A recent decision of the Superior Court1 reminds us that one must be prudent when the rules applicable to litigious rights may apply. The Civil Code2 provides that when litigious rights are sold, the person from whom they are claimed is discharged by paying to the buyer the sale price, the costs and interest on the price computed from the day on which the payment was made.

Although this rule is not new, it still causes difficulties when, for example, a transfer of enterprise occurs as a result of the sale of assets which includes the rights of the seller in judicial proceedings which have already been undertaken. This right, conferred on the person against whom a claim exists, is called the redemption right.

When the rights of the seller in an action are sold, the defendant may be entirely discharged of the recourse against him by repaying the purchaser the price the purchaser paid to acquire these litigious rights. The Civil Code provides for several exceptions to this rule. The right of redemption may not be exercised:

  1. where the sale is made to a creditor in payment of what is due to him, to a coheir or co-owner of the rights sold or to the possessor of the property subject to the right;
  2. where a court has rendered a judgment affirming the rights sold; or
  3. where the rights have been established and the case is ready for judgment.3

Attempts have been made to circumvent the application of the right of redemption by adding to the sale price a percentage of the amount to be collected at the end of the judicial proceedings. However, under case law, the price of the redemption right must be equal to the price actually paid by the purchaser at the time of the sale, which excludes, according to Madam Justice Pierrette Rayle, of the Superior Court in the Mendel4 case and confirmed by the Court of Appeal5, the commitment to pay a percentage of the amount obtained as a result of the claim:

"With respect to the 5% to be paid on the eventual recovery of the Mendel claims, since it was never disbursed by Kuczer, it does not have to be included in the amounts to be «reimbursed» in virtue of Art. 1784 C.C.Q. (1) Furthermore, an undertaking to pay a percentage of the claim recovered may very well be illegal and unenforceable."

The redemption right does not apply in case of an assignment or transfer free of charge (gift) and, as it is incumbent on the person who redeems to prove the actual amount of the sale price, the right cannot be exercised if several items of property have been transferred with the litigious claim for an all inclusive or single price.6

If there are ways to avoid the possible application of the redemption right, the purchasers of litigious rights will be well advised to acquaint themselves with the rules applicable to the redemption right before going ahead with the sale rather than after the fact.

Footnotes

1. Girard c. Pearl, 2012 QCCS 5259 (CanLII), October 23, 2012.

2. Article 1784 paragraph 1.

3. Article 1784 paragraph 2.

4. Mendel v. Entreprise Pemik inc., J.E. 97-531 (C.S.).

5. Kuczer v. Mendel, J.E. 2001-761 (C.A.).

6. Rénovations Langis inc. v. Cabessa, REJB 1996-30611 (S.C.).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.