When borrowing or lending money in commercial relationships, it is critically important for all parties involved to understand what their obligations are to one another in order to avoid the financial uncertainty and disruptive of commercial disputes. If a dispute does arise, it’s important to have the help of experienced lawyers who can help guide you through difficult situations, such as those faced by parties to a case recently before the Court of Appeal of Alberta.

The loan

The plaintiff lent the defendant some money. In exchange for the loan, the defendant granted the plaintiff an option to extract sand and gravel from a parcel of land, though the option was contingent on certain events occurring. When these preconditions were met, the plaintiff attempted to hand deliver a notice to the defendant indicating they were planning to exercise the option.

The contract

The contract between the parties provided a number of ways notice would be “deemed” to be effective. It stated,

6.3 Any notices to be given by any party to the other shall be in writing and shall be sufficiently given and shall be deemed to be received by the addressee if delivered by hand or prepaid courier, or if mailed then by registered mail, postage prepaid, or forwarded by facsimile transmission to the parties’ respective addresses, as follows:

[addresses given]

or to such other address as either party may hereafter notify the other in writing in the manner aforesaid. If any question arises as to whether any notice was sufficiently communicated by one party to the other, a notice shall be deemed to have been effectively communicated on the day delivered or sent by facsimile transmission (with confirmation of successful transmission) or on the fifth day following the date of mailing, as the case may be. If normal mail service is interrupted by strike, slow down, force majeure or other cause after the notice has been sent, the notice, if mailed, will not be deemed to be received until actually received. If normal mail service is impaired at the time of sending a notice, then delivery or facsimile transmission of the notice only shall be effective.

The plaintiff originally tried to deliver notice by fax, but was unsuccessful. The defendant advised the plaintiff that his fax machine was not working. The plaintiff was not able to deliver notice to the defendant’s address because the address was a PO box, not his actual address. The plaintiff then sent representatives to the defendant’s house and attempted to deliver notice by hand there. The representatives announced they were there, but the defendant refused to answer the door. During this exchange the defendant admitted he knew the representatives were there to deliver a letter, but did not answer because he considered his business with the plaintiff to be done. In return, the representatives announced they were putting a letter in his door.

The defendant claimed at trial that he had no obligations towards the plaintiff, and that the notice was not effectively delivered “by hand.”

At trial and appeal

At trial, the judge found the defendant was aware of his obligations to the plaintiff, and knew the representative was there to exercise his contractual rights. The judge wrote,

(The defendant) knew it was Lafarge at the door. (The defendant) knew it was (the plaintiff) at the door with a letter for him. (The defendant) believed he had nothing more to do with (the plaintiff) and, I infer, he was not interested in any new dealings with (the plaintiff). He was wrong in his view that (the plaintiff) had no further rights under their agreement. Those rights had not expired. His misunderstanding of the effect of the contract does not lessen his continued obligations under the contract which remained in force; they did not lessen his continued obligations under the contract or the general organizing principle that he perform those obligations in good faith.

At appeal, the court agreed with the trial judge, writing “Article 6.3 of the contract provides that notice “shall be deemed to be received by the addressee, if delivered by hand” to the named parties. The chambers judge concluded that the respondent had proven effective service of the notice within the terms of the contract. We agree.”

The court referenced the Supreme Court of Canada in its decision, writing “The Supreme Court of Canada has confirmed that parties to contracts must perform their obligations in good faith: Bhasin v Hrynew, 2014 SCC 71 (CanLII), [2014] 3 SCR 494. A contracting party can act in its own best interests, but it must not seek to undermine the legitimate interests of the other party in bad faith: Bhasin at para. 65. In this context, a party who is being given notice of exercise of an option cannot actively obstruct service of that notice. By refusing to answer the door and take the letter, the (defendant) was wilfully blind to the (plaintiff’s) legitimate efforts to exercise the option. The chambers judge committed no reviewable error in finding that the appellant’s refusal to answer the door amounted to a failure to discharge his obligations under the contract in good faith.”

At HMC lawyers, we have over 130 years of combined experience advising clients and litigating on their behalf. We know that matters can often be settled at early stages by employing strategic actions. We aim to avoid prolonged and expensive litigation, working closely with clients to help make good business decisions, ensuring they understand the rights and responsibilities of all parties when entering into a contract. Please reach us online or by phone at 1-800-480-3534 to make an appointment with one of our lawyers today.