Secured Transactions – Winter 2013 Professor: Yael Emerich Summary
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- DROIT CIVIL
- History
- The Patrimony
- Seizability of Property
- Execution of Judgments and Distribution Among Creditors
| Secured Transactions – Winter 2013
Professor: Yael Emerich Summary: Michael Shortt This summary is long and detailed. Probably too long and too detailed. I wish I could make it shorter and more concise, but this has been a busy summer and I didn’t have time. So, not my best work, but I’m sure you can “perfect” it prior to the exam. (that was the joke for this summary’s intro) Note: I added a lot of material to the bankruptcy chapter from my Bankruptcy and Insolvency law summary. It’s definitely more than you need to know, but the existing materials didn’t cover a lot of important issues, so I decided over-kill was better than sticking to the coursepack. Note2: Claire Gowdy has a really good summary for Walsh’s secured transactions. I have borrowed from it on occasion, and recommend it as an alternative or supplement to this summary. Table of Contents CHAPTER 1: DROIT CIVIL 2 Section 1.1: Introduction 2 1.1.1History 3 1.1.2The Patrimony 3 1.1.3Seizability of Property 3 1.1.4Execution of Judgments and Distribution Among Creditors 6
1.2.1Types 8 1.2.2 Creation 9 1.2.3 Object and Scope of Security 9 1.2.4 Effects of Priority 9 1.2.5 Opposability and Priority 9 1.2.6 Remedies and Execution 10 1.2.7 Extinction 10 Section 1.3: Hypothecs 10 1.3.1Juridical Nature 11 1.3.2Classification 11 1.3.3 Creation of Conventional Hypothecs 12 1.3.4 Object and Scope of Hypothecs 14 1.3.5 Effects of Hypothecs 16 1.3.6 Opposability and Priority 17 1.3.7 Hypothecary Remedies 20 1.3.8 Extinction 24
1.4.1Legal Hypothecs 24 1.4.2Open Hypothecs 26 1.4.3Hypothecs Over Claims (Créances) 27 CHAPTER 2: Other Civil Law Security Mechanisms 27 Section 2.1: Security Trust 28 Section 2.2: Conditional/Installment Sale, Leases 28 CHAPTER 3: COMMON LAW (PPSA) 29 Section 3.1: Introduction 29 3.1.1History and Purpose of PPSAs 29 3.1.2Definitions 29 3.1.3PPSAs and the Common Law/Equity 31 Section 3.2: Scope of PPSAs: What is a Secured Transaction? 31 3.2.1General 31 3.2.2Special Cases 32 3.2.3Deemed Security Interests 35 3.2.4Excluded Transactions 36
3.3.1Capacity 37 3.3.2Attachment 38 3.3.3Perfection 40 Section 3.4: Scope of the Security Interest 41 3.4.1General 41 3.4.2Proceeds and Tracing 41 3.4.3Future Property 46 Section 3.5: Effects of Security Interests 46 3.5.1General 47 3.5.2With Respect to Collateral 47 3.5.3Opposability 47 3.5.4Priority Conflicts 48
4.1.1 Creation 59 4.1.2 Object and Scope of Security 59 4.1.3 Effects of Security 59 4.1.4 Opposability and Priority 59 4.1.5 Remedies and Execution 60 4.1.6 Extinction 61
4.3.1Common-law Liens 62 4.3.2Contractual Liens 63 4.3.3Statutory Liens 63 4.3.4Equitable Liens 64
5.1.1The Bankruptcy and Insolvency Act 65 5.1.2The Companies’ Creditors Arrangement Act 66 5.1.3The Winding-up and Restructuring Act 67 5.1.4The Wage Earner Protection Program Act 67 5.1.5Constitutional Issues 67 Section 5.2: Secured Creditors Under the BIA 69 5.2.1Definition of Secured Creditor under the BIA 69 5.2.2Rights of Secured Creditors in Bankruptcy 70
DROIT CIVILIntroductionSecurity interests in civilian law are divided between two categories: prior claims (a kind of priority for a personal right) and hypothecs (an accessory real right that attaches to and follows property). Simler & Delebecque, Droit civil: Les sûretés et la publicité foncière, 4th ed, 2004: The major purpose of securities is to protect a creditor against the bankruptcy of the debtor. Hence the maxim “pas de crédit sans sûretés.” Indeed, the word “credit” comes from the roman “credere” which means “to believe” or “to have confidence in.” In French law, the list of securities seems to be closed, although security-like advantages can be gained from proprietary-securities or other techniques. General order of payment in Québec in non-bankruptcy situations (1) Prior claims in the order they are listed in 2651 (2646, 2657) (2) Construction hypothecs (2646, 2647, 2726) (3) Conventional and legal hypothecs other than construction hypothecs (2646, 2647, 2725, 2729, 2730) (4) Unsecured creditors (2644-2646) Within classes, the prior creditors (2657) and unsecured creditors (2646) are paid proportionately, as are holders of construction hypothecs (2952) while for conventional hypothecs and other legal hypothecs each one ranks in order of publication, so there is no sharing (see 1.3.6(ii) below). HistoryThe CCBC had several categories of securities, including the nantissement (“contrat réel de garantie par lequel un débiteur, ou un tiers pour lui, met un bien entre les mains du créancier, pour la sûreté de la dette qu’il contracte”), which was then divided into gage (nantissement over movable goods) and antichrèse (nantissement over immovables). These securities involved dispossession by the debtor, so other forms of security interest would soon be demanded by commercial actors, and eventually a law was passed giving special hypothecation powers to corporation only [216]. A special law gave corporations the power to grant mortgage-like security over their property. Hypothecs existed in the CCBC, but only for immoveables. This system was very similar to French law [73 for corresponding CN articles]. The CCBC also had a very long list