Special Regimes of Sale: Instalment Sales and Residential Immovables

Overview

Quebec sales law establishes general rules applicable to all sales, but the Civil Code of Quebec (Code civil du Québec, CCQ) also prescribes specialized regimes for particular types of transactions that carry heightened risk for buyers. Two such regimes stand out: the instalment sale (vente à tempérament) and the sale of residential immovables (vente d'un immeuble à usage d'habitation). The instalment sale allows a seller to retain ownership of the property sold until the buyer has paid the full price, creating a powerful security mechanism. The sale of residential immovables imposes mandatory quality guarantees, preliminary contract requirements, and information disclosure obligations to protect individual purchasers from builders and promoters. Both regimes interact with the Consumer Protection Act (Loi sur la protection du consommateur, CPA), which imposes additional formal requirements and substantive protections in consumer transactions.

Learning Objectives

• Define the instalment sale and distinguish it from a conditional sale as understood in common law jurisdictions
• Identify the publication requirements for reservations of ownership and their consequences for opposability to third parties
• Explain the rules governing risk transfer, forfeiture of term, and repossession in instalment sales under the CCQ

The Instalment Sale under the Civil Code

Definition and Scope

The CCQ defines the instalment sale as a sale with a term (vente à terme) by which the seller reserves ownership until full payment of the purchase price (art. 1745 para. 1 CCQ). The transfer of ownership, once it occurs, does not operate retroactively. The Supreme Court of Canada confirmed this characterization: the instalment sale is a term sale, not a conditional sale (vente conditionnelle) as understood in common law provinces. The parties may stipulate otherwise, for example by providing retroactive effect.

The CCQ regime applies to all instalment sales, whether movable or immovable, consumer or commercial (art. 1745 to 1749 CCQ). Where the CPA also applies, its rules prevail in the event of genuine conflict.

Example: A restaurant owner purchases kitchen equipment on instalment, with ownership reserved until full payment. The CCQ regime applies. If the buyer were an individual purchasing a vehicle for personal use, CPA requirements would supplement the CCQ baseline.

Formation and Opposability to Third Parties

The instalment sale under the CCQ is a consensual contract; no special form is required for its validity between the parties (art. 1385 CCQ). If the reservation of ownership appears only on an invoice, the seller must demonstrate that the buyer specifically consented to it. Otherwise, the general rule of transfer of ownership by consent applies (art. 1708 CCQ).

The reservation of ownership must be published in the RDPRM if the sale concerns a road vehicle or another property determined by regulation, or if it concerns a movable acquired for the service or operation of an enterprise (art. 1745 CCQ). Publication must occur within seven days of the sale for the reservation to be opposable to all parties from the date of sale.

Where publication was required but not made, art. 1749 CCQ limits the seller's recourse: the seller may only recover the property from the immediate buyer, subject to any rights or charges the buyer may have created. Where publication was required but made late, the seller may recover from the immediate buyer; if publication occurred before a sub-sale, the seller may also recover from subsequent acquirers. In all cases, the property is taken subject to rights and charges published at the time of the late registration.

For a universality of movable property of the same kind traded between enterprise operators, art. 2961.1 CCQ allows a single registration to preserve reservations of ownership agreed between them, including later reservations over goods of that kind. The parties commonly establish those reservations through a framework agreement; registration alone does not create a reservation over replacement goods. The reservation cannot be set up against a third party acquiring an item in the ordinary course of the buyer's enterprise. Registration is effective for ten years and may be renewed (fasc. 12, para. 21).

Opposability to a Bankruptcy Trustee

Ouellet (Trustee of), 2004 SCC 64, held that the trustee could not rely on the failure to publish in the legal setting applicable to that bankruptcy. Its result must be read with the 2001 amendment to the definition of secured creditor in s. 2 of the Bankruptcy and Insolvency Act. Where the instalment seller's rights are subject to hypothecary enforcement rules, a reservation that required publication but was not published is inopposable to the bankruptcy trustee. JurisClasseur treats this distinction expressly (fasc. 12, para. 25).

