, 1077.

Civil Code of Québec, S.Q. 1991, c. 64, arts. 7, 1573-1589, 1586, 1591, 1594, 1597, 1617, 1619, 2631.

Code of Civil Procedure, R.S.Q., c. C-25, arts. 46, 292, 468, 469.

Code of Civil Procedure, R.S.Q. 1977, c. C-25, art. 523.

Authors Cited

Baudouin, Jean-Louis, et Pierre-Gabriel Jobin.  Les obligations, 5^e éd.  Cowansville, Qué.:  Yvon Blais, 1998.

Pineau, Jean, Danielle Burman et Serge Gaudet.  Théorie des obligations, 4^e éd. par Jean Pineau et Serge Gaudet.  Montréal:  Thémis, 2001.

Québec.  Ministère de la Justice.  Commentaires du ministre de la Justice:  Le Code civil du Québec, vol. 1, Un mouvement de société.  Québec:  Publications du Québec, 1993.

APPEAL from a judgment of the Quebec Court of Appeal, [2002] Q.J. No. 4749 (QL), SOQUIJ AZ-50148538, J.E. 2002-1933, allowing in part a judgment of the Superior Court, [1996] Q.J. No. 4010 (QL).  Appeal allowed, Bastarache and Deschamps JJ. dissenting in part.

Jérôme Choquette, Q.C., and Jean-Stéphane Kourie, for the appellant.

Philippe H. Bélanger and Philippe Levasseur, for the respondent.

English version of the judgment of McLachlin C.J. and Binnie, Arbour, LeBel and Fish JJ. delivered by

Fish J. —

I.  Overview

1                                   The Court of Appeal ordered the appellant to pay the respondent approximately $90,000 in interest under the terms of a transaction whose existence the respondent had always denied.  The respondent, although properly summoned to do so, refused to receive the entire amount owing to it by the appellant under the transaction from the notary designated for that purpose.

2                                   At no time did the respondent claim the interest in issue, either at trial or on appeal.

3                                   In the opinion of my colleague Deschamps J., this was merely a procedural  “gap”, within the meaning of art. 292 of the Code of Civil Procedure, R.S.Q., c. C-25.  That provision allows for “any gap in the proof or in the proceedings” to be filled with leave of the court, at any time before judgment.

4                                   With respect, there is no question in this case of any “gap” of that sort.  On the contrary, the respondent acknowledged in this Court that it had never claimed the interest in issue because such a claim would have been plainly incompatible with the legal basis of its action.

5                                   By the very nature of its claim, the respondent denied from the outset that a transaction had intervened.  Instead, the respondent claimed that the appellant had failed to meet all of the conditions within the mandatory deadline stipulated in the offer to settle.  The trial judge found against the respondent on this issue.  In the opinion of the judge, the parties had indeed transacted voluntarily and validly.  The resulting agreement therefore determined their reciprocal rights and obligations in this case.

6                                   On appeal, the respondent again repudiated the transaction.  Like the trial judge, however, the Court of Appeal unanimously recognized its existence and confirmed its validity.

7                                   My colleague Deschamps J. writes, at para. 90 of her reasons, that the respondent, “under the transaction, which alone governs the substantive obligations of the parties pursuant to the judgment of the Superior Court, as affirmed by the Court of Appeal, . . . reduced its claim from $180,594.21, plus interest at the contractual rate from January 31, 1992, to $125,000, plus $6,500 in costs”.

8                                   With respect, I do not share that view.  On the contrary, as I have just noted, the respondent steadfastly denied the very existence of the transaction, both at trial and on appeal.  It was only long after failing on that point in both courts that the respondent, left with no choice, finally acknowledged the transaction for the sole purpose of claiming its benefits — too late, in my view.

9                                   Given the circumstances, I believe, for the reasons I shall now summarize, that interest simply never began to run against the appellant.

10                               First, the transaction makes no mention of interest and does not provide that the appellant would be in default by the mere lapse of time.  Second, the respondent’s judicial demand in the lower courts contained no conclusion at all with respect to the transaction and, still less, interest on the amount agreed to under the transaction.  Third, the respondent never put the appellant in default under the transaction by extra-judicial notice.

11                               Accordingly, the appellant was never in default under the terms of  agreement or by operation of law, and was never put in default by the respondent’s action or by an extra-judicial demand.

12                               This alone is sufficient to persuade me that the respondent is not entitled to interest in this case.

13                               But there is more.  The respondent knew or ought to have known that by refusing to perform its obligations under the transaction, it made it impossible for the appellant to perform hers.  More particularly, the respondent knew or should have known that its refusal to proceed as agreed made it impossible for the appellant to deposit the money that was the subject of the transaction, should this become necessary in the event of a dispute.

14                               The appellant argued, correctly in my view, that it would be grossly excessive in these circumstances, and contrary to the established principles in this respect, to award the interest in issue to the respondent.  It also seems to me to be contrary to the spirit of art. 7 of the Civil Code of Québec, S.Q. 1991, c. 64 (“C.C.Q.”), to allow the respondent to profit in this way from its persistent and unjustified refusal to comply with the terms of the transaction entered into by the parties in a timely manner.

15                               Accordingly, I would allow the appeal, with costs throughout, and vacate the order in the judgment of the Court of Appeal relating to interest and the additional indemnity provided for in art. 1619 C.C.Q.

