Prévost‑Masson v. General Trust of Canada, [2001] 3 S.C.R. 882, 2001 SCC 87
Thérèse Prévost‑Masson, in her capacity as
legal representative of the late Henri Masson Appellant
v.
General Trust of Canada, in its capacity as
legal representative of the late Joseph Avila Perras Respondent
and
2639‑1565 Québec inc.,
Mark Weinberg and Lucien Roy (Respondents/
Defendants before the Superior Court)
Indexed as: Prévost‑Masson v. General Trust of Canada
Neutral citation: 2001 SCC 87.
File No.: 27623.
2001: May 16; 2001: December 7.
Present: L’Heureux‑Dubé, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for quebec
Civil liability – Professional liability – Chartered accountant – Whether constituent elements of civil liability established – Whether creditor must exhaust remedies against debtors before bringing action in professional liability.
Civil law – Obligations – Obligations in solidum – Sum of money owed by two different debtors as debt for contractual liability and as balance of selling price – Whether obligations must be regarded as in solidum.
In 1988, P sold a number of lots to a company and two shareholders assumed joint and several liability for the selling price. The company later sold the lots to 2639-1565 Québec inc. and in the deed of sale 2639-1565 Québec inc. assumed joint and several liability to P for the balance of the selling price. When the term for payment of the balance of the selling price was up, P instructed M, his chartered accountant and professional adviser, to prepare a statement of account for the balance owing by 2639-1565 Québec inc. In preparing that statement, M committed an error which reduced the liability by $170,000. A notary prepared the discharges and received the payments on the basis of those figures, which 2639-1565 Québec inc. did not attempt to correct. In the months that followed, M realized his error and prepared a revised statement of account but 2639-1565 Québec inc. refused to pay. P then brought action against M and all of the debtors. The Superior Court nullified the discharge and found M professionally liable, and found all the debtors, including M, jointly and severally liable to pay P the sum of $206,000 with interest. The Court of Appeal varied the trial judgment. The court nullified the discharge in part, set aside the joint and several award and declared the debt to be indivisible within the meaning of art. 1124 C.C.L.C. It ordered M to pay P the sum of $206,000 with interest and ordered the other debtors to pay the same amount. Since the two debts were indivisible, the court declared that each of the debtors and M were liable to pay the total amount of the debt to P.
Held: The appeal should be allowed in part.
The law of delictual or contractual civil liability does not require merely a finding of fault. Damage and causality must also be proved. In this case, the professional liability of M has been established. The discharge extinguished the sureties that secured not only the payment of the debt but also the debt itself. On the date when the discharge was signed, P's legal status in relation to M crystallized. As a result of the fault committed by M, P lost his right to claim and the sureties associated with it. Since his damage was present and actual, he was not required to exhaust his remedies against the debtors before commencing his action in professional liability. In relation to M, P had a right of claim for $182,476 in damages based on his adviser's professional liability. At the same time, 2639-1565 Québec inc. and other parties were indebted for the unpaid balance of the hypothecary debt, $206,000 plus interest. The $182,476 was therefore part of a larger amount owed by 2639-1565 Québec inc., which could have been claimed both from it and from M.
Since the same sum of money was owed by two different debtors as a debt for contractual liability and as the balance of the selling price, the relationship among the co-debtors must be organized in a manner that reflects the principles of the law of obligations and concern for a fair apportionment of the legal responsibilities of each party in the situation created by the conflict. To achieve those objectives, indivisibility is an approach that is not legally available. The debts involve a sum of money owing by two different debtors and arising from separate sources. By its nature, the obligation to pay a sum of money is susceptible of division. Furthermore, the concept of passive joint and several liability, in the strict sense of that term, does not apply. The situation that the parties are in does not fall within the express terms of the instances of joint and several liability set out in the Civil Code of Lower Canada. The only concept that accurately reflects the parties' situation is obligation in solidum. That concept allows for the legal problems arising from the relationship among the co-debtors to be solved in accordance with the general principles of joint and several liability and the objectives of the law of obligations. M is therefore liable in solidum with 2639-1565 Québec inc. for a maximum of $182,476 with interest at the legal rate and the additional indemnity under art. 1078.1 C.C.L.C. Upon payment of that amount, M will be subrogated for an equivalent amount in the rights of P and may demand an equivalent contribution from 2639-1565 Québec inc.
