Caisse populaire Desjardins de Val-Brillant v. Blouin

Caisse populaire Desjardins de Val-Brillant v. Blouin
Collection
Supreme Court Judgments
Date
2003-06-05
Neutral citation
2003 SCC 31
Report
[2003] 1 SCR 666
Case number
28483
Judges
Gonthier, Charles Doherty; Iacobucci, Frank; Bastarache, Michel; Binnie, William Ian Corneil; Arbour, Louise; LeBel, Louis; Deschamps, Marie
On appeal from
Quebec
Subjects
Priorities and hypothecs
Notes
SCC Case Information: 28483
Decision Content
Caisse populaire Desjardins de Val-Brillant v. Blouin, [2003] 1 S.C.R. 666, 2003 SCC 31
Caisse populaire Desjardins de Val‑Brillant Appellant
v.
Métivier & Associés Inc. Respondent
Indexed as: Caisse populaire Desjardins de Val-Brillant v. Blouin
Neutral citation: 2003 SCC 31.
File No.: 28483.
2002: November 6; 2003: June 5.
Present: Gonthier, Iacobucci, Bastarache, Binnie, Arbour, LeBel and Deschamps JJ.
on appeal from the court of appeal for quebec
Priorities and hypothecs — Movable hypothec with delivery — Movable hypothec on claims — Validity of movable hypothec with delivery on claim not represented by negotiable instrument — Whether provisions of federal Income Tax Act affect validity of hypothec — Whether words “property or title” used in arts. 2702 and 2703 C.C.Q. are sufficiently broad to include claims not represented by negotiable instrument — Whether there may, in case of such claim, be sufficient holding by creditor to grant and publish hypothec — Civil Code of Québec, S.Q. 1991, c. 64, arts. 1641, 2702, 2703, 2710 — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), s. 248 .
A couple of annuitants signed a statement establishing the terms of the standard RRSP offered by the Caisses populaires Desjardins. According to the statement, the plan complied with the Income Tax Act (“ITA ”) and contributions would be held by Desjardins Trust on behalf of the annuitants until the plan matured. The contributions were to be deposited in a retirement savings account at the Caisse. The Caisse issued four deposit certificates in the name of Desjardins Trust which could not be withdrawn before maturity and were non-negotiable and non-transferrable. The certificates stated that the deposits could not be given as security other than to the Caisse. Before maturity, the annuitants borrowed from the Caisse, which, by way of security, had them sign a document entitled “Movable hypothec on moneys accumulated in a retirement savings plan”. The Caisse held the deposit certificates. The hypothecs were accepted by Desjardins Trust. The annuitants then made an assignment in bankruptcy. The Caisse completed the RRSP withdrawal forms. After remitting the amount of the deposits to the Caisse, to the value of the balance of the loans after tax was withheld, Desjardins Trust issued the tax statements in respect of the use of the RRSPs as security and those in respect of the extinction of the security. The trustee rejected the Caisse’s claim as a secured creditor. The Superior Court ruled in favour of the Caisse, but the Court of Appeal restored the trustee’s decision.
Held (Binnie, LeBel and Deschamps JJ. dissenting): The appeal should be allowed.
(1) Effects of the ITA on the validity of the hypothec
While the RRSP in which the annuitants invested cannot be characterized as a trust in the civil law sense, because the annuitants were still the owners (or creditors) of the funds invested, s. 248 ITA provides, for Quebec, that an arrangement may be deemed to be a trust if it meets certain requirements. The tax authorities characterized the RRSP as a trust, and there is nothing in the evidence that would allow that characterization to be questioned. The ITA does not prohibit the use of this RRSP as security. Determination of the validity of the hypothec, however, must be based on the civil law.
(2) Validity of the hypothec
Per Gonthier, Iacobucci, Bastarache and Arbour JJ.: The movable hypothec with delivery on a claim not represented by a negotiable instrument at issue here is valid.