II.  Origin of the Dispute

16                               On September 28, 1994, the parties seek through their respective counsel to settle out of court.  That very day, the appellant rejects the respondent’s offer of settlement and, on October 13, responds with a counter-offer.  Wednesday, October 19, the respondent delivers to the appellant confirmation of their agreement.  In that transaction, the parties agreed to settle the appellant’s obligations as a surety and a collateral hypothec in the amount of $235,000, securing the debts owed to the respondent by two companies and by the appellant’s husband, Robert Mandel.

17                               The offer to settle set Friday, October 21 at 5 p.m. as the deadline for paying an initial installment of $10,000 and $6,500 in legal fees, and Thursday, October 27 as the time limit for paying the balance of $115,000.

18                               In essence, the offer to settle contained three requirements: (1) confirmation from the Bank of Montreal of an offer to refinance granting the appellant an additional hypothecary loan of $115,000; (2) the confirmation had to stipulate that the act of hypothec would be signed before a notary designated by the Bank of Montreal no later than noon on Tuesday, October 25, 1994; and (3) a written undertaking by the appellant’s husband to sign the notarial act of hypothec.

19                               The offer to settle set 5 p.m., Thursday, October 20 as the mandatory deadline for the appellant to accept the offer.

20                               In the event that any of the three conditions were not met within the time allowed, the offer to settle would be null and void, and the monies delivered to the respondent by the appellant would be returned to her in full.  The appellant’s lawyer therefore had only Thursday, October 20 to deliver the necessary documents to the respondent’s lawyer.

21                               The appellant had to negotiate a hypothec with the Bank of Montreal not only to pay the principal and costs set out in the transaction, but also to obtain the funds needed to pay off a first hypothec to another bank on the family residence, in the amount of $100,000.  As to the respondent, it agreed to discharge the hypothec on the appellant’s immovable, and to cancel it, on payment of $115,000 from the proceeds of the hypothecary refinancing by the Bank of Montreal.

22                               On Thursday, October 20, 1994, the appellant’s lawyer had in hand  confirmation by the Bank of Montreal of its commitment to refinance the appellant’s hypothec and the written undertaking of the appellant’s husband to sign the notarial act of hypothec.

23                               In a conversation with the appellant’s lawyer, the respondent’s lawyer agreed to extend the deadline for receiving the documents to the next morning.  During the morning of October 21, the Bank of Montreal provided the appellant’s lawyer with the name of the notary it was designating to receive the acts of hypothec, and the appellant’s lawyer then contacted the notary to ask when he would be available.  However, around noon that day, in breach of his undertakings, the respondent’s lawyer sent the appellant’s lawyer a fax withdrawing the offer to settle, claiming that the settlement had not been made within the required time, that is, before 5 p.m. on October 20.

24                               One hour later, the appellant’s lawyer delivered the $10,000 and $6,500 to the respondent’s lawyer, along with the Bank of Montreal’s approval of a hypothecary loan for $225,000, a copy of the agreement by the appellant’s husband to sign the act and details of the arrangements made with the notary designated by the Bank of Montreal to receive the acts of hypothec.

25                               That afternoon, the respondent’s lawyer returned the bank drafts received a few hours earlier.

26                               Throughout the day on October 21, the appellant’s lawyer tried in vain to contact the respondent’s lawyer.  The respondent’s lawyer refused to take any telephone calls and instructed his assistant to intercept any messages relating to the appellant’s file.

27                               On Monday, October 24, 1994, at the beginning of the trial, the appellant filed an amended defence and cross-demand alleging that a transaction had been entered into on October 19, 1994, and that the respondent had refused to honour its terms.

28                               The next morning, the notary designated by the Bank of Montreal informed the respondent in writing that he was holding the agreed amount of $225,000 and was prepared to see the appellant and her husband early in the afternoon to have the acts of hypothec signed and the respondent’s hypothec cancelled.

29                               The respondent failed to attend at the notary’s office.

III.  Judicial History

A.  Superior Court, [1996] Q.J. No. 4010 (QL)

30                               The respondent brought action against five defendants solidarily on different grounds and for different amounts.

31                               In the Superior Court, action was brought against two companies for repayment of balances owing on their bank transactions and lines of credit.  Action was also brought against two individuals, Robert Mandel and Gabriel Segal, as personal sureties of the two corporations.

32                               Action was brought against the appellant on the suretyship for the hypothec on the family residence, which belonged to her and had been given to secure the obligations contracted by the two companies and by her husband, Robert Mandel.

33                               The trial judge found the companies and the two debtor sureties solidarily liable for the amounts owing.

34                               However, the judge declared the transaction between the respondent and the appellant to be valid, and ordered the respondent to accept the payment of the amounts set out in the agreement:  $125,000 in principal and another $6,500 in legal fees.

35                               The judge described the parties’ legal situation as follows (at paras. 31, 33 and 35):

[translation]  I prefer to interpret the offer to settle as a whole, and find that the events of Friday, October 21 were caused by [the respondent’s] lawyer.  The evidence shows that, late in the afternoon on October 20, he had agreed that the documents required by 5:00 p.m. would be accepted in the morning of October 21.  The head of [respondent’s] legal department and the lawyer of record had a conversation in the morning of October 21 and, for some completely unexplained reason, decided that their offer of October 19 was null and void.

. . .