of privileges (the equivalent to today’s priorities). These privileges were divided between moveable and immoveable privileges, with about a dozen of each. The list includes most of today’s priorities, plus some drawn from the federal Bankruptcy and Insolvency Act list of preferred creditors (e.g. funeral expenses) plus some new ones (e.g. medical expenses, servants’ wages). During the reform of the CCQ, there were proposals to harmonize Québec’s law with that of the PPSAs by adopting a functionalist approach to security interests [22-23]. This was rejected for various reasons, such as a desire to preserve the distinctness of the civil law, but also concerns about the need to clearly identify ownership of collateral subject to proprietary-securities. But while Québec ultimately adopted a formalist approach, it did impose semi-functionalist measures, such as requiring proprietary-security holders to publish their claims in the same registries as hypothecs, or submitting their remedies to the hypothecary remedies section of book 6. The reform of the CCQ also brought about the unity of movable and immoveable securities, something not even the common law provinces attempted [25]. The PatrimonyEveryone has a patrimony (2, 302 CCQ). The patrimony of the debtor is the “common pledge” of his creditors (2644 CCQ). It includes current and future property (2645 CCQ). All personal obligations can be executed against the entirety of the debtors patrimony (2645-2646 CCQ), unless the parties to a given personal obligation contract otherwise (2645 CCQ). When cash is seized from the debtor, or when assets are seized and sold, the money is distributed among the chirographic creditors in proportion to their debts (2646 para 2 CCQ). An unequal distribution is allowed only if there is a “legal cause of preference” (2646 para 2 CCQ). The (only?) legal causes of preference are the priority and the hypothec (2647 CCQ). Macdonald & Ménard, “Credo, credere, credidi, creditum: Essai de phénomenologie des sûretés réels” 2006 [17]: Judgments are executed against property, not persons, at least since the abolition of civil imprisonment [321]. Ordinary (chirographic) creditors benefit from two principles that apply to the patrimony of the debtor: (1) the “assiette universelle” or the idea that all of the patrimony is available to satisfy creditors’ claims; (2) the equality of all creditors. Secured transactions operate by subverting one of these two principles. Hypothecs and preference subvert the principle of equality of all creditors, by giving a preference to one creditor over another with respect to the disposition of certain assets within the patrimony. Proprietary securities (like trusts, conditional sales, financing leases, title retention, etc) subvert the principle of “l’assiette universelle” by removing property from the debtor’s patrimony, so that it is unavailable to other creditors. Finally, it is worth noting that Québec has a formalist, rather than a functionalist, approach to what constitutes a security interest. It rejected the UCC article 9 approach during the reform of the CCQ. That said, Québec does adopt a quasi-functionalist position when it requires the exercise of rights by propriety security holders to follow Book 6, and when it imposes publication requirements in accordance with Book 9. Payette, Les sûretés réelles dans le Code civil du Québec, 3e ed, 2006 [39]: Reviews basics of patrimony. Seizability of PropertyNote that the conditions of 2648 CCQ and 552 CCP are cumulative [42]. Both must be satisfied for the property in question to be unseizable. CCQ Provisions [31] 2648 The patrimony of the debtor is immune from seizure to the extent provided for by the CCP. This exemption covers “The moveable property of the debtor which furnishes his main residence, used by and necessary for the life of the household.” These moveables may however be seized their vendor if the purchase price remains unpaid.// “Instruments of work needed for the personal exercise of a professional activity” are also exempt from seizure, except by creditors with hypothecs on them. 2649 Stipulations of unseizability are effective only if made “by an act of gratuitous title” (i.e. given by gift or will), the duration is temporary, and the stipulation is justified by a serious and legitimate interest. The property “remains liable to seizure to the extent provided in the Code of Civil Procedure.” The stipulation can be set up against third parties only if published in the appropriate register. [see also [46]-[47] - Mike] CCP Provisions [33] 552 When a seizure is executed against a debtor, the debtor may choose the following goods, which are exempted from the execution: (1) $6000 worth of moveable property that furnishes his principal residence used by and necessary for the life of the household. (2) Food, fuel, linens, and clothing necessary for the life of the household. (3) Instruments of work needed for the personal exercise of professional activity. The exception in (1) does not apply to unpaid vendors, and the exception in (3) does not apply to hypothecary creditors. Fishermen’s boats may not be seized or sold between 1 May and 1 November (i.e. not during fishing season). // The seizing officers makes the determination of the value of property under (1), but this decision can be appealed to a court. // No one may renounce the protection of this section.
