T-2424-76
The Queen (Plaintiff)
v.
Restaurant & Bar La Seigneurie de Sept-Îles Inc.
(Defendant)
and
Bank of Montreal (Opposant)
Trial Division, Walsh J.—Montreal, February 7;
Ottawa, February 11, 1977.
Crown — Procedure Whether Crown entitled to seize
goods of tax debtor that were pledged to third party (oppo-
sant) — Effect of registration of commercial pledge Rights
of other creditors — Effect of arts. 597 and 604 of Code of
Civil Procedure — Quebec Civil Code, arts. 1979e to k and
1994 Quebec Code of Civil Procedure, arts. 597, 604 and
607.
Plaintiff seized defendant's moveable property under writ of
fieri facias for recovery of amounts owed to her under the
Income Tax Act, the Canada Pension Plan and the Unemploy
ment Insurance Act, 1971. Plaintiff contends that article 597 of
the Quebec Code of Civil Procedure must be read in conjunc
tion with article 604 and cannot therefore prevent such a
seizure. The opposant contends that article 597 must, in the
present case, be read on its own since it is not a creditor within
the meaning of article 604 but in a special position by virtue of
its contract of commercial pledge.
Held, the opposant's opposition to the seizure is dismissed.
The special rights conferred on a pledgee under a contract of
commercial pledge are those set out in articles 1979e to k of the
Quebec Civil Code and although it would have the right to take
possession of the property pledged, this is not equivalent to the
right of revendication of an owner under article 597 of the
Code of Civil Procedure which would entitle it to oppose the
seizure, but merely the right of a creditor, which is governed by
article 604.
OPPOSITION to seizure of debtor's property by
plaintiff.
COUNSEL:
Gaspard Côté for plaintiff.
No one appearing for defendant.
A. P. Bergeron for opposant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
No solicitors of record for defendant.
McMaster, Minnion, Patch, Hyndman,
Legge, Camp & Paterson, Montreal, for
opposant.
The following are the reasons for judgment
rendered in English by
WALSH J.: On June 28, 1976, a certificate was
produced in this Court pursuant to section 223 of
the Income Tax Act' establishing that defendant
was indebted to plaintiff pursuant to section 24 of
the Canada Pension Plan and section 79 of the
Unemployment Insurance Act, 1971 for amounts
totalling, with penalties and interest, $16,239.70
with additional interest at 10% on $12,369.43 from
June 5, 1976 to the date of payment, the claims for
the Canada Pension Plan remittances dating from
August 21, 1973, and for unemployment insurance
remittances from September 10, 1974. On August
3, 1976 a writ of fieri facias was issued for the
seizure of the moveables and moveable effects of
defendant for recovery of these amounts and the
seizure was in due course made on August 24 and
September 14, 1976.
Opposant makes an opposition to this seizure
alleging that nearly all the objects so seized were
subject to a contract of commercial pledge entered
into by defendant in its favour on January 14,
1975, and duly registered in the Registry Office of
Sept-Îles on January 21, 1975, said contract
having been entered into to guarantee a loan by
the Bank to defendant of $20,000 dated January
14, 1975, and bearing interest at the rate of 14 1 / 2 %.
Opposant states that defendant has been in default
in making its monthly payments of capital and
interest due by virtue of the said commercial
pledge since January 1976, and that it is therefore
entitled to revendicate the property subject to this
pledge but that plaintiff refuses to grant main-
levée seizure which has been made.
The parties do not dispute the facts, nor that in
the event of judicial sale of the moveable property
seized the claim of opposant would rank ahead of
that of plaintiff pursuant to the provisions of
article 1994 of the Quebec Civil Code which ranks
' See S.C. 1970-71-72, c. 63, s. I.
the claims of creditors who have a right of pledge
or of retention in the fourth rank and the claims of
the Crown against persons accountable for its
monies in the tenth rank. It is plaintiff's conten
tion, however, that the fact that opposant is a
creditor in a contract of commercial pledge of the
said assets cannot prevent other creditors, whether
ordinary creditors or privileged creditors such as
plaintiff, from seizing these assets. Opposant has
certain rights arising from its contract as set out in
articles 1979e to k of the Quebec Civil Code and
in particular in the event of default of the debtor
whose rights are set out in article 1979i which
reads as follows:
1979i. In case of default of the borrower to fulfill his
obligations, the creditor may, without prejudice to any other
recourse,
1. oblige the borrower to deliver to him, on demand, the
things pledged;
2. sell the same at auction after notice in the manner pro
vided in article 1671a.