The words “property or title” used in arts. 2702 and 2703 C.C.Q. are sufficiently broad to include claims not represented by a negotiable instrument that are part of the hypothecary debtor's patrimony. This conclusion is consistent with the wording of arts. 2708, 2709 and 2710. The effect of an interpretation that would limit the expression “title” to negotiable instruments and the expression “property” to corporeal property would be to prohibit individuals from creating certain hypothecs for which the Code expressly provides.
The real question is whether there may, in the case of a claim not represented by a negotiable instrument, be sufficient holding by a creditor to grant and publish the hypothec. A movable hypothec with delivery on a non‑negotiable claim is validly granted and published where (i) the debtor has transferred effective control of the claim to the creditor by giving the creditor the right to collect directly in the event of default, without further authorization by the debtor; (ii) where the claim is evidenced by a non‑negotiable title which it is possible to hand over, such title has been handed over to the creditor; and (iii) the necessary steps have been taken so that the hypothec may be set up against the debtor of the claim in accordance with art. 1641 C.C.Q.
In the case of a claim not represented by a negotiable instrument, mere physical delivery of the non‑negotiable instrument that attests the claim is not sufficient for a hypothecary creditor to genuinely hold the title within the meaning of art. 2703, because it does not convey effective control of the claim represented by the title. Physical delivery of a non‑negotiable instrument has no legal effect between the parties, in the sense that it does not permit the hypothecary creditor himself or herself to exercise the rights provided by the title, and to exercise rights in the claim in the event of default. It therefore cannot, by itself, constitute the “remittance” required by art. 2702. It is the procedure set out in art. 2710 C.C.Q., which requires the setting up of a hypothec on a claim against the debtor of the claim in the same way as an assignment of claim, that enables the hypothecary creditor to obtain effective control of the hypothecary claim, by making it possible for the creditor's right to be set up against the debtor of the claim. The requirements that must be met in order for it to be set up against the debtor of the claim are stated in art. 1641, which does not require that complex formalities be followed: the debtor of the claim need only acquiesce in the hypothec, or receive a copy or a pertinent extract of the deed or “any other evidence of the assignment which may be set up against the assignor”. When one of those requirements has been met, the pledge of the claim may be set up against the debtor. Article 1641, para. 1 does not necessarily require a writing, although one may be desirable in practice. An interpretation of the provisions of the Civil Code of Québec that makes it possible to create a pledge on a claim not represented by a negotiable instrument reflects the general development of the law of security interests in claims of that nature, as well as providing Quebecers with a form of access to credit that is generally available elsewhere in the world, and fostering a degree of uniformity in this area, one that is crucial to the conduct of numerous business activities, while remaining faithful to the spirit of the Code and the civil law origins of the concept of pledge.
In this case, in addition to handing over the certificates of deposit to the Caisse, the debtors agreed that the Caisse had sole authority to collect the claim from Desjardins Trust, and that the Caisse was irrevocably authorized to do so in the event of default. That contract was brought to the attention of Desjardins Trust's representatives, who agreed to it. The requirements set out in arts. 2702 and 2703 C.C.Q. were met, and the Caisse held a valid movable hypothec on those claims, a hypothec that could be set up against the trustee.
