BIJURALISM IN SUPREME COURT OF
CANADA JUDGMENTS SINCE THE ENACTMENT
OF THE CIVIL CODE OF QUEBEC

4. Contracts

The law of contracts affords significant distinctions for comparison purposes. As the civil law is the jus commune of Quebec, certain public law provisions enacted by the civil code form a barrier to the freedom of contract that is generally the rule in the common law tradition.

Employment and insurance contracts are two specific forms of contract, and adhere to the general rules but are subject to their own conventions. The following judgments address the principles governing each and the specific rules of application in both civil and common law.

4.1 Contracts of Employment

Farber v. Royal Trust Co. [1997] 1 S.C.R. 846

Farber v. Royal Trust Co. originated in Quebec and concerned constructive dismissal and resulting damages.

Gonthier J., writing for the Court, held that the doctrine of constructive dismissal is not a common law concept incorporated in the civil law. He recalled that the Supreme Court had repeated on many occasions, "The civil law is a complete system in itself; care must be taken not to adopt principles from other legal systems." (par. 31)

He emphasized that, for a legal principle to be applicable in the civil law, it must above all be justified within the system itself. It may of course be interesting in some cases, such as the one at bar concerning constructive dismissal, to consider solutions applied to a problem in another legal system, but only from a comparative standpoint.

To support the contention that the principle of constructive dismissal had long been widely applied, he chose to cite a 1985 constructive dismissal case (Lavigne v. Sidbec-Dosco Inc. [1985] C.S. 26, p. 28) in which Hassan J. of the Superior Court of Quebec summed up the state of the law on the question:

Caution must be exercised in adopting unreservedly common-law concepts of contract in two cases arising under the Civil law, except where there is useful necessity and authoritative precedent. However, in the case of lease and hire of personal services, in Quebec, the doctrine of constructive dismissal has been recognized. (p. 28)

Gonthier J. then briefly reviewed the principles of constructive dismissal applicable in civil law and common law.

In Quebec, the contract of employment is governed by the civil law, in particular the Civil Code. Although the facts of the case occurred before the new code came into force, the Court emphasized that the Civil Code of Quebec did not appear to have amended the law applicable in this field.

The Civil Code provides that the general rules of contract apply to the contract of employment (article 1670 C.C.L.C.). A contract is binding between the parties as they are required to comply with their undertaking (article 1022 C.C.L.C.). The parties may not unilaterally amend the obligations which they have undertaken in the contract.

In the case of a contract of indeterminate duration, a party may terminate the contract unilaterally. If an employer terminates a contract, that action constitutes dismissal and the employee is entitled to reasonable notice of the breach of contract or to compensation in lieu of notice (article 1688 C.C.L.C.). Where an employer unilaterally and materially amends the essential conditions of an employee's contract of employment and the employee leaves his employment because he does not accept those amendments, the result is a "constructive dismissal" in view of the fact that there has been no formal dismissal.

Courts in the common law provinces have established that unilaterally imposing a fundamental or substantial amendment to an employee's contract of employment in contravention of the conditions of the contract constitutes a fundamental breach of that contract. That breach results in the termination of the contract and permits the employee to seek damages in lieu of reasonable notice for constructive dismissal.

Gonthier J. concluded, on the principle which he had previously established, that, in view of the similarity between the rules respecting constructive dismissal in the two systems of law, it is appropriate to consider the decisions of the courts in common law and civil law jurisdictions to determine what has been characterized as fundamental changes to a contract of employment resulting in its termination.

The courts in both Quebec and the common law provinces have characterized demotion, unilateral change in the method of computing remuneration and significant reduction of an employee's income imposed by the employer as constructive dismissal. The Court held in this instance that these three aspects were present and amounted to substantial changes to essential conditions to the contract of employment.

4.2 Contracts of Insurance

Chablis Textiles Inc. (Trustee of) v. London Life Insurance Co. [1996] 1 S.C.R. 160

In Chablis Textiles Inc. (Trustee of) v. London Life Insurance Co., the Court considered the temporal scope of suicide exclusion clauses in life insurance contracts. The case originated in Quebec.

