Secured Transactions – Winter 2013 Professor: Yael Emerich Summary
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- Open Hypothecs
- Hypothecs Over Claims (Créances)
Special Types of HypothecsLegal HypothecsLegal hypothecs are accorded as of right/by operation of law. There is no need for the consent of the other party. Creation 2664 Hypothecation may take place only on the conditions and according to the formalities authorized by law. // A hypothec is conventional or legal. 2724 Only the following claims may give rise to a legal hypothec: (1) claims of the State for sums due under fiscal laws, and certain other claims of the State or of legal persons established in the public interest, under specific provision of law; (2) claims of persons having taken part in the construction or renovation of an immovable; (3) the claim of a syndicate of co-owners for payment of the common expenses and contributions to the contingency fund; (4) claims under a judgment. 2726 It is not necessary to publish a construction hypothec for it to exist. 2725 The state’s hypothecs must be published. Limited publication content requirements provided. 2727 However, the construction hypothec will expire 30 days after the end of construction unless you publish a notice describing the amount claimed and the immoveable. This must be served on the owner of the immoveable. 2726 Capacity to register construction hypothec: A legal hypothec in favour of the persons having taken part in the construction or renovation of an immovable may not charge any other immovable. It exists only in favour of the architect, engineer, supplier of materials, workman and contractor or sub-contractor in proportion to the work requested by the owner of the immovable or to the materials or services supplied or prepared by them for the work. It is not necessary to publish a legal hypothec for it to exist. 2729 The legal hypothec of a syndicate of co-owners must be registered. 2730 Every creditor in whose favour a judgment awarding a sum of money has been rendered by a court having jurisdiction in Québec [Québec courts or the Federal Court - Mike] may acquire a legal hypothec on the movable or immovable property of his debtor.// He may acquire it by registering a notice describing the property charged with the hypothec and specifying the amount of the obligation, and, in the case of an annuity or support, the amount of the instalments and, where applicable, the annual Pension Index. The notice is filed with a copy of the judgment; it must be served on the debtor. Scope 2725 The state’s hypothecs can charge moveable or immoveable property. 2726 (Property charged) A construction hypothec only affects the immoveable the work was performed on. 2728 (Financial scope) The construction hypothec secures the increase in value added to the immovable by the work, materials or services supplied or prepared for the work. However, where those in favour of whom it exists did not themselves enter into a contract with the owner, the hypothec is limited to the work, materials or services supplied after written declaration of the contract to the owner. A workman is not bound to declare his contract. 2729 The legal hypothec of a syndicate of co-owners charges the fraction of the co-owner who has defaulted for more than 30 days on payment of his common expenses or his contribution to the contingency fund, and has effect only upon registration of a notice indicating the nature of the claim, the amount exigible on the day the notice is registered, and the expected amount of charges and claims for the current financial year and the next two years. 2730 Judgment hypothecs affect moveable or immoveable property. 2732 A creditor who has registered his legal hypothec preserves his right to follow it on movable property which is not alienated in the ordinary course of business of an enterprise, as though he were the holder of a conventional hypothec. Priority 2952 Legal hypothecs in favour of persons having taken part in the construction or renovation of an immovable are ranked before any other published hypothec, for the increase in value added to the immovable; such hypothecs rank concurrently among themselves, in proportion to the value of each claim. For the other legal hypothecs, the general rule is that all rights which must be published rank will from the date of publication (2941, 2945). Government (2725), judgment (2730), and co-owner hypothecs (2729) must be published. Therefore they rank from publication unless otherwise specified (2945). But for these legal hypothecs there is no exemption from the ranks-from-publication rule, so the default rule applies (2945). In contrast 2952 explicitly exempts construction hypothecs from this issue. Remedies Same as regular hypothecs, as a general rule 2725 The state maintains a prior claim even if it also registers a tax debt as a hypothec. 2731 (This is a kind of anti-remedy, since it gives rights to the debtor!) Except in the case of the legal hypothec of the State or of a legal person established in the public interest, the court, on application of the owner of the property charged with a legal hypothec, may determine which property the hypothec may charge, reduce the number of the properties or give leave to the applicant to substitute other security for the hypothec sufficient to secure payment; it may thereupon order the registration of the legal hypothec to be cancelled. Extinction 2727 para 1/2 A construction hypothec expires 30 days after the end of construction unless you publish a notice describing the amount claimed and the immoveable. This must be served on the owner of the immoveable. 2727 para 3 Even if registered, a construction hypothec lasts only six months, unless a lawsuit is started over the unpaid money or the construction hypothec creditor registers a notice of hypothecary remedy. Case Law DC – 3181588 Canada inc c Duntel Management, QCCA [119] Facts: 3181588 leased construction equipment to contractors who were constructing a building for Duntel. 