Cases Cited
Referred to: Caisse populaire de Charlesbourg v. Lessard, [1986] R.J.Q. 2615; Caisse populaire St‑Étienne‑de‑la‑Malbaie v. Tremblay, [1990] R.D.I. 483; Leenat ltée v. Bierbrier, [1987] R.D.J. 551; Bourque v. Hétu, [1992] R.J.Q. 960; Tamper Corp. v. Johnson & Higgins Willis Faber Ltd., [1993] R.R.A. 739; Proulx v. Leblanc, [1969] S.C.R. 765; Bilodeau v. Bergeron, [1975] 2 S.C.R. 345; Goedeke‑Molitor v. Crown Trust Co., J.E. 85‑232; Hervé Rancourt Construction inc. v. Sévigny, [1989] R.R.A. 751; Lapointe c. Hôpital Le Gardeur, [1989] R.J.Q. 2619, rev’d on other grounds, [1992] 1 S.C.R. 382; Transport Brazeau inc. v. Noranda inc., [1990] R.R.A. 393; Véranda Industries inc. v. Beaver Lumber Co., [1992] R.J.Q. 1763; Cargill Grain Co. v. Foundation Co. of Canada Ltd., [1970] C.S. 145, aff’d [1975] C.A. 265, rev’d on other grounds, [1977] 1 S.C.R. 659; Berthiaume v. Richer, [1975] C.A. 638; Dostie v. Sabourin, [2000] R.J.Q. 1026.
Statutes and Regulations Cited
Civil Code of Lower Canada, arts. 1023, 1078, 1078.1, 1105, 1106, 1124.
Code of Civil Procedure, R.S.Q., c. C‑25, art. 468.
Authors Cited
Baudouin, Jean‑Louis, et Patrice Deslauriers. La responsabilité civile, 5e éd. Cowansville: Yvon Blais, 1998.
Baudouin, Jean‑Louis, et Pierre‑Gabriel Jobin. Les obligations, 5e éd. Cowansville: Yvon Blais, 1998.
Chabas, François. L’influence de la pluralité de causes sur le droit à réparation. Paris: Librairie générale de droit et de jurisprudence, 1967.
Malaurie, Philippe, et Laurent Aynès. Cours de droit civil, t. VI, Les obligations, 9e éd. par Laurent Aynès. Paris: Cujas, 1998.
Marquis, Paul‑Yvan. La responsabilité civile du notaire. Cowansville: Yvon Blais, 1999.
Mazeaud, Henri, Léon et Jean, et François Chabas, Leçons de droit civil, t. 2, vol. 1, Obligations: théorie générale, 9e éd. par François Chabas. Paris: Montchrestien, 1998.
Mignault, Pierre‑Basile. Le droit civil canadien, t. 5. Montréal: C. Théorêt, 1901.
Pineau, Jean, Danielle Burman et Serge Gaudet. Théorie des obligations, 4e éd. par Jean Pineau et Serge Gaudet. Montréal: Thémis, 2001.
Starck, Boris, Henri Roland et Laurent Boyer. Droit civil: Les obligations, t. 3, Régime général, 6e éd. par Henri Roland. Paris: Litec, 1998.
Tancelin, Maurice. Des obligations: actes et responsabilités, 6e éd. Montréal: Wilson & Lafleur, 1997.
APPEAL from a judgment of the Quebec Court of Appeal, [1999] R.R.A. 817, [1999] Q.J. No. 4446 (QL), reversing in part a judgment of the Superior Court, [1994] R.R.A. 125. Appeal allowed in part.
Jean‑Charles René, Catherine Martel and Marc Duquette, for the appellant.
G. George Sand and Olivier Tergny, for the respondent.
English version of the judgment of the Court delivered by
LeBel J. ‑‑
I. Introduction
1 This is an appeal from a judgment of the Quebec Court of Appeal awarding damages against the late Henri Masson, a chartered accountant, equal to the balance of the selling price of a number of lots formerly owned by Joseph Avila Perras, and declaring that debt and the debt of the purchasers of the lots to be indivisible. The appeal raises the issues of the accountant's professional liability, the quantum of damages, and the nature of the relationship, if such there is, between the accountant’s liability and the liabilities of certain of Perras' debtors, inter alia 2639‑1565 Québec inc., the defendant in the Superior Court. For the reasons that follow, I find that the professional liability of the appellant’s principal, the late Henri Masson, has been established. However, the quantum must be reduced, the applicable interest varied and the organization of the relationship between his liability and the liability of 2639‑1565 Québec inc. redefined. Damages are awarded against those parties in solidum. In this Court the respondent, General Trust of Canada, is acting as liquidator and legal representative of the late Joseph Avila Perras. The appellant, Thérèse Prévost‑Masson, is representing the estate of the late Henri Masson, the defendant at trial.