(1) Religious objects. (2) Family papers and portraits, medals, etc. (3) Property stipulated to be unseizable, although a judge can grant permission to seize it anyways to certain creditors. (4) Family support payments. (5) Books of account, titles of debt and other papers in the debtor’s possession except those mention in 570 CCP (which covers bearer bonds, negotiable instruments, cash, and stocks). (6) Money paid to clerics for performance of their religious duties. (7) Benefits payable under a supplemental pension plan. (8) Periodic disability benefits under accident or sickness insurance. (9) Reimbursement of expenses incurred under a contract of accident or sickness insurance. (9.1) Property required to compensate for a handicap (wheelchair, glasses, canes, seeing eye dog, etc). (10) Repealed. (11) A certain fraction of your salary: (a) if you have dependents: (base unseizable part is $180 per week) + ($30 per week for the third and every subsequent dependant) + (70% of your salary minus the base rate and dependant rates calculated above). So if you make $1,000/week and have four dependents, it’s 70% of $760 (which is $1,000-240) or $532, resulting in a total unseizable part of $532+$240=$772). (b) if you don’t have dependents: (base unseizable part is $120 per week) + (70% of your salary minus the base rate calculated above). So if you make $1,000/week, it’s 70% of $880 (which is $1,000-120) or $616, resulting in a total unseizable part of $616+$120=$736). [You’ll notice the difference between the various calculations is pretty minor, not sure why they went with such a complex system. In practice, unless you have many dependents, the formula means a little under 30% of your salary is seizable via garnishment - Mike] (11.1) 50% of money paid under extra-provincial support order acts. (12) Anything declared unseizable by law. 553.1 Works of art or historical property brought into Québec and intended for public display are immune from seizure if the government declares them so exempt by order in council. This applies only to works that were not original conceived, produced, or created in Québec. This exemption from seizure does not apply to debts resulting from the transport, warehousing, or exhibition of the item in question. 553.2 The immovable of the debtor which serves as the primary residence is exempt from seizure where the amount of the debt is worth less than $10,000 except where (1) the claim against the debtor is secured by a prior claim or legal or conventional hypothec on the immoveable, other than a legal hypothec resulting from a judgment. (2) the claim is a claim for spousal/child support. (3) the immoveable is already validly under seizure. Where the debt results from a judgment, the amount of the debt includes interest, but not costs.