3181588 now claims a construction hypothec as someone who “took part in” the construction of an immoveable, specifically by “supplier of materials” under 2726. 3181588’s equipment was operated by the contractor’s personnel according to the contractor’s instructions. Issue: Do lessors of construction equipment qualify for a construction hypothec under 2724(2)? Holding: No. Reasoning: Article 2726 is deliberately narrow in scope. Not all persons involved in the construction industry have the right to a construction hypothec. While 2726 does mention “services” in addition to “materials” being supplied to the construction, this must mean services in the sense of 2098. And 3181588 is a lessor, not a provider of services. Nor does it supply “materials” in the sense that this term is commonly understood in construction. So it cannot fall within 2726. Ratio: (1) Entitlement to a legal hypothec under 2726 should be narrowly interpreted; (2) Only “suppliers” who have a contract of services under the sense of 2098 qualify under 2726. Beylerian c Construction et Renovation Willico [Slide] : 2 aspects de la plus value : 1) condition d’existence de l’hypotheque de la construction; [you only get it if you add plus value] 2) assiette du droit privilegié des créanciers de la construction lors de la realisation. [plus value determines assiette] There is unicité du plus value, which means we look at the plus-value of the all the construction work as a whole, without trying to figure out how much each individual worker contributed. The formula for calculating the share of each construction creditor if there are multiple creditors is : (plus value relative x creance de chacun)/(total construction hypothec claims) Exemple. Nous avons un objet vendu à 132$, même si sa Juste Valeur Marchand est de 180$. La plus-value (brute) est fixée à 60$. La banque a une créance hypothécaire de 90$ et des frais de justice (qui est une priorité) 12$. Les fournisseurs de matériaux 20$ et l'entrepreneur, 30$. Plus-value relative: ([132-12] x 60)/180 = 40. Distribution: (1) créances prioritaires (banque pour frais de justice, art. 2650 et 2651(1°)) = 12; (2) fournisseurs et entrepreneur sur leur assiette (art. 2952 CcQ), donc respectivement 20x40/30+20 = 16 et 30x40/(30+20) = 24. (3) résiduairement, la banque pour sa créance hypothécaire, donc 132-12-16-24 = 80$. La banque, à qui l'on doit 90$, aura un manque à gagner de 10$. Open HypothecsAn open hypothec “est donc une hypothèque don’t certains des effets sont suspendus” [215]. It is the civil law equivalent to the floating charge in common law. The general rules of hypothecs, including those affecting moveable and immoveable hypothecs, also apply to open hypothecs. Weirdly, while the CCQ avoids using common-law derived terminology in the French section, it using “floating hypothec” instead of “open hypothec” in the English section. I’ve used open hypothec here. Pratte, Priorités et Hypothecs [211]: Open hypothecs have the advantage of a flexible assiette/scope, but very bad priority, since they rank not from the date of creation, but rather from the date of closing. There are a few procedural advantage as well, namely the ability to take possession of the goods immediately upon default by the debtor (basically analogous to appointing a common-law receiver), and to signify debtors via newspaper if the open hypothec covers a universality of claims, thereby avoiding 1641 CCQ [216]. While the hypothec takes effect between the parties immediately upon registration, in particular any prohibitions on alienation, this does not affect third parties, who can acquire hypothecated goods free of any hypothec [217]. The exception to the rule that open hypothecs have no effect on third parties prior to closure is 2720 CCQ, which states that the sale or merger of an enterprise is not opposable to the open hypothec holder. Closure of the open hypothec ends its suspension and transforms it into a normal hypothec [219]. CCQ Provisions 2715 A hypothec is a floating hypothec when some of the effects are suspended until, the debtor or grantor having defaulted, the creditor provokes crystallization of the hypothec by serving a notice of default and crystallization of the hypothec on the debtor or grantor.// The floating character of the hypothec shall be expressly stipulated in the act. 2716 A floating hypothec has effect only if it was published beforehand and, if immovable properties are charged, only if it was registered against each of them.// It may not be set up against third persons except by registration of the notice of crystallization. 2717 Any condition or restriction stipulated in the constituting act in respect of the right of the grantor to alienate, hypothecate or dispose of the charged property has effect between the parties even before crystallization. 2718 A floating hypothec on more than one claim has effect in respect of the debtors of hypothecated claims, upon registration of the notice of crystallization, provided the notice has been published in a newspaper circulated in the locality of the last known address of the grantor of the floating hypothec or, where he carries on an enterprise, in the locality where the enterprise has its principal establishment.//The notice need not be published if the hypothec and the notice of crystallization may be set up against the debtors of the hypothecated claims in the same way as an assignment of claim. 2719 By crystallization, a floating hypothec has all the effects of a movable or immovable hypothec in respect of whatever rights the grantor may have at that time in the charged property; if the property includes a universality, the hypothec also charges properties acquired by the grantor after crystallization. 2720 The sale of an enterprise by the grantor may not be set up against the holder of a floating hypothec. The same applies to a merger or reorganization of an enterprise. 