Per Binnie, LeBel and Deschamps JJ. (dissenting): In order for hypothec with delivery to be included coherently in the concept of pledge, a hypothec with delivery on a title attesting a claim must both comply with the general rules of pledge and be compatible with the rules that apply to a hypothec on claims. Pledge differs from other hypothecs in that it is granted by simply handing over the property charged to the creditor (art. 2702 C.C.Q.). This simple method of granting security provides the creditor with all of the powers associated with a hypothec without any further formality or publication (art. 2703 C.C.Q.). No writing is necessary. Since it is control of the property by the creditor that characterizes a pledge, the only property that may be the object of a pledge is property which can be controlled by the creditor by simply handing it over. The word “title” in art. 2702 C.C.Q. must therefore be confined within the boundaries of the concept in respect of which it is used. In order to be the object of a pledge, the title must be one that complies with the characteristics of that kind of security. With respect to the general rules governing hypothecs on claims, art. 2710 C.C.Q. provides that the holder of the hypothec may not set up his or her right against the debtor of the hypothecated claim as long as it may not be set up in the same way as an assignment of claim. Article 1641 C.C.Q., which deals with assignments of claims, cannot be harmoniously incorporated into the concept of a hypothec with delivery. The terms for setting the claim up against the debtor set out in that article, which presuppose a writing, are foreign to the simplicity that is inherent in granting a pledge. An interpretation that would make it possible to connect the acquiescence of the debtor of the claim — the first method by which a claim may be set up against the debtor under art. 1641 C.C.Q. — to the assignment rather than to the deed of assignment cannot be adopted. A pledge, which is granted simply by handing over the property, cannot depend on the will of the debtor of the claim that is pledged in order for it to be possible to set it up against him or her. The general rule is that the debtor's patrimony is subject to the general pledge of the creditors. In order to preserve the order of distribution and balance among the creditors, the pledgee's rights must be clearly circumscribed, once all of the requirements for granting and publishing the pledge have been met. The rule set out in art. 1641 C.C.Q. for setting the claim up against the debtor is therefore limited to a hypothec without delivery, and applies in full to security of that nature.
Under art. 1647 C.C.Q., all of the characteristics of a pledge can be reconciled with the provisions concerning assignments of claims, to which art. 2710 C.C.Q. refers. In the case of a pledge, it must be possible to apply art. 2710 without a writing being necessary. Under art. 1647, no formality other than delivery need be performed in order to be able to set up the assignment against the debtor of the claim. The mechanism of art. 1647 C.C.Q., established by reference (art. 2710 C.C.Q.), is the same as the one provided in the section on movable hypothec with delivery (arts. 2702 C.C.Q. et seq.). In both cases, handing over or delivery is sufficient to give the creditor complete control of the property. In the case of a pledge, the right to collect the capital, interest and income must be capable of being exercised solely by virtue of holding the instrument, pursuant to art. 2743.
In short, the pledge of a claim can be granted only by handing over a negotiable instrument. An instrument of that nature is the only thing that allows for the rights inherent in the security to be granted and published, that makes it possible for it to be set up against the debtor, and that allows for the exercise of the rights inherent in the security simply by handing over the instrument. When the instrument is not negotiable, the mere fact that it is held by a third person does not tell the debtor of the hypothecated claim what right would enable the pledgee to claim payment from him or her. By virtue of the very nature of the non‑negotiable instrument of claim, the rights set out in it are the rights that the grantor may exercise against the debtor of the hypothecated claim. The fact that, in those circumstances, the pledgee would be unable to exercise his or her rights clearly shows that the instrument must necessarily incorporate the claim.
The rule set out in art. 2683 C.C.Q. expresses a clear legislative policy choice. Neither the comments made in the literature prior to the reform nor the provisions ultimately enacted seem to support the assertion that the scope of movable hypothecs with delivery should be broadened.
Here, the Caisse does not really have control of the security interest simply by holding the deposit certificates. The certificates set out the rights of Desjardins Trust and of the annuitants, but the Caisse does not, merely by holding them, acquire any right that would allow it to collect the capital at maturity without performing any formality. The hypothec is therefore not valid.
Cases Cited
By Gonthier J.
Referred to: Perron-Malenfant v. Malenfant (Trustee of), [1999] 3 S.C.R. 375; Grobstein v. A. Hollander and Son Ltd., [1963] Que. Q.B. 440; Cass. civ. 1re, May 10, 1983, D.1984.433 (Soc. suisse d’assur. Winterthur v. Soc. anon. Réaltrade).
By Deschamps J. (dissenting)
Whaling (Bankrupt), Re (1998), 117 O.A.C. 51; Cie Trust Royal v. Caisse populaire Laurier, [1989] R.J.Q. 550; Gallucci (Syndic de), J.E. 93-617; Poulin v. Serge Morency et Associés Inc., [1999] 3 S.C.R. 351; Perron-Malenfant v. Malenfant (Trustee of), [1999] 3 S.C.R. 375.