II. Origin of the Case
2 In 1988, Alban Perras was the testamentary executor of his father, the late Joseph Avila Perras. Since Alban Perras was living for the most part in Florida, his daughter Yvette Perras was acting as his mandatary in Quebec. At his request, she used Masson's professional services for all her father's affairs, and relied completely on Masson's advice in handling those affairs. On November 14, 1998, Perras sold several lots located south of Montreal to Les Immeubles Les Castels de Greenfield Park inc. Two of the shareholders of that company, Alfred Céré and André Pelletier, assumed joint and several liability for the selling price. On August 31, 1989, Les Immeubles Les Castels de Greenfield Park inc. itself resold the lots to 2639‑1565 Québec inc. At the time, Mark Weinberg and Lucien Roy were shareholders and directors of that company. In the deed of sale, 2639‑1565 Québec inc. assumed joint and several liability to Perras for the balance of the selling price.
3 Payment of the balance of the selling price for the lots was due on November 14, 1990. On October 9, 1990, Roy, on behalf of the new purchaser 2639‑1565 Québec inc., asked Perras for a two‑year extension. Yvette Perras, acting on behalf of her father, quickly rejected that request. The purchasers were accordingly preparing to pay the balance owing. Yvette Perras then instructed Masson to prepare a statement of account for the balance owing by 2639‑1565 Québec inc. In preparing that statement, Masson committed an error which reduced the liability by $170,000. A notary prepared the discharges and received the payments on the basis of those figures, which Weinberg and Roy did not attempt to correct, although they were aware of the error in the calculation. In the months that followed, Masson realized his error. On March 8, 1991, he prepared a revised statement of account in the amount of $187,036.30. That amount included the principal and interest owing to that date. 2639‑1565 Québec inc. refused to pay, contending that the amount paid at the time the discharges were signed was correct and reflected the agreement between the parties. Perras then brought action against Masson, Les Immeubles Les Castels de Greenfield Park inc., the jointly and severally liable debtors Céré and Pelletier, and 2639‑1565 Québec inc. and its shareholders Weinberg and Roy. He based his action on the obligations contracted in the deeds of sale and on Masson's professional fault.
III. Judicial History
A. Quebec Superior Court, [1994] R.R.A. 125
4 Hurtubise J. of the Superior Court allowed the action by Perras. First, he held that Masson was professionally liable. As an experienced accountant, he should have had accurate knowledge of his clients’ file and informed Ms. Perras of the exact balance of the selling price, including principal and interest, owing by her hypothecary debtors on a clearly specified date. His error constituted a professional fault for which he must be held liable, since Ms. Perras had been misled and induced to sign an erroneous discharge in favour of 2639‑1565 Québec inc.
5 Hurtubise J. found that 2639‑1565 Québec inc. and its shareholders, Weinberg and Roy, had committed concealment: they had obtained a discharge which they knew to be erroneous, in breach of their obligation of contractual good faith. He therefore nullified the discharge and found 2639‑1565 Québec inc. and its directors jointly and severally liable for payment of the balance owing, with the original debtors, Les Immeubles Les Castels de Greenfield Park inc. and its sureties Céré and Pelletier. He found all those debtors, including Masson, jointly and severally liable to pay $206,743.79, with interest at the rate of 12 percent as provided in the deed of sale, compounded semi‑annually beginning on January 14, 1992.
6 Masson, Weinberg, Roy and 2639‑1565 Québec inc. appealed to the Quebec Court of Appeal. Masson disputed his professional liability and challenged the legal basis of the joint and several award of damages. Weinberg and Roy argued that the Superior Court could not lift the corporate veil and hold them personally liable for the debt as directors of the company. They reiterated their argument that there had been an agreement with Perras and that the discharge was valid. The original debtors, Les Immeubles Les Castels de Greenfield Park inc., Céré and Pelletier, did not appeal.
B. Quebec Court of Appeal, [1999] R.R.A. 817
7 For the reasons stated by Denis J.A., the Quebec Court of Appeal varied the judgment of the Superior Court. First, the Court found that Masson was professionally liable. He had for a long time been responsible for Perras' accounting and tax returns. Before 2639‑1565 Québec inc. paid the debt and was given a discharge, the accountant ought to have correctly applied the instalments paid by the debtor and provided his client with an accurate statement. In the view of the Court of Appeal, the professional fault was apparent and was the cause of the loss incurred.