It appears to me that the offer to settle out of court was duly accepted by [the appellant] and that the non-performance of the settlement resulted solely from an unfortunate, unilateral decision by the [respondent] and its lawyer.  As early as October 21, they had $16,500 in hand.  They also had the Bank of Montreal’s approval of a $225,000 loan.  They had the consent of the defendant husband, Mandel, to intervene in the act of loan and the act of cancellation of the hypothecary security.  They even knew the name of the notary representing the Bank of Montreal, when two letters from [the respondent’s] lawyer abruptly arrived.  The evidence also showed that after the conversation at 11:30 a.m. on Friday, October 21, [the respondent’s] lawyer instructed his secretary not to accept any calls from the opposing party.  The court finds this to be a cavalier manner of handling relations between colleagues at such a critical and sensitive moment, the day before the beginning of a trial of four and a half days.

. . .

With the trial scheduled for four and a half days, performance of each and every condition took place within the time allowed in the confirmation of the settlement agreement.  Consequently, the court finds that there was in fact a valid transaction between [the respondent] and [the appellant] Vera (Ortner) Mandel in accordance with the terms confirming the out-of-court settlement proposed on October 19, 1994.

B.  Court of Appeal, [2002] Q.J. No. 4749 (QL)

36                               The Court of Appeal confirmed the validity of the transaction.  In addition, although this conclusion was not sought, the court ordered the appellant to pay the respondent interest at the legal rate, and the additional indemnity, on the sums of $125,000 and $6,500, because of the appellant’s failure to deposit the payments owing under the transaction.

IV.  Issues

37                               This appeal does not deal with the amount payable under the transaction, that is, $125,000 in capital, plus costs of $6,500.  The only issue is the order made by the Court of Appeal awarding interest and the additional indemnity against the appellant, which together amount to over $90,000.

V.  Analysis

38                               The agreement that was made for the purpose of final settlement of the dispute between the parties is a transaction within the meaning of art. 2631 C.C.Q.  The transaction effected novation of their respective prior obligations.  Their rights and obligations were thereafter governed by the transaction.

39                               The trial judge found that the appellant had met the conditions for acceptance of the transaction in a timely manner and that there was a valid transaction.  That finding was affirmed on appeal and is not contested in this Court.

40                               The only question that remains is whether the appellant was required to deposit the money she owed to the respondent in order to be released from the payment of interest.

41                               The respondent argues that the appellant’s failure to deposit the money is fatal to her case.  Under art. 1586 C.C.Q., the respondent contends, only a deposit can release a debtor from the payment of interest.  Accordingly, the Court of Appeal, in the respondent’s view, was right to conclude that the appellant was liable for payment of interest and an additional indemnity, as of October 25, 1994, the day the transaction was to take effect.

42                               With respect, I see the matter differently.

43                               Interest is generally calculated from the date the debtor is in default:  see art. 1617 C.C.Q. I therefore feel bound to conclude that interest never began to run against the appellant for the respondent did not, in any way or at any time, put the appellant in default for non-payment of the amounts stipulated in the transaction. Moreover, the appellant was not otherwise in default under the transaction: see art. 1594 C.C.Q.

44                               In Beauregard v. Sœurs de la charité de Sainte-Marie, [1995] Q.J. No. 440 (QL) (C.A.), the parties had entered into a transaction under which the respondents agreed to pay the appellants $3 million in return for the appellants’ signing of documents.  The trial judge declared the transaction to be valid but did not award the appellants interest on the amount owing, on the ground that the parties were jointly at fault for the failed closing meeting.

45                               The Court of Appeal held that the appellants were not entitled to interest because they had never put the respondents in default of their obligation to pay the money owing under the transaction.  Relying on art. 1077 of the Civil Code of Lower Canada, the equivalent of art. 1617 C.C.Q., Tyndale J.A., writing for the court, stated (at paras. 20-21):

I turn now to the appeal by the Beauregards.  Their only complaint is against that part of the judgment which refused interest and costs.

If they wanted a judgment susceptible of immediate execution with interest and costs, they should not only have offered to perform their own obligation to sign the required documents, but also have performed that obligation by signing and tendering them.  On date of judgment, they still had not signed, so the Sisters had never yet been legally put in default. That was a good reason to deny interest (Article 1077 CCLC), and costs too.

46                               Here, in order for interest to have begun to run as of October 25, 1994, the contract would have had to state this clearly.  Here, the transaction does not mention interest at all.  Nor does it contain any stipulation that the mere lapse of time for performing the obligations would operate to put the appellant in default: see art. 1594, para. 1 C.C.Q.

47                               The mere lapse of time does not operate to put a debtor in default, as was the case in commercial matters under art. 1069 of the Civil Code of Lower Canada:  see J. Pineau, D. Burman and S. Gaudet, Théorie des obligations (4th ed. 2001), at pp. 734-35.

48                               Nor could the appellant have been put in default under the transaction by the respondent’s judicial demand, which negated the very existence of the transaction.  Because the respondent refused to recognize the transaction, it never sent the appellant any extra-judicial demand to pay the agreed amount.  Accordingly, she was never put in default.

49                               Likewise, it cannot be said that the appellant was in default solely by operation of law, under art. 1597 C.C.Q., because she had not discharged her obligations under the transaction.

50                               On the contrary, it was in fact the respondent that was in default, by operation of law, with respect to receiving payment from the appellant, by reason of its clearly expressed intention to refuse any tender of payment that the appellant might make: see art. 1580 C.C.Q.

51                               The appellant, I repeat, was at no time and in no way put in default in relation to the transaction.  In my opinion, she was therefore under no obligation whatever to deposit the monies owing in order to be released from the payment of interest, since interest had never begun to run.

52                               Even if I had come to the opposite conclusion regarding the default of the appellant, I would nevertheless have concluded that the respondent was not entitled to interest in this case, for the following reasons.