Statutes and Regulations Cited
Act respecting the implementation of the reform of the Civil Code, S.Q. 1992, c. 57, s. 134.
Act respecting the revision of the Civil Code, S.Q. 1955, c. 47.
Act respecting the transfer of property in stock, S.Q. 1982, c. 55.
Bills of Exchange Act, R.S.C. 1985, c. B-4 .
Civil Code (Germany), art. 1280.
Civil Code of Lower Canada, arts. 1570, 1571, 1966, 1968, 1971, 1974.
Civil Code of Québec, S.Q. 1991, c. 64, arts. 1260, 1641 et seq., 1647, 1801, 2211, 2461, 2462, 2644, 2650 to 2659, 2660, 2663, 2664, 2665, 2666, 2683, 2696, 2702, 2703, 2704, 2705, 2707, 2708, 2709, 2710, 2743, 2747, 2748 et seq.
Civil Code (Switzerland), art. 900.
Code civil (France), arts. 1690, 2075 [am. L.n. 80-525, July 12, 1980], 2076.
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 104(1) , 146(1) , (2) [am. 1994, c. 7, Sch. II, s. 177(1); am. 1997, c. 25, s. 41(3)], (7), (10), (12), (13), 248.
Personal Property Security Act, R.S.O. 1990, c. P.10, ss. 1, 2, 22, 23.
Special Corporate Powers Act, R.S.Q. 1977, c. P-16, ss. 27-32.
Uniform Commercial Code [1999 rev.], ss. 9-104, 9-314.
Authors Cited
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Cabrillac, Michel, et Christian Mouly. Droit des sûretés, 5e éd. Paris: Litec, 1999.
Caron, Yves. “L’article 9 du code uniforme de commerce peut-il être exporté? Point de vue d’un juriste québécois”, in Jacob S. Ziegel and William F. Foster, eds., Aspects of Comparative Commercial Law: Sales, Consumer Credit, and Secured Transactions. Montréal: McGill University, 1969, 374.
Ciotola, Pierre. Droit des sûretés, 3e éd. Montréal: Thémis, 1999.
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Deschamps, Michel. “La fiducie pour fins de garantie”, in Contemporary Utilisation of Non-Corporate Vehicles of Commerce. Meredith Lectures. Montréal: Faculty of Law, McGill University, 1997.
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Le Dain, Gerald E. “Security Upon Moveable Property in the Province of Quebec” (1956), 2 McGill L.J. 77.
Macdonald, Roderick A. “Change of Terminology? Change of Law? An Overall Assessment of the Provisions of the Civil Code of Quebec Relating to Prior Claims and Hypothecs” (1992), 23 R.G.D. 357.
Macdonald, Roderick A. “Modernization of Personal Property Security Law: A Quebec Perspective” (1985), 10 Can. Bus. L.J. 182.
Macdonald, Roderick A. “The Counter-Reformation of Secured Transactions Law in Quebec” (1991), 19 Can. Bus. L.J. 239.
Malaurie, Philippe, et Laurent Aynès. Cours de droit civil, t. IX, Les sûretés: La publicité foncière, 7e éd. par Laurent Aynès. Paris: Cujas, 1995.
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Payette, Louis. Les sûretés réelles dans le Code civil du Québec, 2e éd. Cowansville, Qué.: Yvon Blais, 2001.
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APPEAL from a judgment of the Quebec Court of Appeal, [2001] R.J.Q. 321, 29 C.C.P.B. 1, [2001] Q.J. No. 61 (QL), setting aside a decision of the Superior Court, [1999] Q.J. No. 907 (QL). Appeal allowed, Binnie, LeBel and Deschamps JJ. dissenting.
P. Michel Bouchard, Christian Trépanier and Daniel Dionne, for the appellant.
Jean‑Patrick Bédard, Cainnech Luissiaà‑Berdou and Marc‑André Gravel, for the respondent.