8 The Court of Appeal also rejected the arguments made by 2639‑1565 Québec inc. regarding the validity of the discharge. This issue raised a problem of credibility that had been disposed of by the trial judge. However, since the court was of the view that Weinberg and Roy had not incurred a personal obligation to Perras, it set aside the award of damages made against them. It also held that the discharge could be nullified only in respect of an amount equivalent to the amount of Masson's computational error. It remained valid in part, for a maximum amount equal to the payment made by 2639‑1565 Québec inc.
9 The Court of Appeal held that 2639‑1565 Québec inc., Les Immeubles Les Castels de Greenfield Park inc., Céré and Pelletier were still contractually liable for payment of the balance of the debt. Masson was also found to be contractually liable based on his relationship with Perras, which was for professional services. His error had deprived the estate of the monies to which it was entitled, and the discharge signed on his recommendation had extinguished the sureties which secured the debt. The damage suffered by Perras was therefore present and actual. Each party therefore owed contractual obligations arising from separate sources. The court set aside the joint and several award by the Superior Court and declared the debt to be indivisible within the meaning of art. 1124 C.C.L.C. It therefore ordered Les Immeubles Les Castels de Greenfield Park inc., Céré and Pelletier, and 2639‑1565 Québec inc., to pay Perras $206,743.79 with interest at the rate of 12 percent per annum. It also ordered Masson's estate to pay that same amount. Since the two debts were indivisible, the Court then declared that each of the debtors and Masson were liable to pay the total amount of the debt to the creditor. In response to that judgment, Masson appealed to this Court. 2639‑1565 Québec inc. did not challenge the decision of the Court of Appeal and is no longer a party to the proceedings.
IV. Legislation
10 Civil Code of Lower Canada
1023. Contracts have effect only between the contracting parties; they cannot affect third persons, except in the cases provided in the articles of the fifth section of this chapter.
1078. Interest accrued from capital sums also bears interest:
1. When there is a special agreement to that effect;
2. When in any action brought such new interest is specially demanded;
3. When an administrator of the property of others has received or ought to have received interest on the moneys of the minor, the protected person of full age or the beneficiary of the administration and has failed in his obligation to invest it within a reasonable time or within the term prescribed by law.
1078.1 The amount awarded by judgment for the inexecution of an obligation, except that contemplated in article 1077, bears interest at the legal rate, or, where such is the case, at the rate lawfully agreed between the parties, from the date of the institution of the action.
There may be added to the amount so awarded, or to the amount awarded by judgment for the inexecution of an obligation contemplated in article 1077, an indemnity computed by applying to the amount, from such date, a percentage equal to the excess of the interest rate fixed according to section 28 of the Act respecting the Ministère du revenu (R.S.Q., chapter M‑31) over the legal interest rate or over the agreed rate, as the case may be.
1105. An obligation is not presumed to be joint and several; it must be expressly declared to be so.
This rule does not prevail in cases where a joint and several obligation arises of right by virtue of some provision of law.
Nor is it applicable to commercial transactions, in which the obligation is presumed to be joint and several, except in cases otherwise regulated by special laws.
1106. The obligation arising from the common offence or quasi‑offence of two or more persons is joint and several.
1124. An obligation is indivisible:
1. When it has for its object something which by its nature is not susceptible of division, either materially or intellectually;
2. When although the object of the obligation is divisible by its nature, yet from the character given to it by the contract, this object becomes insusceptible not only of performance in parts but also of division.
V. Analysis of Issues
11 The issues before this Court were narrowly framed. Essentially, the issue is whether damage was done and whether there was a causal connection. The professional fault committed by the accountant, Masson, is no longer in question. Although the appellant did not formally admit that fault, she denied Masson’s liability on the basis that the other constituent elements of civil liability are not present.
12 In the alternative, the appellant disputed the quantum of the award and the arrangements for payment of the award. This part of the appeal relates primarily to the conclusion by the Court of Appeal that the debt is indivisible. In the submission of the appellant, the concept of indivisibility does not apply. The decision of the Court of Appeal violates the principle of privity of contracts by making Masson a joint and several co‑debtor for the balance of the selling price of the properties. If a fault was committed, the quantum must be determined as at the date of the discharge and cannot bear interest other than the legal interest and the additional indemnity provided in art. 1078.1 C.C.L.C. The appellant added that the award in solidum should have been made only with respect to an amount estimated at $182,476.88 with interest and the additional indemnity. From a practical standpoint, varying the award on that basis would considerably reduce the quantum of the debt. If the legal interest and additional indemnity provided by the Civil Code of Lower Canada were applied solely to the principal owing by the estate of Masson, the amount of the award would drop from just over $600,000 (including contractual interest and anatocism) to approximately $300,000.