The Bank as opposant admits that it has not
availed itself of the provisions of this article nor
does it at present intend to do so as it wishes to let
defendant continue to operate its business in the
hope of eventually recovering from its financial
difficulties and repaying the bank loan together
with interest. Plaintiff contends that a contract of
commercial pledge does not protect the assets
pledged from claims of any other creditor since the
rights of the opposant consist in a privilege upon
the proceeds of the sale of the said assets when and
if they are brought to judicial sale as a result of
plaintiff's seizure or as the result of the opposant
undertaking to sell them at auction as provided in
article 1979i(2).
Any jurisprudence dealing with contracts of
pledge, sales with right to redemption and similar
matters prior to 1962 when articles 1979e to k
dealing with commercial pledge were inserted in
the Quebec Civil Code is of little help and counsel
for both parties agreed that there has been no
definitive jurisprudence subsequently which is
directly in point although I was referred to various
authorities who have commented on same includ
ing an article by Notary Roger Comtois on "Com-
mercial Pledge" appearing in the McGill Law
Journal (1963), Vol. 9, No. 4, Professor Philippe
Ferland's Traité de procédure civile and Professor
Jacques Anctil's Commentaires sur le Code de
procédure civile. None of these authorities gives a
direct answer to the question before the Court,
however.
Notary Comtois, a highly respected authority on
Quebec Civil Law, in his article [TRANSLATION]
"New Legislation: Commercial Pledge" (supra)
which is reprinted in la Revue du notariat, Vol. 66,
states at page 164 in dealing with the effects of
registration of a commercial pledge:
[TRANSLATION] It is with respect to third parties that regis
tration becomes significant; the creditor of the pledge cannot
oppose his right to privileged or hypothecary creditors if he has
not first registered his privilege.
Plaintiff in the present case does not dispute that
opposant's commercial pledge was duly registered
before the registration of its claim for taxation
(even though the origin of the amounts so claimed
antedated opposant's loan) and hence would rank
ahead of plaintiff for proceeds of the sale of the
property, but this does not settle the issue of
opposant's right to prevent plaintiff from seizing
same. Notary Comtois recognized the opposant's
right of revendication and of preference on the
price of sale when he stated at page 164:
[TRANSLATION] The rights of the creditor of the pledge are
considerable. He can revendicate the thing, can sell it and
exercise with respect to it the rights belonging to a privileged
creditor, that is to say the right to be preferred on the price and
the right of reclaiming same.
He does not deal specifically, however, with the
interpretation to be given to article 597 of the
Quebec Code of Civil Procedure and its interpre
tation in the light of article 604 which gives rise to
the present issue. These articles read respectively
as follows:
597. The opposition may also be taken by a third party who
has a right to revendicate any part of the property seized.
604. The creditors of the debtor, for any reason, even for
rental, cannot oppose the seizure or the sale; they can only
exercise their privilege upon the proceeds of the sale, by
opposition for payment. Such opposition must be served at the
latest on the tenth day after the sale, and is made and contested
in the manner set forth in articles 600, 601 and 602.
Professor Philippe Ferland in his Traité de pro-
cédure civile (supra) states in Vol. 2, page 220:
[TRANSLATION] If the debtor has a loan covered in the form
of sale or any other contract and as a guarantee of repayment
he gives moveable property as a pledge, the problem is simple
to resolve: if the pledge was not handed over to the creditor or
another person agreed upon "the privilege subsists only while
the thing pawned remains in the hands of the creditor or of the
person appointed by the parties to hold it". (Article 1970 C.C.)
and with the exception of the pledge of agricultural property,
(Article 1979a C.C.) or commercial pledge, (Article 1979e
C.C.) the opposant, since he is not in possession of the pledge,
cannot succeed in taking advantage of Article 597 C.P.
