Assignment, Subrogation, Novation, and Delegation of Obligations

Overview

The Civil Code of Quebec (CCQ) devotes Chapter Seven of Book Five to the transmission and modification of obligations (transmission et mutations de l'obligation). These mechanisms allow the obligational bond to be transferred to a new party, transformed, or replaced outright. The principal devices fall into three categories: changes involving a new creditor (assignment of claims, subrogation, novation by substitution of creditor), changes involving a new debtor (delegation of payment, novation by substitution of debtor), and changes affecting the debt itself between the same parties. Each mechanism carries distinct formation requirements, opposability rules, and consequences for accessory rights such as hypothecs (hypothèques) and suretyships (cautionnements). These distinctions affect the drafting of debt restructuring, refinancing and receivables transactions.

Learning Objectives

After completing this lesson, readers should be able to:

• Distinguish assignment of claims, subrogation, and novation as modes of creditor substitution
• Identify the validity and opposability requirements for an assignment of claims under the CCQ
• Explain the differences between conventional and legal subrogation and the formal requirements each demands

Assignment of Claims

An assignment of claim (cession de créance) transfers creditor rights. The assignor (cédant) transfers a claim or right of action, in whole or in part, to the assignee (cessionnaire) (art. 1637, al. 1 CCQ). Before the 1994 reform, assignment was treated alongside the contract of sale. The CCQ now situates it within the chapter on transmission and mutations, reflecting the reality that an assignment may result from a sale, a donation, or any other juridical act. Factoring (affacturage) commonly uses assignments to finance or collect commercial receivables; an assignment of a universality is not necessarily a factoring arrangement.

Assignment must be distinguished from both subrogation and novation. Unlike subrogation, assignment has a speculative character: the assignee may collect from the debtor more than the price paid to the assignor. Unlike novation by substitution of creditor, assignment does not extinguish the original obligation and create a new one; the same obligational bond passes from one creditor to the next. Assignment of a claim must also be distinguished from assignment of a contract (cession de contrat): in the former, only the assignor's rights transfer, whereas in the latter, both rights and obligations under the contract pass to the assignee.

Conditions of Validity

To assess formation, examine the assignor's and assignee's agreement under the ordinary rules of contract, including capacity and consent free of defects. Consensualism means that their agreement generally forms the assignment without a special formality. Separate that validity question from two practical ones: how to prove what was assigned, and how to make the transfer opposable. A written instrument often serves those purposes even when writing is not required for formation.

The debtor's consent is not required. Assignment is a bipartite operation. The legislator does protect the debtor: the assignment may not prejudice the debtor's rights or render the obligation more onerous (art. 1637, al. 2 CCQ). For example, if the assignor cedes only part of a claim, the resulting division into two creditors should not impose additional burdens on the debtor; in the event of non-performance, the two creditors would be expected to join their respective proceedings.

Any claim may be assigned unless the parties have stipulated inalienability or the law declares it non-assignable. Claims that are intrinsically personal to the creditor and linked to public order, such as alimentary obligations (obligations alimentaires), also resist assignment.

Conditions of Opposability

To produce effects against the debtor and other third parties, the assignment must be rendered opposable (opposable). The CCQ provides several personalized methods (art. 1641, 1642, 1644, 1645 CCQ):

1. Acquiescence by the debtor or surety
2. Notification to the debtor or surety of the deed of assignment or a relevant extract of it
3. Notification of proof of assignment that is opposable to the assignor
4. Service of proof during judicial proceedings against the debtor or surety (art. 1644 CCQ); a debtor who pays within the time allowed to answer is not liable for court costs unless already in default

When the debtor cannot be found in Quebec, article 1641, paragraph 2 CCQ permits opposability through publication of a notice complying with the Code of Civil Procedure rules for notification by public notice. Articles 135–138 CCP govern authorization, the publication method and proof; a newspaper notice alone is not the only permitted route. Assignment of a universality of present or future claims must be registered in the RDPRM to bind debtors and third parties; article 1641 formalities must also be completed toward each debtor who has not acquiesced (art. 1642 CCQ). An assignment of a hypothecary claim also requires publication in the appropriate register under article 3003 CCQ. These requirements are cumulative where applicable.

Effects of Assignment

Because assignment transmits the same obligation, the assignee steps into the assignor's position with all the same rights, including accessories such as accrued interest and hypothecs (art. 1638 CCQ). The assignee also benefits from any suretyship, provided the assignment has been rendered opposable to the surety in the same manner as to the debtor (art. 1645 CCQ).