13 The respondent vigorously defended the judgment. It criticized the appellant for reviving the theory of subsidiarity of an action for professional fault, which has of late been discredited by the Quebec courts. Masson's fault was proved, and the existence and quantum of damages was established. Under the Civil Code of Lower Canada, the Court of Appeal had the authority to find that the debt was indivisible by reason of the nature of the legal relationship among the co‑debtors. On the question of causality, the respondent added that it was impossible to restore the parties to their original condition, even after nullifying the discharge signed on December 21, 1990, in part, since transactions involving the lots had taken place since that date. On that point, the parties filed a number of documents virtually the day before the hearing, which were intended to establish that there had or had not been damage. Those documents have in common that they were filed late and were not in the record on appeal, although they were in the record at trial.
14 The parties have thus submitted two main questions for the Court's consideration, along with a number of sub‑questions. I will consider first the causality of the fault committed by Masson and the evidence of damage. I will then examine the conclusion of the Court of Appeal that the debts were indivisible and its consequences on the quantum of the award. It will also be recalled that this case is subject to the provisions of the Civil Code of Lower Canada.
A. Causality and Damage
15 The appellant correctly pointed out that the law of delictual or contractual civil liability does not require merely a finding of fault. Damage and causality must also be proved. The appellant argued that although the accountant’s fault was established, the other constituent elements of civil liability were not. In substance, she argued that the damage had not occurred at the time the proceedings were commenced. She added that it was impossible to prove the existence and quantum of the damage before establishing that the parties could not be restored to their original condition because the debt could not be recovered. Whether there was damage, and the evidence of that damage, depended on the steps that the Perras estate should have taken to recover after the discharge was nullified. It was only after that stage that the conditions on which an action against the accountant could be commenced would have been met.
16 This argument is based on an erroneous analysis of the legal situation created by the discharge signed on December 21, 1990. That discharge extinguished not only the sureties that secured the payment of the debt, but also the debt itself. The terms of the discharge are clear on that point:
[translation] WHICH amounts of principal and interest being now paid and discharge given, the party appearing herein gives a general and final discharge and requires the Registrar of the Chambly registry office to strike out all rights, privileges, hypothecs, effects of the giving‑in‑payment clause and all other rights created in its favour by registration of the deeds described above and registered as stated above as Numbers 800271, 826127, 800270 and 826128.
THE within Discharge revokes and nullifies all receipts previously given.
17 On December 21, 1990, Perras' legal status in relation to Masson crystallized. As a result of the fault committed by Masson, Perras lost his right to claim and the sureties associated with it. Since his damage was present and actual, he was not required to exhaust his remedies against the debtors before commencing his action in professional liability. In relation to Masson, Perras had a right of claim based on his adviser’s professional liability. The claim was equivalent to the loss incurred, which was established as $182,476.88 in principal and interest as at December 21, 1990. The conditions on which a civil liability action against Masson could be commenced had then been met. A fault had been committed, and damage resulting from that fault had been established. Contrary to the appellant’s argument, the damage was not purely contingent in nature. The existence and determination of that damage did not depend on the recovery proceedings that Perras could have commenced against his debtors having been exhausted.
18 The appellant’s argument revives the theory of the subsidiarity of an action for professional liability. That theory was strongly criticized in a judgment by Lesage J. of the Quebec Superior Court in 1986. The criticism prompted a radical change in the case law. As Lesage J. stated, the theory enjoyed considerable popularity in the case law before 1986, particularly in the area of notarial liability. When problems relating to professional liability were brought before the courts, they had to determine whether there had been damage and whether the quantum of the damage had been established. (See Caisse populaire de Charlesbourg v. Lessard, [1986] R.J.Q. 2615, at p. 2622.) Once the existence of damage had been proved, there was no further impediment to an action against the professional. In other words, the approach that was taken in the past placed a person who committed a professional fault in the same position as a mere surety who was entitled to demand that remedies against the other debtors be exhausted. An action in professional liability was subject at that time to a sort of prior obligation of discussion. Since that time, the courts have rejected that approach and acknowledged that an action may be brought immediately once the existence and the quantum of damage are established. (See Caisse populaire St‑Étienne‑de‑la‑Malbaie v. Tremblay, [1990] R.D.I. 483 (C.A.); Leenat Ltée v. Bierbrier, [1987] R.D.J. 551 (C.A.); Bourque v. Hétu, [1992] R.J.Q. 960 (C.A.); Tamper Corp. v. Johnson & Higgins Willis Faber Ltd., [1993] R.R.A. 739 (C.A.); P.‑Y. Marquis, La responsabilité civile du notaire (1999), at pp. 48‑52; J.‑L. Baudouin and P. Deslauriers, La responsabilité civile (5th ed. 1998), at p. 929.)