For repossession governed by the CPA, the seller is not brought within that definition merely by the title reservation; the analysis described in Ouellet remains relevant (fasc. 12, para. 58). Lefebvre (Trustee of), 2004 SCC 63, concerned long-term leasing and must not be described as an instalment-sale decision. Proposal proceedings, bankruptcy and third-party acquisitions require separate analysis, including any applicable stay of enforcement.

Transfer of Risk

Under art. 1746 CCQ, the instalment buyer bears the risk of loss despite the seller's retained ownership, subject to contrary agreement and the consumer-contract exception. Read with art. 1456, this normally concerns risk after delivery. For a CPA instalment sale, s. 133 leaves loss or deterioration by superior force with the merchant until ownership transfers, subject to the special rule in s. 145.

Forfeiture of Term and Repossession

When the buyer defaults on a payment, the seller may choose among several remedies: demand the overdue instalment; invoke forfeiture of term (déchéance du terme) and claim the entire outstanding balance; or seek repossession under arts. 1748–1749 CCQ. The consequences of repossession depend on the hypothecary remedy exercised, as explained below. Ordinary resolution of the sale, with restitution of prestations, is a distinct remedy subject to arts. 1604 and 1606 CCQ (fasc. 12, paras. 37–38). If the seller renounces the reservation of ownership, expressly or tacitly, the seller may exercise the unpaid seller's priority for the price of a movable sold to a natural person who does not operate an enterprise (art. 2651(2) CCQ).

Forfeiture of the term may follow an applicable contractual clause, a sale under judicial authority or an assignment by the buyer without the seller's consent (arts. 1747–1748). Art. 1514 also addresses insolvency and impairment of security. Bankruptcy legislation and stays of proceedings must be considered before enforcing an accelerated debt.

Under art. 1749 CCQ, repossession is subject to the rules governing the exercise of hypothecary rights, except for the consumer-contract regime specified there. This is not limited to movables requiring publication under art. 1745. Notice must be served and registered under arts. 2757–2758, identifying the remedy and allowing the applicable surrender period. The buyer or an interested person can cure the default and pay the required costs within the limits of arts. 2761–2762. Taking in payment extinguishes the debt; sale remedies may leave an unpaid balance. If at least half the obligation has been discharged, taking in payment requires court authorization unless the debtor voluntarily surrenders the property (art. 2778). Art. 2779 permits the debtor or a subsequent hypothecary creditor to require a sale on its conditions.

For a registered universality governed by art. 2961.1, title reservations can carry over to replacement goods as described above. This does not automatically create a proprietary right over resale proceeds. Any trust or separate security over proceeds must be validly constituted; simply labelling an account a trust account does not guarantee protection in bankruptcy.

Example: A supplier sells machinery on instalment to a manufacturer. The buyer has paid 60% of the obligation when the prior notice is registered. Even with timely publication of the reservation, the supplier must observe art. 1749 and the safeguards for taking in payment, including art. 2778 where the buyer does not voluntarily surrender the machine.

Worked Example: Commercial Instalment Sale and Failure to Register in the RDPRM

Factual Scenario

Hypothetical illustration; this is not a reported judgment. Usinage Nordique Inc. sold an industrial CNC lathe to Precision Metal Ltee for $150,000 under a commercial instalment sale agreement, with $30,000 paid cash upon delivery and the remaining balance payable in 24 monthly instalments of $5,000. The contract contained an express reservation of ownership (réserve de propriété) retaining title in the seller until full payment. Usinage delivered the lathe to Precision's plant on February 1, but neglected to register its reservation of ownership in the RDPRM.

On May 15, Precision Metal sold and delivered the lathe to Atelier Laurentien Inc., an unrelated precision manufacturing workshop, for $110,000 cash. Prior to closing the purchase, Atelier Laurentien conducted a certified search of the RDPRM under Precision's name and the machine serial number, which showed zero registrations. In July, Precision defaulted on its monthly instalments to Usinage and filed an assignment in bankruptcy. Usinage served a demand on Atelier Laurentien demanding the immediate repossession (reprise de possession) of the machine.