Debtor's defences. The debtor may raise against the assignee every defence that was available against the assignor (art. 1637, al. 2 and 1643, al. 1 CCQ). A payment made to the assignor before the assignment was rendered opposable is valid and may be set up against the assignee (art. 1643, al. 1 CCQ). The same applies to any other cause of extinction that arose before opposability. A payment made after opposability formalities have been completed may only be invoked against the assignee if it qualifies as a payment in good faith to an apparent creditor (créancier apparent) (art. 1643, al. 2 CCQ; see art. 1559 CCQ). The recipient must appear to be the true creditor, and the debtor must reasonably, objectively and honestly believe that payment is being made to that creditor. Good faith is presumed under article 2805 CCQ, but the presumption can be rebutted. Public notice may leave a debtor unaware of the assignment, but the actual circumstances remain relevant. If the conditions for a valid payment to an apparent creditor are not met, the debtor remains liable to the assignee and may pursue the recipient through the recovery of a payment not due (réception de l'indu) (art. 1491 CCQ). A debtor uncertain of the creditor's identity at the time of payment may resort to tender and deposit (offres réelles et consignation) (art. 1583, al. 2 CCQ).

Assignor's warranty. When the assignment is for value, the assignor warrants that the claim exists and is owing (art. 1639 CCQ). The parties may exclude this warranty if the assignment is at the assignee's risk and peril, or if the assignee knew the claim was uncertain at the time of assignment. The assignor may also guarantee the debtor's solvency at the time of assignment, but only up to the price the assignee paid (art. 1640 CCQ). A guarantee extending to future solvency is known as a "fournir et faire valoir" guarantee (garantie de fournir et faire valoir) and places the assignor in a position analogous to that of a surety.

Collocation in partial assignment. When the assignor retains part of the claim, assignor and assignee (or multiple assignees) share proportionally (art. 1646, al. 1 CCQ). An assignee who benefits from a "fournir et faire valoir" guarantee is paid in preference. Among multiple preferred assignees, priority follows the order in which their respective assignments became opposable to the debtor (art. 1646, al. 2 CCQ).

Consumer protection. Section 103 of the Consumer Protection Act provides that an assignee of a merchant's claim has no more rights than the merchant and is solidarily responsible with the merchant for performance of the merchant's obligations, up to the claim's amount when assigned. If that assignee subsequently assigns the claim, its liability is capped by the payment it received. This latter limit concerns the assignee who reassigns the claim. Consumer Protection Act, section 103.

Bearer Instruments

A claim embodied in a bearer instrument may be assigned by delivery of the instrument (art. 1647 CCQ). The issuer must pay the bearer who surrenders it, unless notified of a court order withholding payment (art. 1648, para. 1 CCQ). Available defences concern invalidity or a defect in the instrument, its express stipulations, or defences against that bearer personally (art. 1648, para. 2 CCQ). Article 1649 protects a bearer in good faith even if the instrument circulated against the issuer's will. A person unjustly dispossessed must obtain and notify a court order to stop payment (art. 1650 CCQ).

Worked Example: Factoring of Receivables and Opposability of Debtor Defences

Factual Scenario

This hypothetical illustration concerns Apex Industrial Supplies Inc., which assigns a $75,000 invoice for a CNC milling unit to Facteurs de Credit Metropolitain Inc. The invoice and a reciprocal $45,000 tooling invoice owed by Apex to Usinage Precision Ltee are both certain, liquid and payable by October 1. On October 15, Usinage receives proof of assignment satisfying article 1641 CCQ; it does not acquiesce without reservation.

Usinage also alleges a latent defect in the milling unit and claims $30,000 for repairs. The assignee demands the invoice balance and argues that purchasing the claim shields it from these disputes.

Subrogation

Subrogation (subrogation) arises when a third party (the subrogee, subrogé) pays a creditor (the subrogor, subrogeant) in the debtor's place and thereby acquires the creditor's rights. Unlike assignment, subrogation is an accessory of payment and cannot exist independently. The subrogee acquires the principal claim only to the extent paid, subject to any separately recoverable interest or expenses, and cannot treat a discounted payment as the purchase of the full nominal claim. Despite its close ties to payment, the CCQ treats subrogation under the chapter on transmission and mutations to acknowledge its function as a mode of creditor substitution.

