Movable Hypothecs and Claims: Delivery, Registration and Control

Overview

A business can offer equipment as security while continuing to use it. An individual may deliver a jewel to a lender, or charge a permitted investment without surrendering it. A lender financing receivables must also determine how its rights become effective against the customers who owe those receivables. Each arrangement involves a movable hypothec (hypothèque mobilière), but the documents and publicity required are different.

Keep four questions separate: who may grant the security, what property is charged, how the hypothec is constituted, and against whom it must be effective. The answers may come from the ordinary rules on movables, the rules on claims, or a special regime based on control. A signed agreement, a registry entry and an instruction to an account provider do different legal work.

This lesson builds on the nature and constitution of hypothecs. Its focus is the operational choice between delivery and registration, followed by the additional analysis required for claims. Securities are addressed far enough to identify their separate regime and avoid applying ordinary receivables rules to an investment account.

Learning Objectives

• Select the available form of movable hypothec by examining the grantor, the property and any universality.
• Distinguish constitution, publication, rank and effectiveness against the debtor of a hypothecated claim.
• Apply the statutory boundaries of control to a deposit, an account balance and an ordinary receivable.

Identify the Grantor and the Property

The grantor (constituant) supplies the property charged. Identify that person separately from the borrower and, where receivables are involved, from the customers who must pay. A company owner's personal investment account belongs to a different patrimony from the company's accounts receivable. A hypothec on one does not charge the other.

Individuals and Enterprise Property

An individual operating an enterprise (entreprise) may grant a hypothec without delivery on its property. The enterprise concept extends to organized economic activity involving production, administration or disposition of goods or provision of services, including non-commercial activity: art. 1525 CCQ. A professional practice can therefore qualify without resembling a retail business.

Art. 2683 CCQ requires both enterprise activity and a connection between the charged property and that enterprise. A self-employed person's private furniture does not become eligible under the enterprise exception simply because its owner also operates a consultancy. Outside the exception, examine the regulatory list.

For an individual who does not operate an enterprise, the permitted property includes specified vehicles and recreational or transport property, precious property, and incorporeal property such as claims, insurance rights and intellectual property rights. Sections 15.01 and 15.02 of the Regulation respecting the register of personal and movable real rights contain the categories. They exclude property constituting an RRSP, RRIF, RESP or RDSP. An investment's market value does not eliminate these exclusions. Regulatory categories.

The restriction in art. 2683 CCQ addresses natural persons. A legal person must have the necessary legal powers and proper authorization. Its ability to grant security over an individual asset must still be distinguished from the separate enterprise requirement for a universality.

Collections Require a Separate Analysis

A universality (universalité) can cover present and future property of an identified nature, such as equipment or accounts receivable. Art. 2684 CCQ generally reserves this security to a person, partnership or trustee operating an enterprise. Individually eligible assets do not automatically establish eligibility to charge a collection.

Art. 2684.1 CCQ makes specified exceptions for individuals outside an enterprise. It permits qualifying universalities of claims concerning the credit balance of a financial account, and qualifying securities or security entitlements. The underlying property must be property that the individual may charge without delivery. The provision also contemplates other universalities determined by regulation; that enabling language does not permit every imaginable collection of personal belongings.

Goods represented by a bill of lading require a separate enterprise check under art. 2685 CCQ, even when delivery is proposed. Choosing a pledge does not remove every limitation on the property or the grantor. Special control regimes themselves contain restrictions for individuals.

Worked Application: A Consultant's Assets

Factual Scenario

The following facts are hypothetical. A consultant seeks financing against work equipment, a privately used car, household furniture and a retirement account.

Constitute and Publish the Chosen Security

Without Delivery: Writing and Registration

A movable hypothec without delivery must be granted in writing, on pain of absolute nullity: art. 2696 CCQ. The act must sufficiently describe the property or identify the nature of the universality: art. 2697 CCQ. The sum for which the hypothec is granted must also be addressed under art. 2689 CCQ. These requirements belong to constitution; a registration application does not replace the constituting act.

A workable equipment description connects the agreement with identifiable property. A receivables description identifies the relevant collection rather than relying on unexplained bookkeeping shorthand. Vehicle descriptions require care with identifying information. Check the description in the act against the information used for registration.

Publication (publicité) generally occurs at the Register of Personal and Movable Real Rights, commonly called the RDPRM. It makes the hypothec effective against third persons under art. 2663 CCQ. Ordinary rank (rang) follows the date, hour and minute of publication under art. 2945 CCQ, subject to applicable exceptions. Registration does not certify the agreement's substantive validity or guarantee that the property exists and belongs to the grantor.