The Instalment Sale under Consumer Protection Law

Formation and Formal Requirements

The CPA imposes strict formal requirements on a consumer instalment sale (vente à tempérament de consommation). The contract must be in writing, prepared in duplicate, and conform to the model prescribed by regulation (art. 134 CPA). Mandatory disclosures include the credit rate, credit charges and their components, and the consumer's rights in the event of default (art. 67 to 72, 83, 91, and 92 CPA). The consumer may invoke lesion (lésion) (art. 8 and 23 to 31 CPA).

Non-compliance can result in nullity (art. 271 para. 1 CPA). Where payment terms or credit charge calculations are defective, the consumer may elect either nullity or suppression of credit charges with restitution, unless the seller proves no prejudice resulted (art. 271 paras. 2–3 CPA). A sanction specific to instalment sales: non-compliance with art. 66 to 150 CPA annuls the reservation of ownership by operation of law (art. 135 CPA), converting the transaction into a simple sale with a term and eliminating the seller's real security.

Right of Withdrawal

Section 136 CPA prohibits clauses preventing the consumer from moving the goods within Québec without permission or permitting repossession without the express consent of the consumer or the court.

Section 73 CPA generally permits cancellation of a money-loan contract or a contract involving credit, including an instalment sale, without fees or penalty within two days after the day both parties hold a copy. For a high-cost credit contract, the period is ten days.

The right is subject to the applicable procedure and exceptions. Under s. 75, the buyer returns goods already delivered when the parties received their copies; in other cases, the buyer may either return the goods or send written notice to the merchant or its representative. Sections 76–79 govern cancellation, restitution and inability to return the goods through the consumer's act or fault. The regulatory exception for a new automobile already delivered must also be checked (s. 70 of the application regulation).

Example: A consumer may cancel an ordinary appliance instalment contract within the two-day period by returning delivered goods in the required condition. A qualifying high-cost contract benefits from the longer ten-day period.

Risk Transfer and Payment Terms

Under art. 133 CPA, the risk of loss by superior force (force majeure) remains with the seller until ownership transfers to the buyer. This rule follows the res perit domino principle of the former Civil Code of Lower Canada and diverges from the CCQ general rule that places risk on the instalment buyer from delivery (art. 1746 CCQ). An exception arises when the buyer, having paid at least half of the sum of the total obligation and the down payment, successfully resists repossession (art. 142 CPA): risk then shifts to the buyer (art. 144 and 145 CPA). The burden of proving superior force lies with the buyer who invokes it.

The CPA regulates payment terms and permits full or partial early repayment without penalty (s. 93). Section 102 restricts separate assignment of a negotiable instrument. Under s. 103, an assignee has no greater rights than the merchant and is solidarily responsible up to the claim’s amount at assignment or, upon reassignment, the payment received. A defence to payment or suspension must have a legal basis and be proportionate to the merchant's non-performance; discovering a defect does not invariably authorize stopping every payment indefinitely.

Forfeiture of Term and Repossession under the CPA

The CPA permits contractual forfeiture-of-term clauses but strictly regulates their exercise (art. 104 to 110 CPA). The seller must send the defaulting buyer a written notice and a statement of account with mandatory content. Within 30 days of receiving the notice and statement, the consumer may either remedy the default or apply to the court for one of two measures preventing forfeiture: modification of payment terms or authorization to return the property to the seller. Returning the property under that authorization extinguishes the consumer's contractual obligation and allows the seller to retain payments already received (s. 110 CPA). The application must also be served before that 30-day period expires; filing alone does not preserve the right to seek relief under s. 107 (s. 108 CPA; fasc. 12, para. 66). If the default is not remedied and no application is served within that period, forfeiture takes effect and the seller may claim the full outstanding balance.