53                               I am of the opinion that the issue of deposit is inextricably linked to the performance of the transaction, having regard to the circumstances I described earlier.

54                               Articles 1573 to 1589 C.C.Q. establish how tender and deposit are to be  effected.  Under art. 1573 C.C.Q., these provisions apply where a creditor refuses or neglects to accept payment.

55                               Article 1580 reads, in part:

1580.  A creditor is in default by operation of law where, without justification, he refuses a valid tender or refuses to act on the notice having the same effect, or where he clearly expresses his intention to refuse any tender that the debtor might wish to make; in this last case, the debtor need not make any tender or give any notice having the same effect.  [Emphasis added.]

56                               The appellant, therefore, did not need to tender to the respondent since the latter had clearly expressed its intention to refuse any tender the appellant might wish to make.  That refusal was expressed by the respondent when it unilaterally withdrew its offer to settle, in breach of its undertakings, and before the extension of the deadline for acceptance granted to the appellant.

57                               Although the appellant was not obliged to do so, she nevertheless made a partial tender to the respondent by sending it the amounts of $10,000 and $6,500 on October 21, 1994, which were returned to her the same day.  Given that refusal, the appellant was a fortiori released from tendering the balance of $115,000, which was payable on October 27, 1994, at the latest.

58                               The appellant’s attitude is all the more justified by the fact that the respondent never acted on the notice that it received on October 25, 1994, from the notary designated by the Bank of Montreal, stating that he was holding the sum of $225,000 and was available to see the appellant and her husband to sign the act for the hypothecary loan that the Bank of Montreal had granted the appellant.

59                               Although the appellant was willing to pay the amounts owing to the respondent on the dates set for carrying out the transaction, she never deposited those monies.

60                               The respondent cannot invoke absence of a deposit in order to claim interest on the monies owing under an obligation whose performance it had rendered impossible by its steadfast refusal to recognize the existence of the transaction.  In my view, the respondent is quite simply trying to profit from a procedural omission on the part of the appellant that was of the respondent’s own making, whereas the appellant was not required to deposit the monies in the circumstances of this case.

61                               By withdrawing its offer to enter into a transaction and, in the same breath, repudiating its undertaking to cancel the hypothec that the appellant had granted the respondent, the respondent rendered illusory any possible attempt by the appellant to obtain a hypothecary loan on the same immovable from the Bank of Montreal.

62                               The appellant could therefore not have deposited the sum representing the proceeds of the hypothecary refinancing granted by the Bank of Montreal even if she had wanted to, since the respondent’s conduct precluded access to those funds.

63                               It is true that the appellant, unable to take out the loan, was thereby spared interest to the Bank of Montreal.  Nothing in the record indicates, however, that the appellant would have had to pay interest on that loan over a ten‑year period, as ordered in the Court of Appeal’s judgment.

64                               The respondent made an informed choice when it decided to bring action against the appellant on the original hypothecary suretyship.  The respondent refused, without any justification, to recognize the validity of the transaction and carry it out. In my view, the respondent cannot deny that this transaction existed and had novatory effect, bring an action under the original contract and then, in this Court, claim an accessory to the novatory contract that was declared by the lower courts to be valid.

65                               It is therefore the respondent, I reiterate, which must suffer the consequences, and not the appellant, who acted properly from beginning to end.

66                               In fact, while recognizing the importance of tender and deposit, the Quebec Court of Appeal has held on numerous occasions, in the context of actions to compel transfer of title, that falling into [translation] “outdated and unjustified formalism” must be avoided: see Bettan v. 146207 Canada Inc., [1993] R.D.J. 489, at p. 495; see also Bray v. Houlachi, [1997] Q.J. No. 3657 (QL); Bhandari v. 129440 Canada Inc., [1989] R.D.I. 729; and Gelber v. 128613 Canada Inc., [1988] R.D.J. 267.

67                               As I mentioned at the outset, it seems to me that it would be contrary to the spirit of art. 7 C.C.Q. and the other principles that are applicable in this matter to award interest to the respondent.  The trial judge was correct in characterizing the conduct of the respondent’s legal representatives in this case as “cavalier”.  The inopportune withdrawal of its offer to settle, combined with its repudiation of the transaction and the foreseeability of the consequences for both parties, make the respondent’s claim for interest excessive and unreasonable.

68                               Moreover, because the respondent is solely responsible for the non-performance of the transaction, I am of the opinion that it has no right whatever to interest on the monies owing.  To award the respondent interest, in addition to being excessive, would amount to denying the synallagmatic nature of the agreements that were made by the parties and whose existence is not in any doubt.

69                               I note that the law of obligations under the Civil Code of Québec comprises a complex body of statutory law that adheres to general principles, some of which are common to the entire Civil Code.  The rules relating to tender and deposit are merely conditions governing certain types of payment.  They form part of the entire body of the law of obligations, and they cannot be construed and applied in isolation from the fundamental principles of that body of law, and particularly not in disregard of the synallagmatic nature of the obligations imposed on the parties and the requirement of good faith that is a general principle clearly recognized and given express sanction by the introductory provisions of the Civil Code.

70                               With respect, the position taken by my colleague disregards the requirements imposed by the correlative nature of the obligations in a synallagmatic contract.  In must be remembered in this regard that the respondent’s last-minute attempt in this Court to fall back on the transaction amounts to nothing more than belated remorse at having rejected an agreement the existence of which it has at all times denied and the performance of which in this case was directly prevented by its conduct.

71                               In my opinion, the respondent therefore cannot claim interest on the monies owing by the appellant under the transaction.