Note that moveables which “furnish” a residence are in contrast to those that merely ornament it - so the debtor can’t designate just any moveable as non-seizable under 552(1) CCP [42]. The requirements of 2648 CCQ and 552 CCP must both be met for a piece of property to be unseizable [42]. As for the “necessary for household life”, this means “les meubles qui constituent les éléments de bas d’une vie normale” [42], like tables and chairs and a dishwasher, but not a bicycle. Cars aren’t moveables that furnish a residence, so they can’t be exempt from seizure [43]. Microwaves are also controversial [43]. Entertainment electronics is typically seizable, but personal computers are not [43]. The exception of 552(3) only applies to the principal occupation of the debtor, so only tools associated with that principal occupation are exempt [43]. Note that there is not monetary limit to the value of these tools [43]. Corporations do not “personally” exercise any activity, so they cannot benefit from this exception [44]. The Minister’s Commentary on article 2648 seems to restrict this exception quite severely, noting that “professional activity” is narrower than the notion of enterprise in 1525 CCQ, and that the debtor must use the property personally - so equipment belonging to the debtor but used by an assistant or secretary is seizable [44]. Jurisprudence is divided on how to apply this provision [44]. If the debtor operates his business through a corporation of which he is the sole owner, the corporation’s shares can be seized, even if the corporation owns the tools the debtor needs to use his business [44]. The seizability of cars under this provision generally depends on whether the debtor’s job necessarily involves transport or travel (e.g. taxis, couriers, etc), although some judges allow anyone who has to drive to work to keep his car [45]. The word “professional” in this context does not mean “member of a professional order” [45]. Belleau endorses the following test, taken from Re Dionne: (1) The property that was seized, is it an “instrument of work”? (2) Is it “necessary” [to what? that’s not a question you can ask in the abstract - Mike]; (3) Is it necessary to the personal exercise of the activity [this one makes (2) redundant! - Mike]; (4) Is the debtor’s activity a professional one? [In my opinion, Belleau basically does it backwards, in addition to his second question being redundant given the third. The rational way to approach the question is the following: (1) What is the debtor’s primary professional activity? (2) Is the property an “instrument of work” for that activity? (3) Is the property used personally by the debtor in that activity? (4) Is it “necessary” to the debtor’s exercise of the professional activity? - Mike] The unseizabilities at 553, 553.1 and 553.2 CCP are called “absolute” because they cannot be seized under any circumstances [45]. Belleau’s discussion of what is listed in these articles is largely uneventful, although there is a long discussion of stipulations of unseizability at [46-47]. Common Law NBPPSA
58(3) Subject to subsection (7), a debtor may claim the following items of collateral to be exempt from seizure by a secured party: (a) furniture, household furnishings and appliances used by the debtor or a dependent to a realizable value of five thousand dollars or to any greater amount that may be prescribed; (b) one motor vehicle having a realizable value of not more than six thousand five hundred dollars at the time the claim for exemption is made, or not more than any greater amount that may be prescribed, if the motor vehicle is required by the debtor in the course of or to retain employment or in the course of and necessary to the debtor’s trade, profession or occupation or for transportation to a place of employment where public transportation facilities are not reasonably available; (c) medical or health aids necessary to enable the debtor or a dependent to work or to sustain health; and (d) consumer goods in the possession and use of the debtor or a dependent if, on application, the Court determines that (i) the loss of the consumer goods would cause serious hardship to the debtor or dependent, or (ii) the costs of seizing and selling the goods would be disproportionate to the value that would be realized.
Execution of Judgments and Distribution Among CreditorsGeneral CCP Provisions 569 Creditors can seize any moveable property of the debtor, whether that property is in the possession of the debtor, the creditor, or a third party who consents to the seizure [surely you can force people to turn over property without consent - Mike]. The creditor can also seize money by garnishment. The creditor can also seize immoveable proper in the possession of the debtor.
If the first seizing creditor releases the seizure or receives payment of his claim, the execution is nonetheless continued in his name, in order to satisfy the writs noted, but at the cost of the creditors who obtained them. 667 The immovables seized remain in the possession of the debtor, but the seizing creditor may if necessary obtain from a judge the appointment of a sequestrator. The fruits and revenues collected by the sequestrator, after deducting expenses, are immobilized and distributed in the same manner as the sale price. 553.2 The immovable of the debtor which serves as the primary residence is exempt from seizure where the amount of the debt is worth less than $10,000 except where (1) the claim against the debtor is secured by a prior claim or legal or conventional hypothec on the immoveable, other than a legal hypothec resulting from a judgment. (2) the claim is a claim for spousal/child support. (3) the immoveable is already validly under seizure. Where the debt results from a judgment, the amount of the debt includes interest, but not costs
(1) Legal costs; (2) The claims of the prior or hypothecary creditors, if they have filed a statement of their claim supported by an affidavit and the necessary vouchers; (3) The claim of the seizing creditor, if unsecured. In the case of insolvency of the debtor, the distribution among unsecured creditors is made in accordance with article 578.