Gonthier J. emphasized that, since the reform of insurance law in Quebec, suicide was no longer a legal basis for exclusion of risk. The insurer thus now had to exclude coverage in cases of suicide by agreement, but the scope in time of the exclusion clause was limited to two years, after which it could no longer have effect under article 2532 C.C.L.C. The common law imposes no such limit, as the will of the parties expressed in the agreement is the reference point.

Gonthier J. cited L'Heureux‑Dubé J.'s remarks in Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 647, at page 667, to recall certain considerations which must guide the interpretation of insurance contracts in general:

In construing the terms of an insurance contract, it is now well recognized that the principles of construction which apply are the same as those generally applicable to commercial contracts. Indeed, some of these principles have been codified in the Civil Code in articles 1013 to 1021. Thus, should a contract need interpretation, the cardinal rule is that the intention of the parties must prevail, subject of course to the public order provisions of the Civil Code.

Gonthier J. observed that article 2476 C.C.L.C. provides for the formation of an insurance contract in civil law and that such a contract is formed "upon the insurer's acceptance of the policyholder's application". This provision is the specific codification of the general civil law rule that a contract is formed as a result of the meeting of minds.

Lastly, the Court emphasized that it is clear that "insurance law must develop in harmony with the rest of Quebec civil law, of which it forms a part, although North American insurance practices, such as backdating, cannot be ignored." (par. 30) The Court found that certain common law decisions, such as McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada [1981] 2 S.C.R. 6, an appeal from an Ontario decision, are of interest for comparative purposes even though they do not have a decisive influence on the outcome of appeals originating in Quebec. The Court contended that the point at issue in this case, as in McClelland, in order to determine the starting date of the exclusion period, was to identify the parties' intentions as to the effective date of the contract regardless of the fact that that date had been determined by agreement between the parties or by the provisions of the Civil Code. The Court concluded that the parties in both cases had resorted to backdating.

Perron-Malenfant v. Malenfant [1999] 3 S.C.R. 375

Perron-Malenfant v. Malenfant concerns the seizability of the cash surrender value of a life insurance policy in case of bankruptcy.

In bankruptcy, Parliament has exercised its jurisdiction by enacting the Bankruptcy and Insolvency Act. The provisions of Quebec statutes exempting life insurance policies from seizure and those contained in the Uniform Life Insurance Act of the common law provinces are incorporated in it by reference. Thus, under the act, the rule is that all rights conferred by a seizable insurance policy may be seized, in particular the right to the cash surrender value of the policy, except where otherwise provided by provincial statute.

Gonthier J. explained that Quebec insurance law underwent a thorough reform as part of the broader movement to revise the Civil Code. The legislator's intention had been to create a "comprehensive unseizability code" for life insurance contracts within the Civil Code of Quebec itself, as may be seen from articles 2552 and 2554. These articles supplanted the established civil law principle, the basis of which however still exists in common law, that the right to surrender a policy is a "personal right" that may not be exercised by the insured's creditors (article 1031 C.C.Q. and earlier case law on the subject).

Articles 2552 and 2554 C.C.Q. entrench the unseizability of two classes of policies, those in which the beneficiary is the spouse, descendant or ascendant of the policyholder, and those in which the policyholder designates himself as irrevocable beneficiary of his own policy. These classes do not include the type of policy involved in this case since the beneficiary was the spouse of "the insured" and the policyholder spouse designated herself a "revocable beneficiary" of the insured. The general provisions of the Bankruptcy and Insolvency Act were thus applicable in this case and rendered the policy seizable by the trustee for the purposes of allocating the cash surrender value among the creditors of the insured.

The Court noted that the Quebec legislature defined the class of unseizable family life insurance policies on the basis of the beneficiary's relationship to the policyholder, not to the insured, as provided by the Uniform Life Insurance Act of the common law provinces. On this point he cited a passage from David Norwood's treatise, Norwood on Life Insurance Law in Canada, at pages 249 and 250, explaining the historical reason for the difference between the two legal systems:

The distinction between the common law provinces and Quebec is historical in that the original Uniform Act statutory trust extended to all policies, so that the common denominator was the life insured, whereas Quebec's Husbands' and Parents' Life Insurance Act was applicable only to personal policies owned by the insured on the insured's own life, so that the protection rested upon the relationship between the policyholder and the beneficiary.

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