Repossession is permitted only when two cumulative conditions are satisfied:

1. The seller has sent the buyer a written notice conforming to the model prescribed by regulation under the CPA, identifying each overdue instalment and informing the buyer of the seller's right to seize the property if the default is not remedied within 30 days (art. 139 CPA).
2. If the consumer has paid at least half of the sum of the total obligation and the down payment, the seller must obtain court authorization before repossession (art. 142 CPA). The court may modify payment terms at its discretion if it refuses repossession (art. 144 CPA).

Courts consider several non-exhaustive factors: the total amount payable; the property's value at default; the buyer's current income; and the reason for default, distinguishing misfortune from carelessness (art. 109 and 143 CPA).

Within the 30-day notice period, the buyer may remedy the default (barring further sanctions for those defaults) or voluntarily return the property, extinguishing both the payment obligation and the seller's duty to restore prior payments (art. 140 and 141 CPA). A defective notice is null and requires a fresh notice. A "voluntary" return obtained through seller pressure is without legal effect.

Court authorization permits repossession. The buyer's contractual obligation is extinguished when the goods are voluntarily surrendered or forcibly repossessed following the statutory notice, and the seller may retain payments already received (art. 141 CPA). If repossession is denied, the court may modify payment terms, and risk passes to the buyer (art. 144 and 145 CPA).

The seller may switch between acceleration and repossession only after the first 30-day period expires, by sending a new notice that gives the consumer a further 30 days from receipt to remedy the default or return the property (art. 146 CPA). These remedies cannot be combined. Once a judgment having the authority of res judicata fixes the chosen remedy, difficulty enforcing it does not permit a new action on the alternative remedy (fasc. 12, para. 60).

Sale of Residential Immovables

Quality Guarantees

Art. 1794 applies the enterprise-contract warranty rules, with adaptations, when a contractor sells its land with a residential building, built or to be built, and to the sale by a developer. It does not make every private residential reseller a builder. Under art. 2118, the contractor, architect, engineer and professional technologist who, as applicable, directed or supervised the work, and the subcontractor for its work may be solidarily liable for qualifying loss within five years after completion, subject to arts. 2119–2121. The one-year warranty in art. 2120 runs from acceptance of the work, not automatically from the sale, and concerns defects in workmanship existing at acceptance or discovered within the following year.

A promoter who sells a work that it built or had built is assimilated to a contractor under art. 2124 CCQ, subject to all contractor-level guarantees. This assimilation is not limited to residential buildings.

Example: A developer sells condominium units shortly after completion. A structural failure occurring four years after completion may engage art. 2118 if the statutory conditions and each defendant's role are established. Five years from the later purchase date is not the statutory starting point.

The Preliminary Contract

Art. 1785 requires a preliminary contract when the builder or developer sells a built or planned residential immovable to a natural person acquiring it for personal occupation, with or without the underlying land. The criteria must all be assessed; certain substantial renovations, conversions and prefabricated buildings can qualify. Ordinary resales and investment purchases are not automatically covered.

The preliminary contract must allow withdrawal within ten days of the act. If a required memorandum was not supplied at signature, withdrawal remains available until it is received and for ten days afterwards (art. 1785 para. 2). A longer contractual period is possible. An indemnity is payable only if agreed and cannot exceed 0.5% of the price (art. 1786 para. 3).

Under current art. 1793, absence, errors or omissions in either the preliminary contract or the required memorandum can support nullity and damages on proof of serious prejudice. Alternatively, the buyer may seek an equivalent reduction of obligations while maintaining the sale. The action must be brought within 90 days of the sale or within 90 days following the extraordinary meeting referred to in art. 1104, as applicable. The protective regime cannot be waived in advance.

Mandatory Disclosures and Right of Withdrawal

The preliminary contract must disclose: the names and addresses of the seller and the promising buyer; the work to be carried out and the delivery date; the sale price; any real rights encumbering the immovable; and useful information concerning the characteristics of the building (art. 1786 para. 1 CCQ). If the sale price may be revised, the contract must specify objective revision criteria. An unrestricted discretionary power to revise the price is insufficient; agreed revision terms must be determinable. Where the property is in a flood zone, this must be disclosed. The document signed by the buyer must constitute a genuine promise to purchase, not merely a reservation.