This would imply a conclusion by him that in
the case of commercial pledge article 597 of the
Quebec Code of Civil Procedure can be used to
revendicate the property seized. As authority for
this conclusion, however, he cites considerable
jurisprudence but all dating to a period before the
1962 amendments to the Quebec Civil Code which
first established commercial pledge, the very
essence of which is that the property pledged can
remain in the hands of the debtor, unlike ordinary
pledge or pawning where possession becomes
vested in the lender.
Professor Anctil in his Commentaires sur le
Code de procédure civile (vol. 2) (supra) which
was published by Publications de la Revue de
Droit de Sherbrooke in 1974, states at page 159:
[TRANSLATION] If the vendor has conserved the ownership of
the object until payment in full he can make an opposition to
seizure. If the third party invokes a right of pledge it is
necessary that he must have been dispossessed of it. It is to be
noted, however, that the lessor cannot oppose the seizure of the
moveable effects affected by his pledge. In effect, he has no
right of retention over these objects; he only has a privilege
which he will exercise on the product of the sale by an
opposition to payment.
Again the jurisprudence which he cites dates prior
to 1962.
Plaintiff contends that if article 597 of the
Quebec Code of Civil Procedure is interpreted
without reference to article 604 so that the oppo-
sant who has not exercised its right to revendicate
the property seized can nevertheless prevent any
other creditor, even a privileged creditor, from
seizing same, this would lead to an absurd situa
tion. For example, the loan, as security for which
the commercial pledge is given, which in the
present case amounts to $20,000 might be made on
moveable property worth a great deal more or,
alternatively, even if it were made on property of a
value merely sufficient to protect the loan, might
as a result of subsequent payments have been
reduced to a point where, if the property were
brought to sale, it could be expected to realize
considerably more than the amount of the out
standing balance. The lender as creditor of the
commercial pledge might then be quite content not
to take any steps to collect the outstanding indebt
edness, even if it were overdue as it allegedly is in
the present case, especially as it bears 14 1 / 2 % inter
est, and thereby this property of the debtor would
be protected from any other creditor if opposant's
contentions are upheld. This inequity is all the
more evident in the present case where it may well
be that the moveable effects consisting of the
entire equipment of defendant's restaurant may
constitute its only asset. Opposant's answer to this
argument is that the registration of the commer
cial pledge warns subsequent creditors that they
cannot count on this property as security for any
debts which the debtor may incur toward them.
This is hardly the situation in the present case,
however, where the indebtedness to the plaintiff
did not result from any voluntary act of plaintiff
by way of making loans or advances to defendant
but arose from the operation of the taxation stat
utes by virtue of which defendant became obligat
ed to collect and remit to plaintiff certain sums
which it has failed to do. On the other hand, if
property subject to a duly registered commercial
pledge can be seized by another creditor, this
certainly diminishes the security of a creditor in
such a contract.
In these proceedings it is the effect of the law as
it stands at present which must be applied, and the
correct interpretation of it decided without taking
into consideration the value of the property
pledged, the amount of the loan or overdue bal
ance on same, or the rate of interest, as the
problem is a general one and not one which only
arises in this case.
It is therefore necessary to examine the perti
nent sections of the Quebec Civil Code and of the
Quebec Code of Civil Procedure. Article 1979j of
the Quebec Civil Code provides that eight days
after the sale (in the event that the creditor of the
pledge decides to have the moveables subject to the
pledge sold by auction) the creditor must account
to the borrower for the proceeds of the sale and
remit any surplus remaining in his hands after the
payment of the debt and the costs of the sale. This
surplus would then of course be subject to the
claims of other creditors according to their rank
pursuant to article 1994 of the Quebec Civil Code,
and they could make an opposition to payment of
same to the debtor.
Article 607 of the Quebec Code of Civil Proce
dure provides:
607. A first seizing creditor who fails to proceed with dili
gence cannot prevent the sale by a second seizing creditor.