The commercial advantage is continued use: equipment can remain in production and receivables can continue to arise. Follow-up must address changes in the property and ownership, the duration of publication and transactions affecting preservation of the right. See publication and rank.

With Delivery: Holding Must Be Legally Effective

A pledge (gage) is ordinarily constituted by physical delivery of the property or title to the creditor. If the creditor already holds it, continued physical holding with the grantor's consent must secure the claim: art. 2702 CCQ. A lender storing a painting cannot infer a pledge solely from custody; the consent and security purpose must be established.

Continuous holding supplies publication under art. 2703 CCQ. Certain temporary interruptions for evaluation, repair, transformation or improvement, and specified interference without the creditor's consent, do not break continuity: art. 2704 CCQ. These exceptions do not authorize an unrestricted return for the grantor's ordinary use.

With the grantor's consent, a third person may hold for the creditor. Publication through that person begins when the holder receives written evidence of the hypothec: art. 2705 CCQ. Identify the custodian, whose behalf it holds on, and when the evidence arrived. A warehouse receipt showing storage alone may leave the security relationship unproved.

Ordinary pledges do not require the same constituting writing as a hypothec without delivery, but written evidence avoids disputes about the debt, property and consent. Later registration is possible provided publication is uninterrupted: art. 2707 CCQ. A gap cannot simply be erased by a later entry.

Detention does not give an ordinary pledgee an absolute veto over another creditor's enforcement. Art. 2706 CCQ limits revendication where another creditor exercises hypothecary rights or seizes in execution. The pledgee must establish its applicable preference within the competition between rights.

A jeweller delivers a valuable stone to a lender as security. The lender later sends it to an independent expert for valuation, documenting the temporary purpose and expected return. That interruption can fall within the statutory continuity rule. If the lender instead lets the jeweller take the stone back indefinitely for display and sale, the same conclusion cannot be assumed. The file must establish the actual reason for the transfer and the continuing arrangements for holding.

Now suppose the stone was already held by an independent vault operator when the parties agreed to the pledge. The arrangement must connect that custodian to the lender's detention with the grantor's consent. The date the vault operator receives written evidence becomes decisive for publication through it. An agreement signed on Monday and received by the custodian on Thursday does not establish Monday publication by that third-person holding. This distinction can matter if a competing right intervenes during the interval. The lesson is to record legally operative events, rather than treating the date printed on the loan agreement as the answer to every timing question.

The practical choice also depends on how the property earns value. A delivery arrangement that prevents productive equipment from being used may undermine repayment, while custody of a collectible may be compatible with the financing. That commercial assessment comes after legal eligibility. If continued use makes a pledge unsuitable, verify that a valid hypothec without delivery is available and properly constituted; a practical preference cannot convert an ineffective delivery arrangement into a registered security.

Claims Have Their Own Debtors

Keep the Two Obligations Separate

A manufacturer borrows $80,000 and charges a $12,000 customer invoice. The secured obligation is repayment of the loan. The hypothecated claim (créance) is its right to receive $12,000 from the customer. The manufacturer is borrower and grantor; the customer is debtor of the hypothecated claim; the lender holds the security.

Art. 2710 CCQ permits a claim against a third person to be hypothecated with or without delivery. Whichever route applies, the hypothec cannot be enforced against the debtor of the claim until it has been made effective against that debtor in the same manner as an assignment of claims (cession de créances).

Under art. 1641 CCQ, methods include the debtor's acquiescence or receipt of a copy, pertinent extract or other qualifying evidence of the assignment. Applied through art. 2710 CCQ, this requires attention to what the debtor received or accepted. Keep evidence of delivery and the communication's contents. Universalities require examination of the applicable assignment formalities; a registry search alone cannot replace that debtor-facing analysis.

Worked Application: The Uninformed Customer

Factual Scenario

The following facts are hypothetical. The lender registers its receivables hypothec. The manufacturer continues invoicing and collecting under the financing agreement. A customer receives no notice or other qualifying evidence of the hypothec. When the manufacturer misses a loan payment, the lender demands that the customer pay it directly.

Delivery and the Ten-Day Rules

For a negotiable title, art. 2709 CCQ follows its method of negotiation: endorsement and delivery, or delivery alone. An invoice copy is not automatically a negotiable title. The supplied doctrine records disagreement over ordinary pledges of claims evidenced by non-negotiable documents after legislative changes. Delivery of any paper should not be treated as a reliable universal method of charging an incorporeal right.

For claims and property represented by a bill of lading or another negotiable instrument, art. 2699 CCQ permits effectiveness against the grantor's creditors from performance of the creditor's prestation, provided registration follows within ten days. Art. 2708 CCQ provides the corresponding rule where the title is remitted within ten days. These targeted rules neither dispense with constitution nor create a general ten-day grace period for all movable hypothecs.