English version of the judgment of Gonthier, Iacobucci, Bastarache and Arbour JJ. delivered by
1 Gonthier J. — I have had the privilege of reading the reasons of my colleague Deschamps J. Although I agree with her conclusion that the provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .) (“ITA ”), do not affect the validity of the hypothec in question, I cannot concur in her interpretation of the provisions of the Civil Code of Québec, S.Q. 1991, c. 64 (“C.C.Q.”), concerning movable hypothecs with delivery. I am of the view that the words “property or title” used in arts. 2702 and 2703 are sufficiently broad to include claims not represented by a negotiable instrument. The real question that arises in this case is whether there may, in the case of such a claim, be sufficient holding by a creditor to grant and publish the hypothec. As a general rule, holding by a creditor is sufficient, for the purposes of the pledge, when it enables the creditor to exercise effective control of the hypothecated property. When a claim is not represented by a negotiable instrument, mere physical handing over of the instrument that represents it will not be sufficient to give the creditor effective control of the claim. On the other hand, when the hypothecary debtor gives its creditor the right to collect the claim directly in the event of default, without further authorization by the hypothecary debtor, and that consent may be set up against the debtor of the claim under art. 2710, the creditor then has effective control of the claim and a valid pledge that may be set up against third persons has been created. In this case, in addition to handing over the certificates of deposit to the Caisse populaire de Val‑Brillant (“Caisse”), the debtors agreed that the Caisse had sole authority to collect the claim from Desjardins Trust, and that the Caisse was irrevocably authorized to do so in the event of default. That contract was brought to the attention of Desjardins Trust's representatives, who agreed to it. The requirements set out in arts. 2702 and 2703 were met, and the Caisse held a valid movable hypothec on those claims, a hypothec that could be set up against the trustee.
(1) The Applicable Law
2 A movable hypothec with delivery, which is commonly called a “pledge” (see art. 2665, para. 2 C.C.Q.), enables a creditor and a debtor to grant a hypothec on a property without the hypothec having to be registered in the registry in order for it to be set up against third persons. The hypothec is granted by handing over the property to the creditor, and the holding of the property by the creditor is sufficient to publish the hypothec. Articles 2702 and 2703 C.C.Q., which describe this mechanism, read as follows:
2702. A movable hypothec with delivery is granted by delivery of the property or title to the creditor or, if the property is already in his hands, by his continuing to hold it, with the grantor's consent, to secure his claim.
2703. A movable hypothec with delivery is published by the creditor's holding the property or title, and remains so only as long as he continues to hold it.
My colleague Deschamps J. is of the opinion that the word “title”, as it is used in these two articles, can refer only to a negotiable instrument, so that only claims represented by such an instrument may be the object of a movable hypothec with delivery. With respect, I cannot agree with that interpretation of these articles, which I find to be unduly restrictive. In my opinion, the words “property” and “title”, which are used side by side by the legislature, must be interpreted having regard to the general meaning of those words in civil law, and with a view to the consistency of the interpretation that is adopted with the other provisions of the Code, as well as with the policy objectives underlying the reform of the law of real security.
3 The general meaning of the word “property” includes both corporeal property and incorporeal property, which itself includes personal rights that may form part of an individual's patrimony, such as claims. For example, the Dictionnaire de droit privé states that, in this general sense, the word “bien” (property) is synonymous with “droit patrimonial” (patrimonial right), which in turn is defined as:
[translation] A right to which a monetary value can be assigned which is part of an individual's patrimony. E.g. a vendor's claim, ownership.
(P.‑A. Crépeau, ed., Dictionnaire de droit privé et Lexiques bilingues (2nd ed. 1991), at p. 209)
As well, the Dictionnaire de droit québécois et canadien defines a bien as [translation] “any material thing, any right that is part of an individual's patrimony”; this obviously includes the category of “incorporeal property”, “biens incorporels”, which is defined as follows:
[translation] Property which has no material existence but represents a monetary value. E.g. Trade name, claim.