Not every payment by a third party produces subrogation. Absent a conventional or legal basis, the payment may be treated as a gratuitous payment in the debtor's favour, may create a separate obligation between the debtor and the payer, or may support recourses such as recovery of a payment not due, management of the affairs of another, or unjust enrichment.

Conventional Subrogation

Conventional subrogation may be granted by the creditor or arranged by the debtor.

By the creditor (art. 1653 CCQ). The creditor may grant subrogation to any third party who pays. The subrogation must be express and in writing under article 1653, and contemporaneous with payment under article 1654 CCQ. The written terms must establish the intention to subrogate. JurisClasseur reports that a later signed instrument may record the arrangement where that intention was already expressed in writing at payment (fasc. 13, para. 41). The debtor's consent is not required, and any clause purporting to prohibit subrogation or make it subject to the debtor's approval is ineffective (art. 1654 in fine CCQ). If the subrogee acquires a hypothec through the operation, the subrogee must comply with the rules governing publication of rights (art. 3003 CCQ).

By the debtor (art. 1655 CCQ). The debtor may subrogate a new lender without the existing creditor's consent. Both the loan instrument and the acquittance must be made by a notarial act en minute, or by private writing drawn up before two witnesses who sign it. The loan instrument must state that the borrowing is to pay the debt; the acquittance must state that payment comes from that loan. These formalities supplement the express written agreement required by article 1653. A conforming payment must also be possible: this mechanism does not itself override a term benefiting the creditor.

A creditor who holds the benefit of a term may refuse a premature payment offer, and the same right extends to refusing a third party's premature offer. Even after the term expires, subrogation retains value because it preserves the hypothecary rank and avoids the costs of constituting a new hypothec. Publication formalities must be completed so that the hypothecary rights transmitted with the claim are opposable to third parties (art. 3003 CCQ).

Legal Subrogation

In certain circumstances subrogation arises by operation of law, without the agreement of either party to the obligation (art. 1656 CCQ):

1. A third party pays a debt owed to a creditor holding a prior or hypothecary claim that outranks the third party's own claim (art. 1656(1) CCQ)
2. An acquirer of property pays a creditor holding a hypothec on that property (art. 1656(2) CCQ)
3. A person pays a debt to which that person is bound with or for others and has an interest in paying, for example a solidary co-debtor or a surety (art. 1656(3) CCQ)
4. An heir uses personal funds to pay a succession debt for which that heir was not personally liable (art. 1656(4) CCQ)
5. Additional instances of legal subrogation exist throughout the CCQ and in special legislation (art. 1656(5) CCQ)

In every case, the general rules of payment must still be observed. A creditor may refuse a partial or premature payment, but an unjustified refusal exposes the creditor to a tender and deposit procedure. The subrogee must also attend to the publication formalities for hypothecary rights (art. 3003 and 3004 CCQ).

Effects of Subrogation

The subrogee acquires the paid claim and its accessories without obtaining greater rights than the subrogor. The debtor and guarantors retain their defences against the original creditor (arts. 1651 and 1657 CCQ). A prudent subrogee informs the debtor of the creditor substitution to avoid complications arising from payment to the wrong creditor, such as the rule on payment in good faith to an apparent creditor (art. 1559 CCQ).

Two exceptions modify the general principle that the obligation passes unchanged. First, a solidary co-debtor who exercises a recourse claim through legal subrogation (art. 1656(3) CCQ) may only claim each co-debtor's proportionate share; the co-debtor does not benefit from solidarity (art. 1536 CCQ). Second, subrogation arranged by the debtor (art. 1655 CCQ) permits the debtor to benefit from terms negotiated with the new lender that may differ from the original conditions.

Priority between subrogor and subrogee. If the subrogee makes only a partial payment, the subrogor retains rights for the balance. Should the debtor's assets prove insufficient, the subrogor is ordinarily paid in preference to the subrogee (art. 1658, al. 1 CCQ). The subrogor and subrogee may agree to a different order of priority. The subrogee also has preference where the subrogor has given a "fournir et faire valoir" guarantee (art. 1658, al. 2 CCQ). Among multiple subrogees, their respective shares against the debtor are proportional to their contributions to the payment, absent a contrary agreement (art. 1659 CCQ).

Subrogor's obligations. The subrogor owes no warranty of the claim or the debtor's solvency unless the parties agree otherwise. If the claim turns out to be non-existent or null, the subrogee's recourse lies in the recovery of a payment not due (art. 1491 and 1492 CCQ). The subrogor may, in certain circumstances, be held accountable if the subrogee is deprived of rights or securities to which the subrogee was entitled through the subrogation (art. 1531, 1538, al. 2 and 2365 CCQ).

