- A new regime for security over monetary claims came into force January 1, 2016.
- A “monetary claim” is (i) a claim for payment solely in money that (ii) is owed to the debtor by its creditor or a third party.
- A hypothec on a monetary claim assures a creditor first rank, whatever the date of its hypothec on that claim.
- A hypothec on a monetary claim does not require publication in the Quebec Register of Personal and Movable Real Rights (the “RPMRR”).
- A number of situations would lead creditors to obtain a hypothec on a monetary claim, for example:
- a party in a derivatives or swap agreement needing to post cash collateral for the transaction
- a lender seeking security over the credit balance held by a financial institution that that financial insitution owes its borrower as a depositor;
- a supplier owed payment by the debtor taking security over the volume bonus or other rebates supplier owes to debtor
On January 1, 2016, the Civil Code of Québec (“CCQ”) was amended to enact new provisions regarding monetary claims.
Before these new provisions, a creditor owing a sum of money to its debtor had to obtain a movable hypothec without delivery on the claim it owed its debtor. In all cases, the rank of this movable hypothec without delivery was subject to all other movable hypothecs without delivery already granted by the debtor on this same claim.
2. Definition of 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.
Subject to few exceptions, a monetary claim can be defined as a claim that belongs to the debtor and is payable to it by way of a sum of money from:
- its creditor; or
- a third party:
- because of a credit balance in a financial account maintained by the debtor with this third party, or
- 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 its creditors.
The concept of monetary claim implies either a two-party or 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, a creditor and a third party in a tripartite relationship.
3. Monetary claim – bilateral relationship
In cases involving only a debtor and creditor, the monetary claim is the sum of money that the creditor owes its debtor. In this context, as in the case of a bank and its borrower/depositor, each party is simultaneously both the other’s debtor and creditor.
Subject to the exclusions provided by the CCQ, any kind of claim payable by the creditor to its debtor can be considered a monetary claim. The only requirement is that it be a claim payable in money, to the exclusion of any other form of performance. Accordingly, there are many kinds of claims that can be considered monetary claims.
4. Monetary claims – tripartite relationship
The CCQ also allows situations in which a third party is involved, in addition to the debtor and its creditor. In all cases of tripartite relationship, the third party is also the debtor of the creditor’s debtor (i.e. the financial institution operating the bank account or otherwise holding cash collateral, deposited with it by the debtor).
5. Creation of the hypothec with delivery on a monetary claim
First it must be understood that a security on a monetary claim is a movable hypothec with delivery. The fact that it is a hypothec with delivery implies remittance of the monetary claim held by the creditor. This delivery is entirely theoretical since there is no physical delivery by one party or physical possession by the other.
Then, it is important to remember that a hypothec with delivery does not require publication [registration] in the RPMMR, which makes it an undisclosed security that can remain unknown to other creditors, even though it is enforceable against these third parties.
When the monetary claim is payable by a third party, the CCQ provides two different ways of creating a movable hypothec with delivery, namely the control agreement or the control by becoming the holder of the financial account.
6. Rank of a hypothec with delivery charging a monetary claim
The marked advantage of the movable hypothec with delivery of a monetary claim is the rank it confers on the creditor holding this hypothec. A movable hypothec with delivery of a monetary claim confers on the creditor a first rank in the subject monetary claim, ranking ahead of all prior movable hypothecs without delivery even if published [registered].
This priority is only against the other hypothecs without delivery over the monetary claim. There is no statutory priority in the CCQ afforded to hypothecs with delivery over monetary claims against statutory liens and deeded trusts, such as the superpriority held by the Crown for unremitted payroll source deductions.
Maxime B. Rhéaume is a partner at Miller Thomson LLP, co-head of the financial services department of Miller Thomson’s Montréal office, lecturer in security law in the master’s program in notarial law of the Faculty of law of the Université de Montréal and part-time lecturer at Université Lumière Lyon 2 in the advanced master of business law program.
For more information please contact:
Maxime B. Rhéaume