19 The respondent, relying on the validity of its cause of action, did not believe that it was required to adduce evidence at trial of the legal situation created by the discharge and the subsequent transactions. The problems that arose in this case show, however, that it would have been better to provide the trial judge with a clear picture of the situation. In this Court, and at this late point, the parties sought to establish what had occurred, in order to argue the issue of whether the parties could be restored to their original condition if the discharge were nullified in part. The Court of Appeal did indeed find that this could not be done. It must be acknowledged that while this conclusion was certainly plausible and logical, the factual basis for it was sketchy, not to say non‑existent, given the contents of the appeal record. The explanations given to the Court regarding the registration of other hypothecary charges on the properties and regarding subsequent transactions seem reasonable. However, the comments made at the hearing, and the incomplete documentary evidence, filed late, are a poor substitute for proper evidence. Proper evidence would not have compromised the legal positions of the parties, but would have provided the courts with more complete information and thus avoided what may have been pointless debate. The fact remains, however, that ten years later, the Perras estate has still not had its debt repaid. As noted earlier, the amount of that debt has been established and there is a valid cause of action against Masson.
20 However, it is important that the legal situation created by Masson’s fault and the subsequent signing of the discharge be properly understood. On December 21, 1990, after that discharge was signed and the payments had been received from its debtors, the Perras estate acquired a claim for $182,476.88 against Masson in contractual damages. At the same time, 2639‑1565 Québec inc. and other parties were indebted for the unpaid balance of the hypothecary debt, interest in respect of which was established in accordance with the earlier deeds of sale. The $182,476.88 was part of a larger amount owed by 2639‑1565 Québec inc.,which could have been claimed both from it and from Masson.
B. The Problem of Indivisibility and Joint and Several Liability
21 This situation created a legal problem that the Court of Appeal believed it had solved by finding that the debts were indivisible, since the same sum of money was owed by two different debtors as a debt for contractual liability and as the balance of the selling price. In a case like this, the law of obligations allows the creditor to recover its debt effectively, but it may not be overcompensated. For one thing, the creditor cannot be permitted to recover its debt twice. For another, the relationship among the co‑debtors must be organized in a manner that reflects the principles of the law of obligations and concern for a fair apportionment of the legal responsibilities of each party in the situation created by the conflict. To achieve those objectives, the Superior Court found liability to be joint and several, and the Court of Appeal found it to be indivisible.
22 With respect, the Civil Code of Lower Canada does not provide for indivisibility in such a case. Article 1124 C.C.L.C. provides:
1124. An obligation is indivisible:
1. When it has for its object something which by its nature is not susceptible of division, either materially or intellectually;
2. When although the object of the obligation is divisible by its nature, yet from the character given to it by the contract, this object becomes insusceptible not only of performance in parts but also of division.
23 This is certainly not a case in which the object of the obligation is insusceptible of division, since it consists of a sum of money. We are not concerned, for example, with the delivery of a certain and determinate physical object, such as a vehicle.
24 The debts involve a sum of money owing by two different debtors and arising from separate sources. By its nature, the obligation to pay a sum of money is susceptible of division. There is virtually no disagreement in the literature on this point. (See P.‑B. Mignault, Le droit civil canadien, t. 5, 1901, at p. 505; J.‑L. Baudouin and P.‑G. Jobin, Les obligations (5th ed. 1998), No. 627, at p. 486; J. Pineau and S. Gaudet, Théorie des obligations (4th ed. 2001), No. 400, at pp. 687-88; M. Tancelin, Des obligations: actes et responsabilités (6th ed. 1997), Nos. 1336‑38, at pp. 683‑84.) Certainly, the Court of Appeal intended to say that the sum of money owing as a result of this proceeding could be recovered from any one of the debtors. Indivisibility was an approach that was not legally available in the circumstances of this case.
25 Furthermore, the concept of passive joint and several liability, in the strict sense of that term, does not apply. Article 1106 C.C.L.C. deals with delictual liability and does not relate directly to a legal situation in which two debts involving the same sum of money arise from two separate sources. The appellant submits that the only concept that accurately reflects the situation is obligation in solidum. A French writer, F. Chabas, has provided a clear statement of the sometimes fine distinctions among the concepts of joint and several obligations, indivisible obligations, and obligations in solidum. The purpose of the last‑named concept is to organize the manner in which more than one debt relating to a single object may coexist.