72                               My conclusion is the same with respect to the additional indemnity.

VI.  Conclusion

73                               For all these reasons, I would allow the appeal with costs throughout and strike out the conclusions in the Court of Appeal’s judgment ordering that the appellant pay the respondent interest and the additional indemnity on the principal of $125,000 and costs of $6,500 provided for in the transaction.

English version of the reasons of Bastarache and Deschamps JJ. delivered by

74                               Deschamps J. (dissenting in part) — This appeal concerns the power of the Court of Appeal to order the payment of interest at the legal rate and an additional indemnity in a case where the Superior Court had not so provided.  This case may seem singular in nature, but it gives the Court an opportunity to determine the effect of a judicial demand on the obligation to pay interest and the additional indemnity.

75                               I have read the reasons of my colleague Fish J.  With respect, I must disagree.  His approach to the issue is more in the nature of a search for fault and malicious intent than an analysis of the legal consequences of the pleadings as they were drawn up by the parties.  First, the solution that he proposes fails to address one of the problems brought to light by the Court of Appeal, and that would mean that this Court has a lesser duty than the Superior Court or the Court of Appeal with respect to protecting the rights of the parties.  Second, the solution is not in keeping with the Civil Code of Québec, S.Q. 1991, c. 64 (“C.C.Q.”).  In Quebec, a judge may order the payment of interest from the date a judicial demand is made.

76                               The respondent, the Banque nationale de Paris (Canada) (the “Bank”), brought action against the appellant, Vera Ortner Mandel, based on a hypothecary suretyship.  Ms. Mandel filed an amended defence and cross-demand in which she submitted that the suretyship was null.  However, the document filed included a conclusion which Ms. Mandel characterized as subsidiary, asking the Superior Court to recognize that there had been a transaction, order the parties to abide by it, and homologate it:

[translation] subsidiarily, in the event that the court concludes that the guarantee dated september 11, 1990, and the deed of hypothec (exhibits p-3 and p-4) are valid:

recognize the transaction agreement, which is subject to execution and has the authority of a final judgment as between the parties;

order the parties to comply with the transaction;

homologate the transaction entered into by the parties;

77                               The Superior Court found that there had been a transaction but did not make any conclusions against Ms. Mandel:  [1996] Q.J. No. 4010 (QL).  The two conclusions of the judgment of the Superior Court that relate to the transaction read as follows (at para. 36):

[translation] declares the transaction entered into by the plaintiff and the defendant Vera (Ortner) Mandel, on October 19 and 20, 1994, to be valid;

orders the plaintiff to accept the amounts stipulated in the transaction dated October 19 and 20, 1994, as a release of all obligations, and to sign, no later than January 31, 1997, any document that may be required in order for the collateral guarantee charging the immovable belonging to the defendant Vera (Ortner) Mandel, located at 6020-6030 Wilderton Crescent, Montréal, to be cancelled;

78                               The Bank appealed to the Court of Appeal, asking it to set aside the conclusion in the judgment relating to the transaction.  The Bank relied again on the hypothecary suretyship.  It reiterated its real and personal conclusions against Ms. Mandel, seeking an order for the payment of $180,594.21, plus interest at a rate of prime plus 1.75 percent from January 31, 1992.  Ms. Mandel filed a cross-appeal, asking the Court to annul the hypothecary suretyship, and reformulated a claim regarding the transaction.  I reproduce two conclusions from the document, because they are a direct call for creativity on the part of the Court of Appeal:

[translation] dismiss the action of the plaintiff-appellant, Banque Nationale de Paris (Canada), against the defendant-respondent, Vera (Ortner) Mandel, on the grounds that the transaction has become incapable of execution or impossible to perform, unless the Court of Appeal orders compulsory execution of the transaction, sets a new deadline for performance and orders the plaintiff-appellant to accept the amounts set out in the transaction of October 19 and 20, 1994, in discharge of all obligations, and sign any document that may be required in order for the collateral guarantee charging the immovable belonging to the defendant‑respondent, Vera (Ortner) Mandel, located at 6020‑6030 Wilderton Crescent, Montréal, to be cancelled; and

in the event that the plaintiff-appellant, Banque Nationale de Paris (Canada), fails to comply with the deadline and with its obligations as determined by the Court of Appeal, declare that the judgment rendered constitutes an acquittance and cancellation of all of the defendant-respondent’s obligations to the Banque Nationale de Paris (Canada);

79                               The Court of Appeal affirmed the Superior Court’s findings of fact regarding the validity of the suretyship and the existence of the transaction:  [2002] Q.J. No. 4749 (QL).  The Court of Appeal found, however, that the conclusions in the lower court judgment were impossible to execute, and restated them.

80                               To determine the respective rights of the parties, we must first review the provisions of the Code of Civil Procedure, R.S.Q., c. C‑25 (“C.C.P.”), concerning the powers and duties of the Court of Appeal, when faced with non-executory conclusions in the judgment of the Superior Court.  We must then apply the provisions of the Civil Code of Québec relating to tender and deposit.  I will also analyze the effect of the conclusions sought in the pleadings on the obligation to pay interest, and examine the relief sought as it relates to the additional indemnity.  For reference purposes, all statutory provisions that assist in understanding the issues involved in this case are reproduced as an appendix to these reasons.