(H. Reid, Dictionnaire de droit québécois et canadien avec table des abréviations et lexique anglais-français (2nd ed. 2001), at p. 63)
4 This general meaning of the word “property” is the one most often intended by the legislature in the book on prior claims and hypothecs: for example, we might think of art. 2644 C.C.Q., which provides that “[t]he property of a debtor is charged with the performance of his obligations and is the common pledge of his creditors”, or art. 2660 C.C.Q., which defines a hypothec as “a real right on a movable or immovable property made liable for the performance of an obligation”. Because it is undeniably true that, first, claims that are part of an individual's patrimony form part of the common pledge of his or her creditors, and second, that the Code provides that claims may be the object of hypothecs, those two articles demonstrate that when the word “property” is used it generally includes claims. There are a host of possible examples of this use of the word “property”, but we will mention only art. 2666 C.C.Q., which deals directly with the object of a hypothec and provides that “[a] hypothec is a charge on one or several specific corporeal or incorporeal properties, or on all the properties included in a universality” (emphasis added).
5 Accordingly, the word “property” which is used in arts. 2702 and 2703 prima facie includes all claims that are part of the hypothecary debtor's patrimony. Articles 2702 and 2703 must therefore, first, be interpreted having regard to the intention thus expressed by the legislature, to include all claims in the potential objects of a movable hypothec with delivery. Second, in these articles, the legislature chose to require that a “title” be handed over and held in order to grant and publish the pledge in certain circumstances. According to the Dictionnaire de droit privé, supra, at pp. 17 and 562, the word “titre” (title), in its legal sense, is synonymous with “acte instrumentaire” (instrument), which expression refers to a [translation] “[w]riting prepared to record a juridical act or a juridical fact”. The use of that expression reflects the fact that a personal patrimonial right is generally recorded in a title and that, in that case, the creation of a pledge of the right in question will require that the title be handed over and held. However, the use of the word “title” does not, prima facie, imply a distinction between negotiable and non‑negotiable instruments; the definition of the expression is sufficiently broad to include both. Given this situation, can we conclude that when the legislature used that expression, it intended to limit pledges of claims to those claims that are represented by a negotiable instrument? I do not believe so, having regard not only to the legislature's prima facie intention to permit any type of claim to be pledged, but also to the wording of the other provisions that deal with pledge.
6 This conclusion is consistent with the wording of art. 2710, which deals with movable hypothecs on claims:
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. [Emphasis added.]
That article makes no distinction between claims represented by a negotiable instrument and claims not so represented, and this indicates that any “claim” may be the object of a movable hypothec “with delivery”.
7 The interpretation proposed above is also based on the wording of arts. 2708 and 2709, which deal more specifically with movable hypothecs with delivery:
2708. A movable hypothec on property represented by a bill of lading or other negotiable instrument or on claims may be set up against the creditors of the grantor from the time the creditor gives value, provided the title is remitted to him within ten days from that time.
2709. Where the title is negotiable by endorsement and delivery, or delivery alone, its remittance to the creditor takes place by endorsement and delivery, or by delivery alone.
Article 2708 refers separately to movable hypothecs “on property represented by a bill of lading or other negotiable instrument” and “on claims”. This implies that there are movable hypothecs with delivery on claims that are not represented by a negotiable instrument. As well, the use of the word “where” at the beginning of art. 2709 indicates that the procedure provided by that article is not exclusive, and that the legislature was providing that a pledge could be granted on a claim not represented by the negotiable instruments referred to in the article.