[translation] In joint and several obligations, the object of the obligation is divided: there is more than one debt, and each represents a fraction; the joint and several liability relates solely to the mutual representation of the co‑debtors. In obligation in solidum, the object of the debt is not divided; there is more than one debt for the whole amount. In indivisible obligation, there is more than one debt, each for a fraction, as in the case of joint and several obligations, but it is impossible to divide the object of the obligation: payment can be made only in full, and each indivisible debtor is liable to pay the whole, not because it represents the others – it does not represent them –, or because it owes the whole – it owes only its share –, but because the whole is indivisible. [Emphasis in original.]
(H., L. and J. Mazeaud and F. Chabas, Leçons de droit civil, t. 2, vol. 1, Obligations: théorie générale (9th ed. 1998), at p. 1124)
26 Passive joint and several liability is one of the principal mechanisms created by the law of obligations to facilitate execution of an obligation against more than one debtor and to organize the legal relationship among them. As Chabas points out, it is based on a concept of mutual representation. (See also Baudouin and Jobin, supra.) In the event that a debt is susceptible of division, passive joint and several liability enables the creditor to look to any one of the debtors, leaving them to debate the appropriate apportionment of the payment among themselves. What art. 468 C.C.P. does is to create a convenient procedural vehicle for resolving a debate of that kind.
27 The situation that the parties are in does not fall within the express terms of the instances of joint and several liability set out in the Civil Code of Lower Canada. In French civil law, where the Civil Code did not contain a provision similar to art. 1106 C.C.L.C. regarding joint and several liability in delictual liability matters, the authors and the courts developed the concept of imperfect joint and several liability or obligation in solidum. As Chabas points out, that theory made it possible to organize the legal rules governing diverse but concurrent debts the object of which was the same, at least in part. (See Mazeaud and Chabas, supra, and F. Chabas, L’influence de la pluralité de causes sur le droit à réparation (1967), at pp. 23 et seq.; P. Malaurie and L. Aynès, Cours de droit civil ‑‑ Les obligations (9th ed. 1998), vol. VI, at pp. 707 et seq.; B. Starck, H. Roland and L. Boyer, Les obligations, t. 3, Régime général (6th ed. 1998), at pp. 111 et seq.)
28 This concept, which has been criticized frequently in French law and on which opinion is not unanimous among the authors in Quebec, is derived from the general concept of joint and several liability and is consistent with the general policy of that part of the law of obligations, which is to protect the creditor while allowing for a fair apportionment of obligations among the debtors. The incorporation of that concept in Quebec civil law as art. 1106 C.C.L.C., which allowed a victim of damage that was caused by several separate delictual faults to look to any one of the debtors for compensation, was consistent with that legal policy.
29 Obligation in solidum, as has been recognized by the courts, reiterates the fundamental elements of the institution of joint and several liability. When two debts relate to the same object, it allows the creditor to look to any one of the debtors for payment. The debtor who has paid is then subrogated in the rights of the creditor against its co‑debtor. In practice, this concept has been applied frequently by the courts in Quebec law. (Proulx v. Leblanc, [1969] S.C.R. 765; Bilodeau v. Bergeron, [1975] 2 S.C.R. 345; Goedeke‑Molitor v. Crown Trust Co., C.A. Montréal, February 5, 1985, J.E. 85‑232; Hervé Rancourt Construction inc. v. Sévigny, [1989] R.R.A. 751 (C.A.); Lapointe v. Hôpital Le Gardeur, [1989] R.J.Q. 2619 (C.A.), rev’d on other grounds, [1992] 1 S.C.R. 382; Transport Brazeau inc. v. Noranda inc., [1990] R.R.A. 393 (C.A.); Véranda Industries inc. v. Beaver Lumber Co., [1992] R.J.Q. 1763 (C.A.)) However, other decisions, sometimes by the same courts, have expressed more reservations. (See Cargill Grain Co. v. Foundation Co. of Canada Ltd., [1970] C.S. 145 (aff’d [1970] C.A. 265, rev’d on other grounds [1977] 1 S.C.R. 659); Berthiaume v. Richer, [1975] C.A. 638; Baudouin and Jobin, supra, at pp. 477‑78).
