For financing its activities, a Quebec-based business may grant
to a Canadian chartered bank a security under 427 of the Bank Act.
This security interest allows the bank to exercise its rights on
the borrower's inventories as well as on the debts resulting
from their sale while avoiding the formalities and notices which
would otherwise be required under the Civil Code of Québec
upon the exercise of a hypothecary remedy.1
For its part, article 2293 of the Civil Code of Québec
allows the holder of a retention right to retain the stored
property until the depositor has, among other things, paid him the
agreed upon compensation.
In the Levinoff-Colbex, s.e.c. (Séquestre de) et RSM
Richter inc.,2 the Superior Court had to decide whether
the rights of National Bank of Canada
("NBC") resulting from a security
granted to it under the Bank Act, a federal statute, ranked ahead
of the retention right relied upon by another creditor under the
Civil Code of Québec following the failure of the debtor to
meet its contractual commitments respecting the payment of the
storage and refrigeration costs of its inventories.
According to the Superior Court, the rights of a creditor under
section 427 of the Bank Act may be described as a sui generis
ownership right, according to the wording used by the Court of
Appeal in the case of Banque Canadienne Nationale v.
However, this sui generis ownership right does not constitute a
true ownership right within the meaning of the Quebec civil law on
property covered by such security interest. Section 427 and
following of the Bank Act rather establish a security interest
regime focused on ownership and confer on the bank which holds such
security interest rights as a secured creditor and not as an owner
of the property covered by such security interest.
In this context, NBC could not be bound by the retention right
created in favour of another creditor. In fact, the determination
of the priority of these rights did not derive from holding an
ownership right within the meaning of civil law: the NBC was rather
a secured creditor of the debtor.
The priority of creditors' rights must be determined by
applying and interpreting the Bank Act in accordance with the
doctrine of paramountcy and the judgment issued by the Supreme
Court of Canada in the case of Bank of Montreal v. Innovation
Since section 428 of the Bank Act contains an express provision
resolving this priority conflict, one has simply to apply the rule
provided in this section whereby the rights of the BNC had
"priority over all rights subsequently acquired in, on or in
respect of that property" covered by the security
1 Banque de Montréal v. Hall,  1
2 2013 QCCS 1489. It must be noted that an appeal of this
judgment has been filed with the Court of Appeal under number
3  B.R. 83, at page 88, referring to Landry
Pulpwood Co. v. Banque Canadienne Nationale,  S.C.R. 605,
4  3 S.C.R.3
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