Plans or work-execution clauses do not alone change a preliminary sale contract into a mixed sale-and-enterprise contract. CPA coverage must be assessed through ss. 6 and 6.1: the whole movable-goods warranty regime does not apply to an immovable sale. Certain prohibited-practice provisions do, including s. 221(b) concerning false representations about dimensions and the applicable presumption in s. 253.

Special Rules for Divided Co-ownership and Large Complexes

For a divided co-ownership sale before publication of the declaration, art. 1792 permits resolution without formalities if publication does not occur within 30 days after it becomes possible. Art. 1093 defines a promoter for the co-ownership chapter by reference to ownership of at least half the fractions when the declaration is published, or qualifying successors; owning half the units at any later time is not a universal test for every builder warranty.

Current art. 1787 requires a memorandum for covered sales of divided co-ownership fractions, undivided shares in a residential immovable, residences with common facilities, and the specified periodic-and-successive enjoyment arrangements. There is no ten-unit minimum. The memorandum must be supplied when the preliminary contract is signed.

The seller must provide an information note (note d'information) containing: the names of architects, engineers, builders, and promoters with a project plan; a development plan and descriptive summary; a description of common and private portions; management information; any emphyteutic or superficiary rights; and a projected budget on a full-occupancy annual basis (art. 1788 and 1791 CCQ). For divided co-ownership, the note must disclose leases by the promoter and the maximum units intended for rental (art. 1789 CCQ). A copy or summary of the declaration of co-ownership or indivision agreement and the building by-laws must be appended, even in draft form (art. 1788 para. 2 CCQ).

Failure to supply the required memorandum is expressly covered by current art. 1793, including its serious-prejudice condition, alternative remedies and short action periods. Art. 1791.1 also requires full protection of deposits paid to builders or developers for divided co-ownership fractions through the prescribed guarantee, insurance, suretyship, professional trust deposit or other authorized means.

Worked Example: Residential Co-Ownership Preliminary Contract and Right of Withdrawal

Factual Scenario

Hypothetical illustration; this is not a reported judgment. Alexandre Roy entered into a preliminary contract (contrat préliminaire, art. 1785 CCQ) with Promotrice Urbaine Inc. to purchase an off-plan penthouse condominium in a 45-unit residential high-rise in Montreal for $620,000, paying an initial deposit of $30,000. Alexandre intends to occupy the unit himself.

Promotrice Urbaine failed to provide the mandatory memorandum (note d'information, art. 1787 CCQ) detailing common facility costs and acoustic specifications until six days after contract execution. Eight days after receiving the memorandum, Alexandre served written notice invoking his statutory right of withdrawal (faculté de dédit, art. 1785 CCQ) and demanded the immediate return of his $30,000 deposit. The promoter refused, claiming that the 10-day cooling-off period expired 10 days after the preliminary contract was signed, that Alexandre forfeited his deposit, and that the agreement imposed a 10% liquidated damages penalty.

Practice Checklist

• Identify the transaction, buyer and seller before selecting the CCQ or CPA regime.
• Obtain actual agreement to the reservation of ownership and publish when required; seven days secures retroactivity under current art. 1745.
• Check intervening third-party rights and bankruptcy legislation before repossession.
• Use the current regulatory contract and notice models for consumer instalment sales.
• Distinguish the two-day ordinary cancellation period from the ten-day high-cost credit period and check exceptions.
• Check the applicable half-payment threshold, cure period and court authorization before enforcement.
• For art. 1785 sales, supply the preliminary contract and any required memorandum at signature, without applying an obsolete ten-unit threshold.
• Verify withdrawal dates, deposit protection and the short art. 1793 action periods.
• Calculate building warranty periods from completion or acceptance as required, rather than automatically from sale.