Control of Monetary Claims Has Defined Boundaries

A monetary claim (créance pécuniaire) within art. 2713.1 CCQ concerns payment of money, subject to exclusions for negotiable instruments, securities or security entitlements, and claims requiring return of the very same identified currency. Classification as monetary is only the first step. The statutory conditions for control (maîtrise) must also be satisfied.

The Creditor Owes the Claim

Under art. 2713.3 CCQ, a creditor obtains control of a monetary claim that the grantor has against it when the grantor consents to that claim securing an obligation towards the creditor. A bank that both owes the customer's deposit balance and lends to that customer illustrates the arrangement. Identify the common parties and consent to security. Having an account at the bank does not alone establish the hypothec.

This route is not confined by its wording to banks. Its distinguishing feature is that the secured creditor is itself debtor of the monetary claim. Follow the legal identity of the parties rather than assuming every cash security requires a three-party agreement.

A Third Person Owes the Claim

Art. 2713.4 CCQ requires a claim concerning either the credit balance of a financial account (compte financier) maintained by a third person, or money transferred by the grantor to a third person to secure an obligation towards the creditor. A control agreement between creditor, third person and grantor must provide that the third person follows the creditor's instructions without further grantor consent. Alternatively, the creditor obtains control of a financial account balance by becoming the account holder.

A financial account is distinct from a securities account: art. 2713.6 CCQ. The provider owes its credit balance and recognizes the holder's authority over it. An accounts-receivable ledger is not such an account merely because it records dollar amounts. An unpaid invoice does not become money transferred to a third person for security because a contract is labelled a “control agreement.”

Art. 2713.5 CCQ allows the third person to decline a control agreement and limits its obligation to confirm an agreement's existence. Refusal does not confer control. The absence of a three-party agreement requires another actual statutory route, such as the creditor being debtor of the claim or becoming account holder.

Worked Application: Two Accounts and an Invoice

Factual Scenario

The following facts are hypothetical. A company grants a lender security over its deposit at another bank and a customer's unpaid invoice.

Continuity, Individuals and Competing Creditors

The grantor may retain power to give instructions without defeating control; art. 2713.7 CCQ allows withdrawal of that power without a notification or registration formality for publication. Continued account activity does not establish that control is absent.

Art. 2713.8 CCQ gives a pledge by control priority over other movable hypothecs on the claim, even if previously published. Between pledges arising from third-party control agreements, rank follows when the third person agreed to comply with each creditor's instructions. A hypothec in favour of the creditor that itself owes the claim has priority over other control pledges, subject to the superior position of another creditor that obtained control of a financial account by becoming its holder. A chronological RDPRM list cannot resolve every deposit competition.

For an individual outside an enterprise, art. 2713.9 CCQ limits control pledges to claims eligible for a hypothec without delivery under the prescribed conditions. Control cannot bypass the personal-property exclusions already identified.

Recognize the Securities Regime

A share certificate, an uncertificated security and a security entitlement (titre intermédié) require different handling. Art. 2714.1 CCQ refers to control under the Act respecting the transfer of securities and the establishment of security entitlements. Art. 2714.7 CCQ addresses delivery of certificates, which need not be negotiable to support hypothecary delivery. Possession of an investment statement should not be equated with control of the investments.

Identify whether the investor holds directly or through an intermediary, whether a certificate exists, and who must recognize the creditor's instructions or status. Then use the special regime. Art. 2714.5 CCQ also limits pledges by individuals outside an enterprise, with an express exception for securities represented by a certificate.

Special rank rules appear in art. 2714.2 CCQ for control, art. 2714.3 CCQ for a pledge in favour of the securities intermediary on the specified security entitlements, and art. 2714.4 CCQ for certain certificated securities even without control. Keep these distinct from art. 2701.1 CCQ, whose deemed-publication rule concerns a hypothec constituted by a securities intermediary. It is not a blanket rule for every hypothec granted in favour of one. Civil Code provisions.

Practice Checklist

• Identify the borrower, grantor, owner, debtor of each claim, account provider and custodian.
• Classify the property and check individual, enterprise and universality restrictions separately.
• Verify the constituting writing or effective delivery; reconcile the agreement with registration information.
• Record the publication mechanism and evidence of uninterrupted holding or qualifying control.
• Separate effectiveness against competing creditors from effectiveness against the debtor of a claim.
• Check collection authority and implead the other interested party where recovery proceedings require it.
• For control, identify the statutory route and test priority against competing control rights.
• Apply ten-day exceptions only to their stated property and creditor relationships.