Archive for November, 2014

Things That Make You Think “Hmmmm”

Tuesday, November 18th, 2014

Okay, so I have to admit that I’m not particularly original.  I end many blog posts with “Something to think about”.  For those who are 30 years old or more, you will remember the ORIGINAL Arsenio Hall Show and his segment of “Something to make you think HMMMM” that was usually during his monologue at the beginning of the show.  Make a slight twist to this and there’s my end line for each post.  I have never professed to be original and full props to Arsenio.

In any event, there I was sitting in Mass like a good little boy a couple of weeks ago and listening to the Second Reading and it’s from the First Letter to the Corinthians from St. Paul at Chapter 15, Verses 51 through 57.  And the lector is reading and I’m following along and everything is fine until the lector gets to Verse 56 and reads:

“The sting of death is sin; and the power of sin is the law.”

Um, excuse me?  OK, let me get this straight.  Are you, St. Paul, saying that as an officer of the law, and thus an agent of the law, I’m also an agent of sin?  I’ve heard of being the Devil’s Advocate before but this is a bit more than a label being stuck on here.

Maybe I heard it wrong.  So I make it home and pull out my French Bible to see if there was a problem in translation.  Nope, the French version is basically the same as the English version:  “L’aiguillon de la mort, c’est le péché; et la puissance du péché, c’est la loi.”  To make matters more interesting, there are no “side notes” to suggest that Saint Jerome or anyone after him made an error in translation.

So the power of sin is the law, eh?  Is that Roman law?  Jewish law?  Eccclesiastical law? Or “the law” in general?  And what if it is a general reference?  Interesting thought and, I have to admit, that for the past couple of weeks it’s been,

Something to think about.

CALC

 

 

Good Faith Performance of Contracts

Friday, November 14th, 2014

When I was a law student at McGill, one of the main areas where the Quebec civil law for contracts was different from the common law for contracts used in the rest of Canada was with respect to the imposition of a general duty of good faith performance of contracts.  As I practised in Ontario in the years that followed, this distinction was made quite explicit and the Ontario Court of Appeal re-affirmed from time to time that there was no such general duty.  Not surprisingly, though, as I gained experience of the “real world”, I would be asked by my clients from time to time if they could do something that they knew the other side of a contract would object to, but which was within the strict wording of the contract.  My answer became something along the lines of “strictly speaking, you are entitled to do this since it is clearly within the letter of the contract.  That said, you never know what a judge is going to do and if he/she thinks that you have broken the spirit of the contract – which this probably does – then you should be concerned that a judge might try to find a way to find against you because of this.  Happily, though, there is no general duty of good faith performance in contract law, so the chances of a judge doing this are minimized.”  Well, thanks to a decision of the Supreme Court of Canada yesterday in Bhasin, the last part of this advice will have to be scrapped.

In Bhasin, the contract had a renewal clause and provided that it would renew automatically unless either party gave notice at least six months before the end of the contract’s term that they did not wish to renew the agreement.  The defendant was involved in attempts to move the business from the plaintiff to a different party and, for lack of a better phrase, “strung the plaintiff along” and in some cases lied and in some cases gave equivocal answers.  Then the defendant invoked the notice provision and terminated the contract.  The Supreme Court of Canada held that this was not proper.  More importantly, however, they recognized a full “free standing” general duty of good faith performance of contract.

Mr. Justice Cromwell found that such a duty existed in certain types of contracts: employment contracts, insurance contracts or tendering situations.  In addition, some courts in Canada (like B.C. or Nova Scotia) were inclined towards a general duty of good faith performance while others (such as Ontario) were not so inclined.  Meanwhile, the Quebec (see article 1375 of the Civil Code) and the United States did have general duties of good faith performance.  For Justice Cromwell, it was time to put an end to the patchwork arrangement and have a general approach to the issue.  In finding a general duty of good faith performance, and while trying to set out a general framework for such a duty, Justice Cromwell has provided some guidance but also some areas that will create at least initial confusion and require the courts to clarify the rules through future cases.  For example, Justice Cromwell wrote:

The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard”for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith.

The principle of good faith must be applied in a manner that is consistent with the fundamental commitments of the common law of contract which generally places great weight on the freedom of contracting parties to pursue their individual self-interest. In commerce, a party may sometimes cause loss to another — even intentionally — in the legitimate pursuit of economic self-interest …  Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency… The development of the principle of good faith must be clear not to veer into a form of ad hoc judicial moralism or “palm tree?justice. In particular, the organizing principle of good faith should not be used as a pretext for scrutinizing the motives of contracting parties.

I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. …

I am at this point concerned only with a new duty of honest performance and, as I see it, this should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance. It operates irrespective of the intentions of the parties, and is to this extent analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability.

Viewed in this way, the entire agreement clause in cl. 11.2 of the Agreement is not an impediment to the duty arising in this case. Because the duty of honesty in contractual performance is a general doctrine of contract law that applies to all contracts, like unconscionability, the parties are not free to exclude it …

The duty of honest performance that I propose should not be confused with a duty of disclosure or of fiduciary loyalty.  A party to a contract has no general duty to subordinate his or her interest to that of the other party. …   But a clear distinction can be drawn between a failure to disclose a material fact, even a firm intention to end the contractual arrangement, and active dishonesty.

Wow, how do you reconcile all that?  Not easily.

Until yesterday it was easy.  I could simply say that there was no duty of good faith performance, but to be safe consideration should be made to ensure that the “spirit” of the deal wasn’t broken.  Now, every party will have to ensure that the “spirit” of the contract is honoured because to do otherwise could lead to a claim that there was bad faith in performing the contract.

Something to think about.

CALC