Novation by Substitution of Creditor

Novation (novation) extinguishes the original obligation and creates a new one (art. 1660 CCQ). When the new obligation involves a different creditor, the operation is a novation by substitution of creditor (art. 1660, al. 2 CCQ). Several features set this mechanism apart from assignment and subrogation.

The intention to novate must be evident and is never presumed (art. 1661 CCQ). Debtor, original creditor and new creditor must consent. Hypothecs attached to the old claim survive only if expressly reserved, subject to articles 1662–1664 CCQ and third-party rights. A surety's continued commitment requires its accession to the new obligation; a creditor cannot preserve a suretyship merely by reserving it unilaterally. Article 1665 also releases the other solidary debtors where novation is made with one of them; if their accession, or that of the sureties, was required and is refused, the old claim subsists. Novation by one solidary creditor binds the other creditors only to the extent of that creditor's share (art. 1666 CCQ).

The debtor cannot raise against the new creditor defences that were available against the original creditor, except where nullity of the old obligation affects the validity of the new one.

Because novation by substitution of creditor strips away accessory guarantees and requires debtor participation, it is rarely used in practice. Assignment of claims or subrogation will usually provide a more favourable outcome for all parties involved.

Delegation of Payment

Delegation (délégation de paiement) occurs when the original debtor (delegator, délégant) instructs a third party (delegate, délégué) to perform the obligation in favour of the creditor (delegatee, délégataire). The delegate must assume a personal commitment to perform (art. 1667 CCQ). A mere instruction to make payment, without personal engagement by the delegate, constitutes a simple indication of payment (indication de paiement), which produces different legal effects.

Imperfect Delegation

In an imperfect delegation (délégation imparfaite), the delegator remains bound alongside the delegate. The creditor thereby gains a second debtor. Where doubt exists about the parties' intention to effect a novation, the law presumes an imperfect delegation (art. 1668 CCQ). The delegator and delegate are each bound for the full amount; depending on the circumstances, their obligation may be characterized as solidary or in solidum. The delegatee may demand performance from either debtor. JurisClasseur records a doctrinal debate about the creditor's consent to an imperfect delegation; obtaining that consent avoids uncertainty (fasc. 13, paras. 99–101).

Defences available to the delegate. The delegate may not raise against the delegatee defences arising from the relationship between the delegate and the delegator (art. 1669, al. 1 and 2 CCQ). For instance, in a successive sale of immovable property, the second purchaser (delegate) may not plead error in the second sale against the original vendor (delegatee); the recourse lies against the first purchaser (delegator). This restriction does not apply if nothing was owed to the delegatee at the time of delegation (art. 1669, al. 2 CCQ).

The delegate may invoke defences that the delegator holds against the delegatee (art. 1670 CCQ), such as prescription of the delegatee's claim. The delegate may not, however, plead compensation of debts between the delegator and delegatee because the required reciprocity is absent (art. 1670, al. 2 CCQ).

A common practical application involves successive sales of immovable property with an outstanding balance of the sale price. Each successive purchaser who personally assumes the obligation to the original vendor through delegation remains bound to the delegatee unless the creditor's intention to discharge that purchaser is evident (art. 1668 CCQ).

Perfect Delegation

In a perfect delegation, the creditor's evident intention to discharge the delegator leaves the delegate as the debtor (art. 1668 CCQ). That intention can be express or established unequivocally from conduct; the statute does not require a particular release formula. Mere acceptance of payments from the delegate does not by itself establish a discharge.

JurisClasseur presents perfect delegation as closely related to novation by substitution of debtor, while recording a doctrinal debate about its autonomous character (fasc. 13, paras. 94–99 and 103–105). The application of article 1670 defences to perfect delegation is also debated: the fascicule's authors favour application to both forms of delegation. The analysis must therefore address the consequences for defences and securities under each classification.

Worked Example: Corporate Asset Sale and Perfect versus Imperfect Delegation

Factual Scenario

In this hypothetical example, Transport Boreal Inc. leases a commercial terminal from Gestion Immobiliere Caron for $15,000 per month. It sells business equipment to Logistique Trans-Nord Ltee. The parties agree on an additional personal undertaking by Trans-Nord to pay rent to Caron; the transaction is expressly structured as a delegation and does not transfer Transport Boreal's status as lessee.

