Canada: Legal Hypothecs And Legal Persons Established In The Public Interest: A Recap Of Applicable Principles

Article 916 of the Civil Code of Québec (the "CCQ") provides that "No one may … acquire for himself property of legal persons established in the public interest that is appropriated to public utility". 

However, despite appearances, this rule is not strictly tied to the concept of public utility. 

That is because the CCQ's Article 300 indicates its merely suppletive nature vis-à-vis legal persons established in the public interest, as that article provides that they are primarily governed by the special Acts applicable to them. 

What should we be looking for in these special Acts? 

  • Whether the corporation truly owns the property it holds or is holding it as agent of the State; 
  • If the special Act that applies to it gives it the power to hypothecate its property and if so, under what conditions. 

Here is essentially what must be borne in mind in such matters: 

  1. That the property of the State is unseizable, unless it was acquired by succession, vacancy or confiscation and has not been comingled with its other property. 

    For example, the property of a government ministry cannot be charged with a legal construction hypothec.

  2. That the property held by a legal person established in the public interest as agent for the State is unseizable unless the specific Act that applies to it allows it to be seized and any conditions prescribed therein are met. 

    For example, the property of Hydro-Québec that it holds as agent of the State can be charged with a legal construction hypothec provided that the conditions in its constituting statute are met. The courts have held that sub-contractors and suppliers do not fulfill those conditions as there is no direct contractual link between them and Hydro-Québec1. But it is still not entirely clear whether general contractors and professionals who have contracted directly with Hydro-Québec can register such a hypothec against its property. 

  3. That the property held by a legal person established in the public interest is seizable if its constituting statute so permits and any conditions prescribed therein are met. 

    For example, a hospital can be charged with a legal construction hypothec provided certain conditions are met. 

  4. That the property held by a legal person established in the public interest which is not appropriated to public utility is seizable, regardless of the provisions of its constituting statute. 

    For example, the property of a school can be charged with a legal construction hypothec because, according to current case law, it is not appropriated to public utility. The logic here is that while a school's mission is of public utility, the property required for fulfilling that mission is not necessarily so.

As for cities and other municipalities, who are also legal persons established in the public interest, their constituting statute does not contain any specific provision allowing their property to be charged with a legal hypothec. Thus, according to the rule set out in Article 916 CCQ, their property cannot be charged with a legal construction hypothec if it is appropriated to public utility (municipal park, storage shed for road de-icing salt, water and sewer systems, library, etc.). On the other hand, property not deemed to be appropriated to public interest is in the private domain and thus seizable (municipal chalet, municipal swimming pool, certain arenas, etc.).

Footnote

1 Section 3.1.2 of the Hydro-Québec Act, CQLR, c. H-5: The Company shall have the power to possess property, and such power shall be unlimited. The property possessed by the Company is, and has been since 15 April 1944, the property of the State but the performance of the obligations of the Company may be levied on such property.

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.

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