I.  Powers of the Court of Appeal

81                               When the Court of Appeal rendered its decision, it could, pursuant to art. 523 C.C.P., as it read at the time, have issued any order to safeguard the rights of the parties.  That power was incorporated into art. 46 C.C.P. with the enactment of the Act to reform the Code of Civil Procedure, S.Q. 2002, c. 7, s. 7.  It came directly into play, first because, as was noted earlier, the conclusions in the judgment of the Superior Court were not executory and also because two of the conclusions sought in the cross‑appeal required the Court of Appeal to exercise its discretion.

82                               Through its decision, the Court of Appeal sought to fill a gap in the drafting of the judgment.  The power of a court to intervene in such circumstances is expressed in terms of a duty. Article 292 C.C.P. requires a Superior Court judge to intervene and draw the attention of the parties to gaps in the proceedings (Gatineau (Ville) v. Raymond, [1996] Q.J. No. 951 (QL) (C.A.), and Girard v. Gariépy, [1975] C.A. 706).  The Court of Appeal is also required to correct, of its own motion, any incorrect terminology in the conclusions sought to give them their true designation (art. 468 C.C.P.) and to ensure that judgments are susceptible of execution (art. 469 C.C.P.).  Because the conclusions sought in the cross-appeal were not executory, the Court of Appeal had to restate them.

83                               In other words, faced with the obvious gap constituted by the absence of any conclusion against Ms. Mandel, the Court of Appeal had no other choice but to be creative.  The only question to be answered is whether the Court exceeded its jurisdiction.

II.   The Effect of the Provisions of the Civil Code of Québec Regarding Tender and Deposit

84                               The Bank had claimed contractual interest on the original debt, but failed to include in its claim a conclusion dealing with the transaction.  The transaction became part of the action filed in the Superior Court only when Ms. Mandel made her “subsidiary” conclusion.  Under the transaction, Ms. Mandel was to pay $125,000 plus costs in the amount of $6,500 as of October 25, 1994.  In ordering Ms. Mandel to make payment in accordance with the terms of the transaction, the Court of Appeal could enquire as to the effect of the passage of time and, consequently, whether it was necessary to provide for the payment of interest.

85                               The Court of Appeal provided for this by relying on the provisions of the Civil Code of Québec, and more specifically on art. 1586.  The reasons for the Court of Appeal’s decision in this respect are found in the following paragraph (at para. 8):

[translation]  Given the appellant’s unequivocal refusal to comply with the transaction, the respondent Vera (Ortner) Mandel did not deposit the money she owed pursuant to the offer to settle.  Accordingly, the respondent Vera (Ortner) Mandel must pay interest on that amount (art. 1586 C.C.Q.) as of the date stipulated in the transaction, October 25, 1994.

In my opinion, the Court of Appeal was correct in so doing.

86                               According to the transaction, Ms. Mandel was obliged to pay the amounts owing on October 25, 1994.  In her amended defence and cross-demand, Ms. Mandel herself asked the Superior Court to order her to comply with the transaction.  This was purely and simply a tender by which Ms. Mandel expressed her readiness to pay the amounts set out in the transaction.  The tender was rejected by the Bank, which denied the existence of such a transaction.  This tender is governed by arts. 1573 to 1589 C.C.Q.  More specifically, art. 1573 C.C.Q. provides as follows:

1573. Where a creditor refuses or neglects to accept payment, the debtor may make a tender.

A tender consists in placing the thing which is due at the disposal of the creditor at the place and time that payment is due.  In addition to the thing due, with the interest and periodic payments it has yielded, a reasonable amount to cover unliquidated expenses owed by the debtor shall be included, saving the right to make up any deficiency in that amount.

87                               Ms. Mandel did not deposit the amount provided for in the transaction.  If she had done so, she would have had the benefit of the consequence expressly set out in art. 1586 C.C.Q.:

1586.  A deposit made according to the conditions set forth in the preceding articles releases the debtor, for the future, from the payment of interest or income yielded.

88                               Ms. Mandel argued, however, that because the Bank refused to act on the transaction, she was unable to borrow the money that was needed to perform her obligations under the transaction from another institution, the Bank of Montreal, and, consequently, under art. 1591 C.C.Q., she was relieved of her obligation to deposit.

89                               In my opinion, this argument cannot be accepted, for three reasons.

90                               First, under the transaction, which alone governs the substantive obligations of the parties pursuant to the judgment of the Superior Court, as affirmed by the Court of Appeal, the Bank reduced its claim from $180,594.21, plus interest at the contractual rate from January 31, 1992, to $125,000, plus $6,500 in costs.  Ms. Mandel then withdrew her contestation regarding the validity of her suretyship and agreed to pay by October 25, 1994.  The other undertakings, such as the signature of a declaration of out‑of‑court settlement and the delivery of an acquittance, are merely means of implementing the transaction.  The correlative obligations of the parties were therefore, on one side, to reduce the claim, and on the other side, to withdraw the contestation.  Article 1591 C.C.Q. therefore does not allow Ms. Mandel to delay payment, because, pursuant to the transaction, the Bank has fulfilled its obligation by reducing the amount of its claim.

91                               Second, I find it hard to understand how the fact that Ms. Mandel was unable to borrow from a third party to which she would have had to pay interest — interest that she did not pay — can justify her not paying interest to the Bank.  By her own submission, Ms. Mandel has owed the money since October 25, 1994.  It should be of little concern to her to whom she pays the interest.  In fact, she enjoyed the money since 1994.  Since she is not paying interest to a third party, nothing prevents her from paying it to the Bank.  She cannot rely on this argument, which is in the nature of unjust enrichment.  It is actually Ms. Mandel who is being enriched at the Bank’s expense.  In his reasons for judgment, my colleague Fish J. alludes to $90,000 in interest that Ms. Mandel might not have paid to the Bank of Montreal.  It is important to note that no evidence was introduced regarding that figure.  Moreover, that figure appears to include the additional indemnity, the rate of which varied between 7 and 12 per cent during the period in question, while the legal rate was 5 per cent.  Additionally, to state, in the context of this case, that Ms. Mandel would not have paid interest to the Bank of Montreal is, in my opinion, highly speculative.