8 The effect of taking the opposite approach, which would limit the expression “title” to negotiable instruments and the expression “property” to corporeal property, would be to prohibit individuals from creating certain hypothecs for which the Code expressly provides: hypothecs on a share in a general partnership (art. 2211) and hypothecs on rights under a contract of life insurance (arts. 2461 and 2462). Given that a natural person who is not operating an enterprise may not grant a movable hypothec without delivery (art. 2683), such a person would be unable to use that technique. As well, because the rights in question are not normally represented by negotiable instruments, it would also not be possible for them to be the object of a pledge. Given the nature of these rights, which are most often held by individuals, it would seem unlikely that the legislature would have intended to limit the ability to hypothecate them in such a way: see Perron‑Malenfant v. Malenfant (Trustee of), [1999] 3 S.C.R. 375, at para. 51. On this point, it is worth noting that the Commentaires du ministre de la Justice (1993), vol. II, at p. 1546, concerning art. 2461, para. 2, indicate that this article applies to situations that were formerly covered by [translation] “[t]he concept of pledge under previous law”. This suggests that the hypothec contemplated by this article is a movable hypothec with delivery.
9 However, the conclusion that the use of the expressions “property” and “title” in arts. 2702 and 2703 C.C.Q. is not a prima facie bar to the possibility of a pledge of a claim not represented by a negotiable instrument cannot, in and of itself, resolve the issue of the validity of the pledge in this case. Those articles require that the property or title be handed over to the creditor in order for the hypothec to be granted, and that the property or title be held by the creditor in order for it to be published. Those two requirements represent two sides of the same coin, in the sense that in order for there to have been effective handing over, it must result in the creditor holding the property or title. The real question is therefore whether that requirement of handing over may be met where the object of the hypothec is a claim not represented by a negotiable instrument, and in what circumstances that would be so. In other words, can there be “holding” of such a claim by the creditor in such a way that a movable hypothec with delivery is granted and published?
10 To answer that question, we must first determine the meaning of the expression “holding” (détention) which is used in art. 2703. “Holding” as necessary for publication of a pledge, as it has been defined by the courts, relies on the concept of “control” or “effective control” (maîtrise effective) of the hypothecated property by the creditor. For example, the Dictionnaire de droit privé, supra, at p. 173, defines “détention” as [translation] “effective control of a thing”. In Grobstein v. A. Hollander and Son Ltd., [1963] Que. Q.B. 440, Bissonnette J. said, at p. 442:
[translation] [O]nce the creditor holds a clearly identified thing as a pledge, the creditor has “control”, exclusive authority, over that thing, and the creditor's holding of the thing is neither casual nor equivocal and the creditor may dispose of it irrespective of anyone else's claims to it and, in addition, the law imposes a duty to retain and conserve the thing on the creditor, the creditor's possession is effective to secure his or her right in the pledge. [Emphasis added.]
That definition becomes clearer when we consider the objectives of a pledge. Unlike a movable hypothec without delivery, a pledge is published, that is, it may be set up against third persons, by the creditor's holding. This then means that the creditor obtains effective and exclusive control of the property in question, so that third persons are able to determine that there is a pledge, or have a means of informing themselves.
11 On the one hand, in the case of corporeal property, physically handing over the property to the creditor is sufficient both to grant the pledge within the meaning of art. 2702 and to publish it within the meaning of art. 2703, because there is then physical holding, control, by the creditor. The pledge will continue to be public for so long as the holding of it is exercised in accordance with the requirements of the Code and the case law. For instance, art. 2704 provides that holding is continuous even if its exercise is prevented by the act of a third person without the consent of the creditor or is temporarily interrupted by the handing over of the property or title to the grantor or to a third person for evaluation, repair, transformation or improvement. The intention of the legislature was thus to codify the approach adopted in Hollander, supra: see the Commentaires du ministre de la Justice, supra, at p. 1692, art. 2704.
12 On the other hand, whether or not a pledge of a claim is represented by a negotiable instrument, it is subject to the general requirements imposed on movable hypothecs on claims by art. 2710, para. 2, which provides:
[T]he 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.
