Summary

The author reviews the concept of the monetary claim introduced in the Civil Code of Québec in 2016 in light of court decisions. This review helps identify situations where this form of security may be appropriate and distinguishes it from the mechanism of compensation.

FOREWORD

Since January 1, 2016, the Civil Code of Québec ("CCQ") has included provisions regarding monetary claims 1 . The highlights of this concept introduced into Québec law are as follows: (i) the monetary claim is first and foremost a claim payable in money only, (ii) it is owed to the debtor by its creditor or by a third party, (iii) it confers on the secured creditor a first rank, regardless of the date of its security, and finally, (iv) it constitutes an undisclosed security which does not require publication in the Register of Personal and Movable Real Rights ("RPMRR").

INTRODUCTION

Before the introduction of provisions concerning monetary claims, the amounts paid by a debtor to his creditor could not be simply retained by the creditor as security. The only way for the creditor to protect himself was to obtain from his debtor a movable hypothec without delivery, which charged the claim that the creditor owed the debtor based on the amounts that had been paid to him by the debtor. In other words, the creditor had to obtain a movable hypothec without delivery on the claim he himself owed his debtor. In all cases, the rank of this movable hypothec without delivery was determined by its publication date in the RPMRR and accordingly subject to all other movable hypothecs without delivery already granted by the debtor on this same claim.

Furthermore, it has always been possible to hypothecate a claim by way of a movable hypothec with delivery, but before January 1, 2016, the only claims likely to be hypothecated with delivery were those evidenced by a title whose physical delivery to the creditor was sufficient to constitute a pledge 2 . Creation of the pledge by physical delivery of the title avoids the movable hypothec agreement in writing, as well as waiving the creditor from having to publish his hypothecary creditor rights in the RPMRR, the physical possession of the title being equivalent to the publication measures required by the CCQ. While pledging a claim evidenced by a negotiable instrument delivered to the creditor is a simple way to create a security, it has never been, however, a common practice in security matters.

Creditor problems in easily obtaining a security for the amounts that the creditor himself owes his debtor has occasioned changes in the CCQ by the introduction of a new concept that did not previously exist in Québec law, the monetary claim.

To view the French version of this chronicle, see Maxime B. RHÉAUME, "Chronique – Les créances pécuniaires", in Repères, May 2023, La référence, EYB2023REP3639.

I– THE AMERICAN SYSTEM

The reform of the CCQ with respect to monetary claims based on US law which provides a similar security but is generally limited to balances in bank accounts. The Québec reform is more innovative than the US system because most of the amounts of money owed by a creditor to his debtor can be considered a monetary claim that can be subject to a movable hypothec with delivery. Because of the definition given to the monetary claim, the situations in which a creditor may take advantage of this form of security are numerous under Québec law.

II– THE DEFINITION OF THE MONETARY CLAIM

A monetary claim is a claim requiring the debtor to reimburse, return or restore an amount of money or make any other payment in respect of an amount of money 3 .

A monetary claim can be defined the one which belongs to the debtor and is payable to him by way of a sum of money from:

  1. his creditor; or
  2. a third party:
    1. because of a credit balance in a financial account maintained by the debtor with this third party, or
    2. because of a sum of money paid and delivered by the debtor to this third party to guarantee an obligation of the debtor to one of his creditors.

The concept of monetary claim implies either a two-party, either a three-party relationship. In the first case, there must be a debtor and a creditor in a bilateral relationship and in the second, there must be a debtor, his creditor and a third party in a tripartite relationship.

The legislator has not specified in article 2713.1 CCQ whether the sum of money which is the subject of the claim must necessarily be legal tender, therefore the monetary claim could be payable in Canadian dollars or in any other currency 4 . The reason for this is that the requirement to have a monetary threshold to the hypothec 5 does not apply to a pledge or a movable hypothec with delivery since such a security can exist without a writing.

III– THE EXCLUSIONS FROM THE DEFINITION OF THE MONETARY CLAIM

The very broad definition of monetary claims in the CCQ nevertheless lists (3) types of claims that are expressly excluded from the regime applicable to monetary claims 6 . The following are not monetary claims:

  1. amounts in a certain and determinate currency delivered by the debtor to the creditor, when the agreement between the parties provides that its repayment by the creditor to the debtor must be in the same currency;
  2. a claim that is a security or an security entitlement according to the provisions of the Act respecting the transfer of securities and the establishment of security entitlements 7 ; and
  3. A claim represented by a negotiable instrument is not a monetary claim. For example, a promissory note governed by the Bills of Exchange Act 8 is an instrument that is not a security 9 nor is it a monetary claim pursuant to the CCQ. A claim created by a promissory note can be hypothecated without delivery like any other claim. It can also be hypothecated with delivery or pledged because it qualifies for the purposes of articles 2702 and 2709 CCQ. The fundamental difference between the pledge of a claim established by a negotiable instrument and the pledge of a monetary claim is the rank of the creditor's security. The pledge of a claim established by a negotiable instrument like a promissory note ranks from the time the note is delivered to the creditor 10 and it remains subject to all the other movable hypothecs without delivery published at that date in the RPMMR and charging the same claim. On the contrary, the pledge of a monetary claim gives the holder of the security a preferential ranking as a secured creditor, regardless of when the security was created.

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Footnotes

1. Art. 2713.1 to 2713.9 CCQ.

2. Art. 2702 and 2709 CCQ. These articles are limited to claims evidenced by negotiable instruments by endorsement and delivery.

3. Only claims payable by an amount of money are considered. A claim that is not payable by a sum of money cannot be a monetary claim.

4. Louis PAYETTE, Les sûretés réelles dans le Code civil du Québec, Éditions Yvon-Blais, 6th ed. 2022, no 610, EYB2022SUR45 and 945, EYB2022SUR93 [Payette].

5. Art. 2689 CCQ.

6. Art. 2713.1 CCQ.

7. Act respecting the transfer of securities and the establishment of security entitlements, CQLR, c. T-11.002 (“ATS”).

8. Bills of Exchange Act, L.R.C. (1985), c. B-4.

9. Section 15 ATS provides that while a promissory note is not a security, it may nevertheless be a financial asset.

10. The CCQ however provides a “phantom pledge” for a period of ten days under the conditions provided in article 2708 CCQ.

Originally Published by Thomson Reuters

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