92                               Third, the exception for nonperformance has no effect on the payment of interest in the context of tender and deposit, except to the extent provided in art. 1587 C.C.Q., which specifically addresses this matter.  That article provides that when a debtor makes a tender to obtain the creditor’s performance of a correlative obligation, the interest belongs to the debtor:

1587. Interest or income yielded from the date of deposit belongs to the creditor.  Nevertheless, where the deposit is made to obtain the performance of an obligation of the creditor that is correlative to the obligation the debtor intends to perform by the deposit, the interest or income belongs to the debtor until the deposit is accepted by the creditor.

The second sentence of the article applies when the creditor is holding property in return for the money offered by the debtor.  This provision entitles the debtor to the interest earned while the creditor continues to have the enjoyment of the property (Commentaires du ministre de la Justice (1993), vol. 1, at p. 977; J. Pineau, D. Burman and S. Gaudet, Théorie des obligations (4th ed. 2001), § 332).  The rule does not apply when the creditor has already performed his or her correlative obligation, as the Bank did when it reduced its claim under the terms of the transaction.  As noted earlier, the signing of a declaration of out‑of‑court settlement and the delivery of a release are mechanisms for implementing the transaction, and cannot be characterized as correlative obligations.  Moreover, the Bank in this case is not in possession of any property of which it has the enjoyment and which justified Ms. Mandel in retaining the interest.  Rather, it is Ms. Mandel who has retained the property.

93                               Deposit is not mandatory.  Ms. Mandel’s failure to deposit the money does not deprive her of any defence or preclude her from arguing for recognition of the transaction.  The mechanism set out in the provisions of the Civil Code of Québec regarding deposit is only useful for determining who is assigned the interest.

94                               I believe that the Court of Appeal was correct to refer to this mechanism and to assign the interest to the Bank because of Ms. Mandel’s failure to deposit the money owing.  In contrast, the effect of the disposition proposed by my colleague Fish J. is to order Ms. Mandel to pay the amount owing on October 25, 1994, without taking into account the effect of the time that has since passed.  I believe that, in so doing, he has failed to have regard to the duties imposed on the courts under the Code of Civil Procedure.

III.  The Effect of the Pleadings on the Obligation to Pay Interest

95                               In the opinion of the Court of Appeal, as soon as a demand involving an award of money is filed with a court, payment of interest may be ordered.  If the demand is based on a contract that does not provide for interest, the judge may order interest to be paid at the legal rate.  That is the effect of art. 1617 C.C.Q.:

1617.  Damages which result from delay in the performance of an obligation to pay a sum of money consist of interest at the agreed rate or, in the absence of any agreement, at the legal rate.

The creditor is entitled to the damages from the date of default without having to prove that he has sustained any injury.

A creditor may stipulate, however, that he will be entitled to additional damages, provided he justifies them. [Emphasis added.]

96                               Because the transaction did not stipulate an interest rate, the Court of Appeal was entitled to order the payment of interest at the legal rate.

97                               Neither the Superior Court nor the Court of Appeal placed any weight, correctly in my opinion, on the failure to put the debtor in default.  That argument was raised by this Court, and only at the hearing.  Because my colleague addresses the argument in his reasons, I believe that it would be useful to analyze it, if only to shed light on the confusion between two ideas: default and being put in default by an extrajudicial notice.  As J.‑L. Baudouin and P.‑G. Jobin point out, it is important [translation] “to avoid the legal complications that terminological confusion might create” (Les obligations (5th ed. 1998), § 674).

98                               The purpose of default is to serve formal notice that a debtor has failed to pay or is late in paying a debt (Baudouin and Jobin, supra, § 676).  Default is governed by arts. 1594 to 1600 C.C.Q.  Article 1594 reads as follows:

1594.  A debtor may be in default by the terms of the contract itself, when it contains a stipulation that the mere lapse of time for performing it will have that effect.

A debtor may also be put in default by an extrajudicial demand addressed to him by his creditor to perform the obligation, a judicial demand filed against him or the sole operation of law.  [Emphasis added.]

99                               Default may therefore take four forms: contract, extrajudicial demand (notice of default), judicial demand and operation of law.  Under art. 1617 C.C.Q. it is the default itself, and not the notice of default, or extrajudicial demand, that determines the date as of which interest may be calculated.

100                           Article 1594 C.C.Q. allows for the date on which the debtor is in default to be determined.  When a creditor has not formally put his or her debtor in default by extrajudicial notice, or when the law or the contract is silent on this point, the date on which a judicial demand is filed can establish the date as of which interest is calculated.

101                           By definition, an extrajudicial demand precedes an action and is no longer relevant once the case is before the courts.  An extrajudicial demand is not a prerequisite to bringing an action (Denis v. Moreau, [1974] C.A. 249; Côté v. Sternlieb, [1958] S.C.R. 121) or to the calculation of interest.

