Introduction
Claims assignment is often used in the business world across Canada, particularly in the context of structured financing.[1] In Québec, claims assignments are governed by the Civil Code of Québec (the “C.C.Q.”). In this bulletin, we will review some of the rules set out in the C.C.Q. concerning the assignment of claims and discuss certain particularities when the assignment involves parties outside Québec.
Assignment of claims in Québec: Definition and general conditions for validity
The assignment of claims is governed by articles 1637 to 1650 of the C.C.Q. Essentially, a creditor (the assignor) transfers to a third person (the assignee) “a claim or a right of action which he has against his debtor” (the assigned debtor) (art. 1637 C.C.Q.). In this way, the third person can acquire one or more claims with the possibility of subsequently making a profit.[2]
Certain conditions must be met for an assignment to be valid. Claim assignment is subject to the usual rules of contract formation, which involves (1) an exchange of consents between the assignor and the assignee, both of whom have the legal capacity to contract, (2) a cause, and (3) a lawful object.[3] Unless the contract establishing the claim states that the debtor must consent to any assignment of it, the assigned debtor’s consent is not required. Nevertheless, the legislation stipulates that an assignment must not be injurious to the debtor’s rights or make the obligation more onerous (art. 1637 para. 2 C.C.Q.).
Conditions for setting up an assignment against the assigned debtor and third parties
In addition to the general conditions for validity, there are special rules governing the setting up of the assigned claim. The assignee may wish to assert their rights in the assigned claim against the assigned debtor and third persons, such as a trustee in bankruptcy. First, let’s look at the general conditions and at two specific cases.
a. General conditions
Article 1641 C.C.Q. states three ways in which an assignment can be set up against the assigned debtor and third persons: (1) the debtor acquiesces in it, (2) the assigned debtor or third person receives a copy or a pertinent extract of the act of assignment, or (3) the assigned debtor or third person receives any other evidence of the assignment which may be set up against the assignor, such as a faxed notice.
The C.C.Q. provides for an additional condition in article 1642 when a person assigns a universality of claims. The assignment of a universality of claims may be set up against debtors and third persons by registering the assignment in the register of personal and movable real rights (“RPMRR”), provided that the other formalities whereby the assignment may be set up against the debtors who have not acquiesced in it have been observed.[4] For debtors who have not acquiesced, the other formalities to be completed are as stated in article 1641 of the C.C.Q.
The assignment of a universality of claims must therefore be registered in the RPMRR in addition to fulfilling the other conditions in article 1641 C.C.Q. It is not a condition for an assignment, but rather a condition for setting it up.[5] Failure to register the assignment of a universality of claims in the RPMRR does not invalidate it; the assignee will still be able to assert their rights against the assignor.
b. Assignment of a universality of claims involving parties outside Québec
Let’s now consider how these rules are applied when one or more parties involved in an assignment of a universality of claims are domiciled outside Québec.
Imagine an assignment of a universality of claims between an assignor and an assignee both domiciled in Ontario with respect to assigned debtors domiciled in Québec. Does the assignee have to publish the assignment in the RPMRR to comply with the C.C.Q. and set up the assignment against the third parties in question? On this point, the C.C.Q. gives the answer in article 3120, which states that:
“The assignability of a claim and relations between the assignee and the assigned debtor are governed by the law governing relations between the assigned debtor and the assignor.”[6] (emphasis added)
The Superior Court of Quebec has confirmed that, because of its broad wording, article 3120 C.C.Q. applies to the conditions for setting up an assignment of a claim against the assigned debtor, and therefore subjects these conditions to the law governing the relationship between the assignee and the assignor.[7]
In light of this decision and article 3120 C.C.Q., if the law applicable to the contracts evidencing claims between the assigned debtors domiciled in Québec and the assignor domiciled in Ontario is Québec law, the C.C.Q.’s rules for setting up will apply to the assignment of the universality of claims and the assignee should therefore register the assignment in the RPMRR in addition to fulfilling the conditions in article 1641 of the C.C.Q.
c. Assignment of a claim secured by a hypothec
Let’s now look at a second case: assignment of a claim between parties all domiciled in Québec, involving a claim that is itself secured by a hypothec in favour of the assignor and encumbering the property of the assigned debtor.
Under the C.C.Q., the assignment of a claim includes its accessories,[8] which would include a hypothec. However, in such a situation, an additional condition must be met to ensure that the assignment of the claim and the underlying hypothec can be set up against a potential subsequent assignee.
Under article 3003 C.C.Q., when a hypothec is transferred by assignment, the assignment must be published in the land register or in the RPMRR, depending on whether the hypothec is immovable or movable.[9] A certified statement of publication in the appropriate register must be furnished to the debtor.[10] It is essential to observe these formalities, otherwise the assignment of the claim and the underlying hypothec may not be set up against a subsequent assignee who complies with them.[11]
If you have any questions or concerns, please feel free to reach out to a member of Miller Thomson’s Structured Finance and Securitization group.
[1] Nathalie Vézina, “La transmission et les mutations de l’obligation” in École du Barreau du Québec, Obligations et contrats, Collection de droit 2022-2023, vol. 6, Montreal Qc, Éditions Yvon Blais, 2022, 145.
[2] Ibid.
[3] Vincent KARIM, Les obligations, 4th ed., vol. 1, Montreal, Wilson & Lafleur, 2015, para. 3099.
[4] Art. 1642 C.C.Q.
[5] BIRON, J., M. CACHECHO, É. CHARPENTIER, S. LANCTÔT, A. MALACKET, B. MOORE, A. ROY and J. TORRES-CEYTE, Code civil du Québec Annotations – Commentaires, 6th ed., Montreal, Éditions Yvon Blais, 2022–2023.
[6] Art. 3120 C.C.Q.
[7] Laîné c. Viking Helicopters Ltd, [1999] RJQ 1472 (QC CS).
[8] Art. 1638 C.C.Q.
[9] Art. 3003 para. 1 C.C.Q.
[10] Art. 3003 para. 2 C.C.Q.
[11] Art. 3003 para. 3 C.C.Q.