30 Baudouin and Jobin, supra, at p. 478, expressed the effects of an obligation in solidum as follows:
[translation] In effect, insofar as it is agreed that since (perfect) joint and several liability is an exceptional regime, (perfect) joint and several liability will exist only where the legislature has expressly prescribed it, or where the parties have clearly agreed to it, and that, in addition, the secondary effects of joint and several liability do not arise in imperfect joint and several liability, the purpose of the category is apparently to clarify the law in certain circumstances where debtors are liable for an identical object but are not subject to the secondary effects of joint and several liability. Thus, the category of obligations in solidum allows for expeditious determination of how two debtors for the same amount of money, arising under separate legal instruments not resulting in perfect joint and several liability, are each liable for the full amount and not for a share pro rata, and how full payment by one results in extinction of the debt and entitles that debtor to an equivalent contribution from the other debtor.
(See Proulx v. Leblanc, [1969] B.R. 461, aff’d [1969] S.C.R. 765.)
31 A recent decision of the Quebec Court of Appeal adopted this concept of obligation in solidum to solve a problem resulting from the application of a penalty clause securing a non‑competition obligation in a sale of the shares of a company. (See Dostie v. Sabourin, [2000] R.J.Q. 1026 (C.A.)) In that case a notary had knowingly facilitated the violation of a non‑competition obligation by advising the parties to a transaction and preparing the legal instruments required for it. The creditor then looked to his debtor but also to the notary who had acted in the transaction.
32 The Quebec Court of Appeal held that there was no doubt as to the notary’s liability. It was argued, and accepted by Chamberland J.A. in his dissenting opinion, that the notary could be held both wholly and jointly and severally liable for the entire claim, including the claim resulting from the penalty clause. To explain the legal situation created by the existence of both an extra‑contractual debt and a contractual obligation, the majority of the Court of Appeal, for the reasons stated by Dussault J.A., relied on the concept of obligation in solidum (see p. 1038). The principle of the privity of contracts prohibited treating the notary as a co‑debtor of the penalty clause. Dussault J.A. then found (at p. 1039) that there was an obligation in solidum with respect to the notary, limited to the quantum of damages that could be attributed to his personal fault:
[translation] Since Dostie, Fortier and Charland contributed to the damage suffered by Sabourin, Dostie by his contractual fault and Fortier and Charland by their delictual faults, I find, like my colleague Chamberland J.A., without disposing of the question other than under the Civil Code of Lower Canada, that an obligation in solidum has arisen; in my view, however, that obligation exists only with respect to compensation for the damage actually suffered by Sabourin, that is, a loss in the amount of $25,000. The contractual damages resulting from the per diem penalties provided in the non‑competition clause amount to $90,000. Dostie, who alone signed that clause, must therefore pay the full amount of the remaining penalty, $65,000.
For these reasons, I would find Dostie to be contractually liable and order him on that basis to pay $65,000 as a comminatory penalty and to pay $25,000 as a compensatory penalty in solidum with Fortier and Charland, both of whom of are delictually liable.
33 The concept of obligation in solidum allows for the legal problems arising from the relationship among the respondent’s co‑debtors to be solved in accordance with the general principles of joint and several liability and the objectives of the law of obligations. Masson was undeniably liable for damage that occurred on December 21, 1990, in the amount, as at that date, of $182,476.88. The defendant 2639‑1565 Québec inc. is also liable for the contractual amount of $206,000 plus interest at the agreed rate. The object of the two debts is in part the same.
34 As among the defendants, the obligations must be regarded as in solidum. This arrangement allows the respondent to look to Masson for recovery of the balance of $182,476 with interest at the legal rate and the additional indemnity under art. 1078.1 C.C.L.C. The effect of the payment will be that this arrangement also allows Masson to be subrogated in the rights of Perras and to demand an equivalent contribution from 2639‑1565 Québec inc., and from any other party was still indebted in respect of the balance of the selling price. Payment by Masson will leave a balance for which 2639‑1565 Québec inc. will be indebted to General Trust, and for which General Trust could, as liquidator, exercise the rights and realize on the sureties of the Perras estate, if any still exist.
VI. Conclusion
35 For these reasons, the appeal should be allowed in part. The disposition by the Court of Appeal should be varied to declare that the appellant is liable in solidum with 2639‑1565 Québec inc. for a maximum of $182,476.88 with interest at the legal rate and the additional indemnity under art. 1078.1 C.C.L.C., and that, upon payment of that amount, she will be subrogated for an equivalent amount in the rights of the respondent against 2639‑1565 Québec inc., with costs in this Court to the appellant, but without varying the costs awarded in the courts below.
Appeal allowed in part with costs.
Solicitors for the appellant: Ogilvy Renault, Montréal.
Solicitor for the respondent: G. George Sand, Montréal.