102                           How then is this case to be decided?  In her defence, which included a subsidiary cross-demand, Ms. Mandel herself made a judicial demand that made superfluous any extrajudicial demand by the Bank.  What more could the Bank have added?  Should the Bank have amended its claim to also include a subsidiary claim for the confirmation of the transaction in the event its claim for compulsory execution of the suretyship was dismissed?  What would that claim have added to Ms. Mandel’s pleadings in the Superior Court or the Court of Appeal?  The Bank did not need to establish that Ms. Mandel had been late in paying, because she herself was asking the judge to make an order directing her to pay the money owing.  The argument dealing with the need for an extrajudicial demand is, in my opinion, without merit.  Ms. Mandel’s subsidiary conclusion constituted the judicial demand.

103                           The time of the default is the date on which the judicial demand was made (art. 1594 C.C.Q.), that is, October 24, 1994, and the delay in performing the obligation (art. 1617 C.C.Q.) began on October 25, 1994, the point when Ms. Mandel agreed to pay the money owing.

104                           I am therefore of the opinion that the Court of Appeal properly fulfilled its duties to identify anything incorrect in the pleadings before it, that it was necessary for the court to draft executory conclusions in light of the conclusion sought by Ms. Mandel herself, and to exercise its power to award interest at the legal rate as it did.

IV.  The Additional Indemnity

105                           The Court of Appeal has consistently held that an additional indemnity may be granted only if it is expressly requested (Compagnie d’assurance Missisquoi v. Bessette, [1999] R.R.A. 823; Plomberie West Island ltée v. Société de construction des musées du Canada inc., [1999] Q.J. No. 14 (QL); Racette v. Di Salvio, [1995] Q.J. No. 771 (QL); Gersten v. Luxenberg, [1987] R.J.Q. 533; and Raymond v. McColm, [1987] Q.J. No. 82 (QL)).

106                           When questioned during the hearing, counsel for the Bank stated that a motion to amend had been made orally when the fact that the conclusions were incapable of execution was being discussed in the Court of Appeal.  Counsel for Ms. Mandel contended, on the contrary, that no such request had been made to the Court of Appeal.  Because the record is silent on this matter and no motion to amend was filed with this Court, the conclusion respecting the indemnity must be deleted.

V.  Disposition

107                           For these reasons, I would allow the appeal in part, striking out the words [translation] “and the additional indemnity” from the judgment of the Court of Appeal, this without costs because of the mixed outcome of the appeal.

                                                           APPENDIX

Code of Civil Procedure, R.S.Q. 1977, c. C‑25

523.  The Court of Appeal may, if the ends of justice so require, permit a party to amend his written proceedings, to implead a person whose presence is necessary, or even, in exceptional circumstances, to adduce, in such manner as it directs, indispensable new evidence.

It has all the powers necessary for the exercise of its jurisdiction and may make any order necessary to safeguard the rights of the parties.  It may even, notwithstanding the expiry of the delay allowed by article 494, but provided that more than six months have not elapsed since the judgment, grant special leave to appeal to a party who shows that in fact it was impossible for him to act sooner.

Code of Civil Procedure, R.S.Q., c. C-25

46.  The courts and judges have all the powers necessary for the exercise of their jurisdiction.

They may, at any time and in all matters, whether in first instance or in appeal, issue orders to safeguard the rights of the parties, for such time and on such conditions as they may determine. As well, they may, in the matters brought before them, even on their own initiative, issue injunctions or reprimands, suppress writings or declare them libellous, and make such orders as are appropriate to deal with cases for which no specific remedy is provided by law.

292.  At any time before judgment, the presiding judge may draw the attention of the parties to any gap in the proof or in the proceedings and permit them to fill it, on such conditions as he may determine.

468.  The court cannot adjudicate beyond the conclusions; however, it may correct incorrect terminology in the conclusions, in order to give to them their true designation in the light of the facts alleged.

469. Every judgment involving a condemnation must be susceptible of execution. Every judgment for damages must contain a liquidation thereof; if it contains a joint and several condemnation against the persons responsible for the injury, it shall, if the evidence permits, determine as between such persons only, the share of each in the condemnation.

Civil Code of Québec, S.Q. 1991, c. 64

1586.  A deposit made according to the conditions set forth in the preceding articles releases the debtor, for the future, from the payment of interest or income yielded.

1587.  Interest or income yielded from the date of deposit belongs to the creditor. Nevertheless, where the deposit is made to obtain the performance of an obligation of the creditor that is correlative to the obligation the debtor intends to perform by the deposit, the interest or income belongs to the debtor until the deposit is accepted by the creditor.

1591.  Where the obligations arising from a synallagmatic contract are exigible and one of the parties fails to perform his obligation to a substantial degree or does not offer to perform it, the other party may refuse to perform his correlative obligation to a corresponding degree, unless he is bound by law, the will of the parties or usage to perform first.

1594.  A debtor may be in default by the terms of the contract itself, when it contains a stipulation that the mere lapse of time for performing it will have that effect.

A debtor may also be put in default by an extrajudicial demand addressed to him by his creditor to perform the obligation, a judicial demand filed against him or the sole operation of law.

1617.  Damages which result from delay in the performance of an obligation to pay a sum of money consist of interest at the agreed rate or, in the absence of any agreement, at the legal rate.

The creditor is entitled to the damages from the date of default without having to prove that he has sustained any injury.

A creditor may stipulate, however, that he will be entitled to additional damages, provided he justifies them.

Appeal allowed, Bastarache and Deschamps JJ. dissenting in part.

Solicitors for the appellant:  Choquette Beaupré Rhéaume, Montréal.

Solicitors for the respondent:  McCarthy Tétrault, Montréal.