Their tripartite agreement expressly preserves Caron's rights against Transport Boreal. Trans-Nord then fails to make six monthly payments, leaving $90,000 in arrears. Transport Boreal argues that the addition of Trans-Nord discharged its own obligation.

Novation by Substitution of Debtor

Novation by substitution of debtor (art. 1660, al. 1 CCQ) extinguishes the original debt and creates a new one borne by a different debtor. The former debtor is released. Because only the old debtor benefits from this release, the novation may proceed without the old debtor's consent (art. 1660, al. 1 in fine CCQ). The intention to novate must, as in all cases of novation, be manifest (art. 1661 CCQ).

Defences. The new debtor may not invoke defences available against the old debtor, nor defences the old debtor held against the creditor, except for nullity of the original act (art. 1663, al. 1 CCQ).

Hypothecary consequences. Hypothecs on the old debtor's property do not pass to the new debtor's property (art. 1663, al. 2 CCQ), but two exceptions apply:

1. The old debtor may consent to an express reservation on its own property, protecting the creditor's existing rank without prejudicing third parties (arts. 1662–1663 CCQ).
2. If the new debtor acquired the encumbered property from the old debtor, the hypothec may be preserved on that property with the new debtor's consent (art. 1663, para. 2 CCQ). A sale or assumption of the loan alone does not dispense with that condition.

The creditor who consents to novation by substitution of debtor assumes the risk of the new debtor's insolvency, because the old debtor is fully released.

Change of Debt Between the Same Parties

The parties to an obligation may modify their relationship so substantially that the original obligation is extinguished and replaced by a new one between the same creditor and debtor (art. 1660, al. 1 CCQ). Quebec jurisprudence identifies six conditions: (1) an initial obligation exists; (2) a new obligation is created; (3) the two obligations differ; (4) the initial obligation is extinguished; (5) the parties demonstrate an intention to novate; and (6) the parties have the requisite capacity to contract.

The distinguishing element (the aliquid novi) may take several forms. A change of cause alters the juridical operation (for example, a contract of employment transformed into a contract of enterprise, or a balance of sale price converted into a loan). A change in the object of the obligation modifies the debtor's prestation in a manner beyond mere rearrangement. A change in the object of the prestation substitutes different property (for example, a lessor offers different premises). A simple extension of a term, adjustment to payment modalities, or addition of security does not, by itself, constitute novation.

In every case, an evident intention to extinguish and replace the debt is required (art. 1661 CCQ). Without it, the transaction may merely amend the existing obligation; two separate debts do not automatically arise. The creditor should obtain the surety's accession and expressly reserve any hypothec in accordance with articles 1662–1665 CCQ. The reservation cannot prejudice third-party rights by enlarging the secured claim.

Case and Article Pointers

• art. 1637-1650 CCQ: assignment of claims, opposability, and bearer instruments
• art. 1651-1659 CCQ: conventional and legal subrogation
• art. 1660-1670 CCQ: novation and delegation of payment

Practice Checklist

• Identify the appropriate mechanism before drafting: assignment, subrogation, delegation, or novation
• For assignments, confirm that the claim is not declared inalienable by contract or by law
• Verify that the assignment does not render the debtor's obligation more onerous (art. 1637, al. 2 CCQ)
• Accomplish all required opposability formalities: acquiescence, notification, or registration in the RDPRM for universalities of claims (art. 1641, 1642 CCQ)
• Register hypothecary assignments in the appropriate register (art. 3003 CCQ)
• For subrogation by the debtor, execute the loan and receipt by notarial act en minute or by private writing before two witnesses who sign it, with the required mentions (art. 1655 CCQ)
• For subrogation by the creditor, establish the written intention to subrogate at the time of payment, even if the act recording it is signed later
• For legal subrogation, verify the general rules of payment are satisfied before claiming subrogatory rights
• In any novation, verify that the intent to novate is expressed clearly and that all necessary parties participate
• Secure the surety's accession before novating, or accept that the suretyship will be extinguished (art. 1665 CCQ)
• Expressly reserve hypothecs in any novation agreement (art. 1662 CCQ)
• For delegation, stipulate expressly whether the delegator is released or remains bound, to avoid reliance on the presumption of imperfect delegation (art. 1668 CCQ)
• After any transmission or mutation involving a hypothec, complete the publication formalities required by art. 3003 and 3004 CCQ