The distribution is made pro rata between the ordinary creditors who have filed their claims, which must state the name, occupation and residence of the claimant and the nature and amount of his claim, and be supported by an affidavit that the amount claimed is due, and by vouchers if any. [For bankruptcies, note that the Bankruptcy Rules will override the provincial procedural rules to the extent that there is a conflict, but in the absence of a federal rule on a given issue, provincial procedure is used. - Mike] DC – Caisse populaire Lavaloise c Grigano, 1994 QCCA [53] Facts: The Caisse obtained a personal hypothecary judgment against Grigano and his company. It then seized some of his moveable property to pay the judgment debt. Grigano opposes the seizure on the grounds that since the Caisse is a hypothecary creditor, it must first seize and sell the building, and only if the debt remains unpaid can it seize his moveable property. Issue: Was the seizure of Grigano’s moveable property valid? Holding: Yes. Reasoning: The patrimony is the common pledge of a person’s creditors. The fact that a creditor has a hypothec on a piece of property does not prevent them from looking to the rest of the debtor’s property if they so choose. Thus, contrary to Grigano’s arguments, a hypothecary creditor is not forced to execute a seizure against the hypothecated property first seizing the rest of the debtor’s property. Ratio: Hypothecary recourses are cumulative with personal recourses. DC – Beaulieu c Tremblay, 1999 QCCA [56] Facts: Issue: Can a car be exempted from seizure under 552(1)? Holding: No. Reasoning: A car is not a moveable that “furnishes” the residence of the debtor, since grammatically a car does not “furnish” a home. Furthermore, article 415 CCQ uses the same phrase “moveable property that furnishes the residence” and then continues by listing cars separately. This shows that that legislature understands cars as falling outside the category of movables that can “furnish” a residence. Furthermore, it’s not clear that a car is “necessary”, even assuming it could “furnish” the debtor’s residence, since the debtor can always use public transit or take a taxi [I wonder if modern ride-share sites makes this argument even stronger - Mike]. Ratio: Cars are not covered by 552(1) CCP. Comment: Presumably mobile homes would be unseizable under 553.2 CCP. DC – Re Dionne, 1998 QCCS [58] Facts: Dionne is an insurance salesperson who is bankrupt. She meets clients at home and is paid on commission. Her creditors wish to seize and sell her car as part of the bankruptcy process. Judicial History: The registrar of bankruptcy [a minor court official in the bankruptcy process - Mike] decided that Dionne was an independent contractor and could not claim her card was unseizable because it was used in the context of an enterprise (1525 CCQ), rather than professional activity. The registrar relied heavily on the Minister’s Comments in coming to this decision. Issue: Does Dionne use her car in the context of a professional activity? Holding: Yes. Reasoning: The Minister’s Comments are entitled to weight, but are not determinative, and certainly do not have equal weight to the legislative text itself. Instead, the interpretation given to 552(3) CCP and 2648 CCQ should be anchored in the statute itself. Thus the following test emerges from the legislative text: (1) The property that was seized, is it an “instrument of work”? (2) Is it “necessary” ; (3) Is it necessary to the personal exercise of the activity [this one makes (2) redundant! - Mike]; (4) Is the debtor’s activity a professional one? A positive response to all four question means the property cannot be seized. There was no reason to import the notion of “enterprise”, especially since it is not mentioned in either article. In any case, the notion of “professional activity” includes the notion enterprise at 1525 CCQ, but excludes the notion of “commercial activity.” [The “commercial activity” concept under the CCBC was a strange category that included retailers, but excluded farmers, artisans/skilled trades, and professionals like lawyers and accountants; I don’t know who else falls within the category of “commerçant” except retailers and restaurenteurs - Mike] Ratio: (1) Four step test for applying 552(3) CCP; (2) “Necessary” in this context means “ce dont l’absence empêche pratiquement tout l’exercise de l’activité professionnelle de son possesseur” [64]; (3) “Professional activity” means all non-commercial activity, with “commercial activity” being understood in the CCBC sense. Comment: See above for my criticism of this test, and my proposal for a better, more logical one. DC – Banque de Montréal c Dufour, QCCA [114] Facts: BMO is trying to seize Dufour’s home in order to sell it, even though the size of their claim is only $6,737.76 and thus below the $10,000 threshold of 553.2. They claim that because their personal judgment against Dufour resulted in a legal hypothec, they have permission to seize the house. Issue: Are holders of legal hypothecs resulting from judgments able to seize homes under 553.2(1) Holding: No. Reasoning: The intention of the legislature in rewriting this part of the CCP was not to remove the protection for debtors. The use of “legal hypothec” was a change of language necessitated by the CCQ’s new terminology, and not a fundamental change to 553.2 CCP. Additionally, to adopt the bank’s interpretation of 553.2 CCP would allow any judgment creditor to obtain a legal hypothec and thereby circumvent the protection that it is meant to confer on debtors. Ratio: The “legal hypothec” exception of 553.2(1) does not apply to holders of legal hypothecs resulting from judgments. Comment: At the time, 5532.(1) did not read “other than a legal hypothec arising out a judgment” - so the decision has been entirely overtaken by statute. 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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