Quebec - New Publication Requirements

Until now, certain contracts did not require publication in the register of personal and movable real rights ("RDPRM") in Quebec in order to have effect against third parties including, among others, the instalment sale contract (also known as the conditional sale contract or reservation of ownership). These contracts will now require publication.

• Conditional sale contract or reservation of ownership (instalment sale contract, Article 1745 C.C.Q.)
• Leasing ("crédit-bail")(Article 1842 C.C.Q.)
• Lease pertaining to movable property for a term exceeding one year (Article 1851 C.C.Q.) (see note 1)
• Sale with a right of redemption (Article 1750 C.C.Q.)
• Transfer of any of the above contracts

A lease of less than one year shall be deemed of more than one year if it contains a provision by which its term may be extended to more than one year (example: a renewal provision)

Any of the contracts outlined above that pertain to movable property acquired for the service or operation of an enterprise must now be published in order to have effect against third parties.

As for contracts entered into by an individual, only the contracts pertaining to movable property on which an individual may now grant a movable hypothec without delivery (i.e. the property described on the previous page, with the exception of rights and indemnities arising from insurance, both present and future, covering that property) must now be published in order to have effect against third parties. As for a leasing contract ("crédit-bail"), it should be noted that only a person who operates an enterprise can validly enter into such a contract. Therefore, an individual may not enter into a leasing contract for his/her personal use.

In order to preserve the initial effect against third parties, a contract entered into before September 17, 1999, must be published in the RDPRM within one year thereof, namely, before September 17, 2000.

A contract entered into after September 17, 1999, must be published in the RDPRM within fifteen days (15) of the date it was entered into in order to have effect against third parties from that date.

It should be noted that the publication of the transfer of, or a prior notice of exercise of a right resulting from, a contract will only be possible if the contract which such publication refers to has itself been published.

Conditional sale contract, reservation of ownership or instalment sale contract If the contract was not published, the vendor or transferee may take the property back only in the hands of the original purchaser; the vendor or transferee takes the property back in its existing condition and subject to the rights and encumbrances granted by the original purchaser.

If the contract was published, the vendor or transferee can take the property back in the hands of the original purchaser and in the hands of any subsequent purchaser, free and clear of any rights or charges.

If the contract was published late, the vendor or transferee may take the property back only if it is in the hands of the original purchaser, unless the reservation of ownership was published before the sale of the property by the original purchaser, in which case the vendor or transferee may also take the property back if it is in the hands of a subsequent purchaser. In any case, the vendor or transferee takes the property back in its existing condition, but subject only to such rights and charges with which the original purchaser may have encumbered it (by publication) at the time of the publication of the contract.

The right of redemption is a provision by which the vendor reserves the right to redeem the property (Article 1750 C.C.Q.). The vendor may only exercise its right of redemption by giving notice of its intention to the purchaser; such notice must be published. When the vendor exercises its right of redemption, it takes back the property free and clear of any charge which the purchaser may have encumbered it with, provided the vendor's right was published in due time and in accordance with the rules regarding the publication of rights.

Although the lease pertaining to movable property and leasing must now be published in order to have effect against third parties, the existing rules pertaining to the exercise of rights arising from these contracts are not modified by the present changes. However, since the statutory provisions do not specify the consequences of publishing such contracts late, it is recommended to publish them in the prescribed fifteen (15) day period in order to avoid any loss of right.

The single registration allows two enterprises to publish a single inscription in order to establish effect against third parties of contracts of the same type pertaining to a universality of movable property of the same kind and the transfer of such contracts (Article 2961.1 C.C.Q.). However, such publication has no effect against third parties who acquire the property in the ordinary course of the business of their vendor. For example, the single registration of a universality of conditional sale contracts entered into between an automobile manufacturer and an automobile dealership will have no effect (may not be set up) against a customer who acquired an automobile from the dealership. Only the individual publication of the conditional sale contract, under the identification number of the vehicle, will have effect against such purchaser. On the other hand, the same contract, on the sole basis of the single registration, will have effect against another creditor of the dealership.

Notwithstanding the single registration, a creditor may always elect to publish, on an individual basis, specific contracts that may have otherwise been covered by a single registration. This will ensure that the contract will have effect against third parties in the most complete manner.