In order for it to be possible to set up a hypothec on a claim against the debtor of the claim, then, the hypothecary creditor must comply with the requirements of arts. 1641 et seq. C.C.Q., which deal with assignment of claims. Accordingly, at least in theory, the creation of a complete pledge of a claim, whether or not the claim is represented by a negotiable instrument, involves three conceptual steps: the granting of the pledge by handing over the property or title to the hypothecary creditor; the publication of the pledge by the creditor holding the property or title; and the fact that the pledge may be set up against the debtor of the claim, which is brought about in the same way as for an assignment of claim: see L. Payette, Les sûretés réelles dans le Code civil du Québec (2nd ed. 2001), at pp. 359‑60.
13 In the case of a negotiable instrument, art. 2709 expressly provides that the “remittance” (remise) required by art. 2702 takes place, depending on the nature of the title that is hypothecated, by endorsement and delivery or by delivery alone. In each case, the effect of the transaction in question is indisputably that the hypothecary creditor then holds the claim represented by the title, because the creditor, having a validly transferred negotiable instrument in his or her hands, is free to exercise rights in it without the consent of the hypothecary debtor who handed it over to him or her. On the one hand, as art. 1647 indicates, a claim attested by a bearer instrument may be assigned by “mere delivery” (simple tradition), to another bearer, of the instrument attesting it. Physical delivery of the title is therefore sufficient to give the creditor effective control of the claim. On the other hand, in the case of a title that is negotiable by endorsement and delivery, for example a cheque, “mere delivery” as provided in art. 1647 will be insufficient: in order for the creditor to exercise rights in that claim, the title must also be endorsed. That is why the legislature supplemented art. 1647 with art. 2709, which requires endorsement as an integral part of the “remittance” required by art. 2702 in order to create the pledge. The concept of “remittance” is therefore not identical to the “mere delivery” required by art. 1647: while “mere delivery” refers to physical delivery, the “remittance” required by art. 2702 refers, rather, to the transaction by which the creditor obtains control over the hypothecated claim: in this specific case, the endorsement and delivery of the title. Accordingly, where a negotiable instrument is pledged, the effect of the procedure set out in art. 2709 is to complete the three conceptual steps described earlier: once the title is remitted to the creditor by endorsement and delivery or by delivery alone, as the case may be, the pledge has been given and published and may be set up against the debtor of the claim. In other words, holding the title takes the place of holding the claim itself, because it, in and of itself, gives the hypothecary creditor effective control of the claim.
14 But what about a claim that is not represented by a negotiable instrument? In that case, mere physical delivery of the non‑negotiable instrument that attests the claim, for example a contract or invoice, is not sufficient for a hypothecary creditor to genuinely hold the title within the meaning of art. 2703, because it does not convey effective control of the claim represented by the title. Physical delivery of a non‑negotiable instrument has no legal effect between the parties, in the sense that it does not permit the hypothecary creditor himself or herself to exercise the rights provided by the title, and to exercise rights in the claim in the event of default. It therefore cannot, by itself, constitute the “remittance” required by art. 2702. That is why the legislature has provided a procedure for such cases that enables the hypothecary creditor to obtain effective control of the hypothecary claim, by making it possible for the creditor's right to be set up against the debtor of the claim. That procedure is the one set out in art. 2710 C.C.Q., which requires the setting up of a hypothec on a claim against the debtor of the claim in the same way as an assignment of claim. In the case of a claim not represented by a negotiable instrument, the requirements that must be met in order for it to be set up against the debtor of the claim are stated in art. 1641, the first paragraph of which reads as follows:
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.
This article does not require that complex formalities be followed: the debtor of the claim need only acquiesce in the hypothec, or receive a copy or a pertinent extract of the deed or “any other evidence of the assignment which may be set up against the assignor”. When one of those requirements has been met, the pledge of the claim may be set up against the debtor. Accordingly, where the hypothec granted gives the hypothecary creditor the right, in the event of default, to collect the hypothecary claim directly without obtaining further authorization from his or her debtor, the creditor will have obtained effective control of the claim and a valid pledge that may be set up against third persons will have been created.
15 Where the claim is not represented by a negotiable instrument, the “remittance” required by art. 2702 t