17 February 2020
Inform yourself and look after the conduct of your Business!
By: Antoine Hammam
That is one of the key messages of the Court of Appeal in a recent decision, where it revisits the underlying principles of the duty to inform in Quebec civil law, as established by the Supreme Court of Canada in 1994 in Banque de Montréal v. Bail Ltée.
The matter concerns an appeal against a Superior Court decision dismissing the Appellant’s claim against the Borrower (a trust) and its guarantor (an individual) for reimbursement of a hypothecary loan. In her defense, the guarantor invoked, inter alia, an exception of subrogation due to the plaintiff’s alleged failure to respect its duty to inform.
The trust was the debtor of two distinct hypothecary loans secured against an immovable that it owns. Its debts were owed to two different private lending corporations but controlled by the same sole director and shareholder. As for the guarantor, she was only liable for the second-ranking loan.
Following the Trust’s failure to repay its debt, the creditor of the first ranking loan took the immovable in payment, without contestation by either the trust or the guarantor. The immovable was sold to a third-party about 18 months later with substantial profit for the creditor, which lead the guarantor to believe that she was liberated from the debt. Evidently, this was not the case.
The guarantor maintains that she was prejudiced by the first ranking creditor’s default to inform her, in due time, of its intention to take the immovable in payment.  Had the creditor done so, the guarantor would have possibly availed herself of her right to demand the abandonment of the taking in payment proceedings and force a sale under judicial authority, or, alternatively, to pay the second-ranking debt and be substituted in the rights of the hypothecary creditor.
The Court of Appeal, in reiterating the principles established in Bail, highlights that the “positive obligation to inform is triggered only when an individual is in a position of informational vulnerability that may cause it to suffer prejudice” (free translation). On this basis, a person cannot invoke that the other party to a contract, or a third party altogether, failed to bring its attention to any particular information, when such information was reasonably accessible, upon request, or in any other fashion.
The province’s highest Court overturned the judgment rendered by the trial Court, faulting the guarantor for her own failure to inform herself. Given that the guarantor had – or could have obtained – the information in question and given that she was not in a position of informational vulnerability, no fault could be attributed to the lender.
This is an interesting emphasis on the duty to inform oneself, which is an aspect of the duty to inform that is often overshadowed by the better-known duty to inform the other.
This duty to inform oneself should not be used as an incentive for lenders to rest on their laurels. Borrowers frequently find themselves in a position of information vulnerability compared to their co-contractors. Proactivity, therefore, remains the least expensive and preferred prevention tool even in the absence of a legal imperative. Without having to drown the debtor in a sea of information, caution remains the best advice.
If you are a lender, always consider the potential consequences on your counterparty’s – and any third-party’s – rights before taking legal action or exercising a contractual right, and be wary of your decisions’ propensity to cause prejudice to others. Such is the case, for instance, when you reduce or modify the guarantees that were given to you without advising the guarantor. The latter may be rightful to hold it against you. When in doubt, do not hesitate to err on the side of transparency.
If you are a borrower or a guarantor, on the other hand, be vigilant and deploy all reasonable efforts to actively inform yourself, especially when legal proceedings are taken – or about to be taken – against you.
In all cases, the advice of a lawyer will help you determine the most suitable course of action in your particular circumstances.
 Gestion Biltmore Inc. c. Fiducie Familiale et Martyne Huot, 2020 QCCA 43;   2 R.C.S. 554;  Article 2365 C.C.Q.; This argument was brought up proprio motu by the trial judge;  The resale price was sufficient to cover the balance of both debts, including interests and fees;  The guarantor had, however, received a copy of the creditor’s prior notice of exercise of its hypothecary right, a fact which seems to have been excluded by the trial Judge;  Article 2779 C.c.Q.; this would have potentially allowed the guarantor to be liberated if (1) the sale was made at a sufficient price to repay both debts, or, alternatively, via articles 1695 et seq. C.C.Q. if one of the creditors acquired the immoveable;  Article 1656 (3°) C.C.Q.