By Gascon
The Civil Code of Québec provides the possibility for any creditor in whose favor a Québec court has rendered a judgment ordering the payment of a sum of money to publish a legal hypothec on the debtor’s movable and immovable property.
The notice of registration of the hypothec must indicate, among other things, the property encumbered by the hypothec and the amount of the obligation.
It ranks according to the date, hour, and minute of its registration.
Can such a hypothec encumber all the movable property owned by the debtor?
The Superior Court of Québec had to decide the question in the decision Plasticon Canada inc. v. Corbec inc. , which was not appealed and the appeal periods have now expired.
In this decision, Plasticon Canada inc. (“Plasticon”) had entered into a contract with Corbec inc. (“Corbec”) for the design, manufacture, and delivery of tanks and steel structures.
The execution of the contract gave rise to a dispute, then to Plasticon’s condemnation to pay a sum of approximately $395,000.
A legal hypothec on all of Plasticon’s movable property was then published in the Register of Personal and Movable Real Rights.
The decision was appealed and, for this reason, Corbec’s lawyer did not immediately take the necessary steps to enforce the judgment, in particular those to determine the extent of the movable property owned by Plasticon.
Plasticon challenged the validity of the legal hypothec because it would encumber more than what is permitted by the Civil Code of Québec .
Plasticon adds that it cannot substitute the hypothec with other sufficient security, as permitted by article 2731 of the Civil Code of Québec , given that it is impossible to determine how to substitute a hypothec that covers all movable property with specific property.
The Court analyzes the doctrine on the subject. The authors are not unanimous as to the possibility of publishing a legal hypothec resulting from a judgment on all movable property.
According to some, this right is notably restricted by that of the debtor to substitute their hypothec (see previous paragraph), or the fact that it is not expressly mentioned in article 2730 of the Civil Code of Québec that the hypothec can cover all property.
As for the case law, few court decisions deal directly with the issue.
The Court notes that several legal hypothecs provided for by the Civil Code of Québec are permitted to the extent that they encumber the property related to the debt owed: for example, the legal hypothec of construction can only be published on the immovable in which the work took place, and not on all other property of the debtor.
However, there is no such restriction concerning that resulting from a judgment.
Furthermore, even if article 2730 of the Civil Code of Québec deals with “property, movable or immovable”, the Court emphasizes that this does not mean that it must be limited to a single property.
The Court also indicates that the general principles set out in the Civil Code of Québec relating to hypothecs on all movable property apply to the legal hypothec resulting from a judgment.
Finally, the Court emphasizes that article 2731 of the Civil Code of Québec allows a court, at the request of the owner of the property encumbered by the legal hypothec, to determine the property that the hypothec may encumber, reduce the number of these properties or allow the applicant to substitute this hypothec with other sufficient security to guarantee payment;
the court may even order the cancellation of the registration of the legal hypothec.
The Court therefore rejects Plasticon’s request to cancel the legal hypothec that encumbers its property.
However, it remains that this question has never been truly decided by the Court of Appeal.
Since the present decision was not appealed, the question will most likely be debated again in the (perhaps) near future!