This is necessary to protect subsequent creditors
from effects of lack of diligence on the part of a
first seizing creditor. In the present case the bank
has not taken the moveable effects pledged back,
and has indicated that it does not intend to do so
nor to bring them to sale at present, so there is
perhaps some analogy to be made although the
article in question is not directly applicable.
It is clear from article 1979i (supra) that the
rights of the creditor of the pledge include the
right to require the borrower to deliver on demand
the things pledged. This, however, gives the credi
tor only the possession of the property so pledged,
and does not confer any rights of ownership in it.
Article 1979d of the Quebec Civil Code appears in
the chapter entitled "Of the Pledge of Agricultural
and Forest Property" but by article 1979k appear
ing in the chapter dealing with "Commercial
Pledge" it is stated "Article 1979d applies to the
pledge contemplated by this chapter". The said
article 1979d reads as follows:
Art. 1979d. Whatsoever is pledged shall be seizable for what
is owing to the creditor; it cannot be stipulated that in default
of payment the latter shall become owner, and, when he has
obtained possession of what was pledged, he must, if the person
who pledged the same requires it, realize upon same without
needless delay.
Article 1979h applies to the pledge contemplated in this
chapter.
The opposant Bank therefore cannot under any
circumstances become the owner of the property
pledged (unless of course it purchases it if it is put
up for sale as a result of seizure by another
creditor) and even if it exercised its option to take
possession of the property it would then have to
realize upon same without needless delay if the
person pledged required it. Surely it cannot have
been contemplated that since the debtor would not
of course require that the property so repossessed
by the Bank be brought to sale to satisfy plaintiff's
claim, the Bank could if it took back possession of
the property defeat plaintiff's rights by not pro
ceeding with the sale of same. Even less can it have
been contemplated that the Bank, by refusing to
exercise its rights under either of the options of
article 1979i, despite the debtor's default, can
defeat plaintiff's claim against these assets.
I am of the view therefore that article 597 of the
Quebec Code of Civil Procedure should not be
interpreted as permitting an opposition to seizure
being made by a third party who has a right to
revendicate the property seized unless it has a
right of ownership in same. By virtue of the con
tract of commercial pledge the Bank has the right
as creditor of the pledge to take back possession of
the property by obliging the borrower to deliver to
it on demand the things pledged but this is not an
act of revendication by an owner whose property
has been seized while in the possession of a third
party.
Opposant contends that since article 597 refers
to an opposition by a third party "who has a right
to revendicate" it is not necessary that the revendi-
cation should actually have taken place. While this
would be a reasonable literal interpretation of the
article, it would appear to be in conflict with
article 604, and this is especially striking in the
present case where, although the opposant has a
right to revendicate the possession, although not
the ownership of the property, it has no immediate
intention of exercising this right. Article 604 pro
vides specifically that the creditors even for rental
(which gives a privileged right over property in the
premises by articles 1637 to 1640 of the Civil
Code) cannot oppose the seizure or sale and that
they can only exercise their privilege upon the
proceeds of the sale by opposition for payment. It
is opposant's contention that while it is undoubted
ly a creditor it cannot be considered as a creditor
within the meaning of the said article 604, but is in
a special position as pledgee by virtue of its con
tract of commercial pledge. The wording of article
604 is very broad, however, indicating that the
creditors cannot "for any reason" oppose the sei
zure or sale. While the opposant has certain spe
cial rights as a pledgee in a contract of commercial
pledge it must confine itself to the rights given to it
under articles 1979e to k of the Quebec Civil
Code, and although it would have the right to take
possession of the property pledged by obliging the
borrower to deliver things pledged to it pursuant to
article 1979i(1) this is not equivalent to the right
of revendication of an owner provided for in article
597 of the Quebec Code of Civil Procedure which
allows him to make an opposition to seizure, but
rather thè matter falls within article 604 and the
opposant as a creditor, even a very special sort of
creditor, cannot oppose the seizure, but is merely
entitled to exercise its privilege upon the proceeds
of the sale by an opposition for payment.
For the above reasons the opposition to seizure
is dismissed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.