2721 The creditor holding a floating hypothec on a universality of property may, from registration of the notice of crystallization, take possession of the property to administer it in preference to any other creditor having published his hypothec after the date of registration of the floating hypothec. 2722 Where there are several floating hypothecs on the same property, crystallization of one of them enables the creditors holding the others to register their own notice of crystallization at the registry office. 2723 Where the default of the debtor has been remedied, the creditor requires the registrar to cancel the notice of crystallization.// The effects of crystallization cease with the cancellation, and the effects of the hypothec are again suspended. 2955 Registration of the notice of crystallization determines the rank of a floating hypothec. // If several floating hypothecs are the subject of notices of crystallization, they rank among themselves from their respective registrations, regardless of the registration of the notices of crystallization. Hypothecs Over Claims (Créances)CCQ Provisions 2710 A movable hypothec on a claim held by the grantor against a third person or on a universality of claims may be granted with or without delivery. // However, in either case the creditor may not set up his hypothec against the debtors of hypothecated claims as long as it may not be set up against them in the same way as an assignment of claim [that’s article 1641 CCQ - Mike]. 2743 A creditor holding a hypothec on a claim collects the revenues it produces, together with the capital falling due while the hypothec is in effect; he also gives an acquittance for the sums he collects. // Unless otherwise stipulated, he applies the amounts collected to payment of the obligation, even if it is not yet exigible, according to the rules governing payment generally. 2744 The creditor may, in the act constituting the hypothec, authorize the grantor to collect repayments of capital or the revenues from the hypothecated claims as they fall due. 2745 The creditor may at any time withdraw his authorization to the grantor to collect. To do so he shall notify the grantor and the debtor of the hypothecated rights that he himself will thenceforth collect the sums falling due. The withdrawal of authorization shall be registered. 2746 While the hypothec is in effect, the creditor need not sue in order to recover the capital or interest of the hypothecated rights, but he shall inform the grantor within a reasonable time of any irregularity in the payment of any sums exigible on the rights. 2747 The creditor remits to the grantor any sums collected over and above the obligation owed in capital, interest and expenses, notwithstanding any stipulation by which the creditor may keep them on any ground whatever. 2713 In all cases, either the creditor or the grantor may institute proceedings in recovery of a hypothecated claim, provided he impleads the other. 2461, 2478 special rules for hypothecating claims under an insurance contract. 2695 special rules for hypothecs over rents. 1641 An assignment may be set up against the debtor and the third person as soon as the debtor has acquiesced in it or received a copy or a pertinent extract of the deed of assignment or any other evidence of the assignment which may be set up against the assignor. // Where the debtor cannot be located, the assignment can be published in a local newspaper. Doctrine Payette, Les sûretés réels dans le Code civil du Québec (2006) [144]: This is an important kind of hypothec, since many short-term loans are guaranteed by hypothecs on a business’s accounts payable. Various kinds of common-law-inspired securities were used in Québec under the CCBC and various special laws. The CCQ replaces these other securities with the moveable hypothec, which seems to be the only way to give security over intangibles such as claims (other than maybe federal law stuff like Bank Act security). Hypothecs over claims can be accomplished by dispossession, with “dispossession” in this case referring to whatever actions give the creditor the effective control (“maîtrise de fait”) over the claim. Thus a negotiable instrument must be physically transferred; for other kinds of claims it occurs when the debtor receives notice of the hypothecation (citing to 2003 SCC 31). A claim may be monetary, or a piece of property, or the claim may be a claim for the specific performance of an obligation [148]. It may even be a right of action [149]. It is also possible to hypothecate only the fruits and revenues of a claim, rather than the claim itself; this is typically done when parties are unsure of their right to hypothecate the underlying claim [149]. In such case, the hypothecary creditor has a right over any money that is generated by the claim, but cannot take legal action to enforce the underlying claim, or to force the debtor to do so. Pratte, “Cing ans après la réforme, nos sûretés sont-elles sûres?” 1998 [150]: I didn’t find this article useful at all. Pratte, “Priorités et hypothèques” [212]: Pratte notes that if a creditor removes his authorization under 2745, this must be published. 2747 is public order and may not be derogated from. The assignment of claims by way of guarantee is not allowed in Québec under the CCQ - the only way to grant security over a claim is by hypothec (citing Re Boisclair, 2001 QCCA). Other mechanisms like security trusts and conditional sales are still permissible though. Directory: pubdocs -> files files -> International maritime conventions files -> Chapter 1: Property as rights, not thing files -> Insurance Law – May 4 files -> Contractual Obligations – Prof. Helge Dedek Introduction 1 files -> Constitutional Limits on Criminal Law 1 files -> Antonio Iacovelli Winter 2005 Advanced Criminal Law files -> Private International Law – Prof. Walsh Summer 2005 files -> Part I: conceptualizing and justifying ip space 3 files -> Part I – general 5 The Sources of Int’l Air Law 5 Q? How does customary law relate to int’l law? Download 0.72 Mb. Share with your friends:
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