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A Question of Control: The Case of Montréal C'est Électrique and Hypothecs on Funds in a Bank Account

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Insolvency and Restructuring Bulletin

On December 2, 2020, the Québec Court of Appeal (the “Court”) rendered an important decision in Syndic de Montréal C’est Électrique[1] upholding the decision of the trial judge where the City of Montréal (the “City”) was found not to hold any security on the sums held in the bank account of Montréal C’est Électrique (“MCE” or the “Debtor”). Both the trial and appeal decisions are the first published rulings to examine the concept of movable hypothecs with delivery on monetary claims, which, since 2015, are now provided for in articles 2713.1 et seq in the Civil Code of Québec (“CCQ”).[2]


The Debtor was responsible for presenting the Formula E race in the streets of Montréal in 2017. Accordingly, in January 2017 it obtained a variable credit secured by a movable hypothec (the “Hypothec”) from the Caisse Desjardins (the “Caisse”). The City of Montréal (the “City”) guaranteed MCE’s obligations vis-à-vis the Caisse.

In December 2017, MCE was facing financial difficulties and the Caisse called MCE’s loan. The City, as guarantor, paid the debt owed to the Caisse and obtained a subrogated release for the same amount, thereby entitling it to the rights of the Caisse under the Hypothec.

On February 5, 2018, MCE ceased its operations and filed for bankruptcy. At the time of the bankruptcy, its only realizable asset was money held in its bank account with the Caisse (the “Bank Account”). The City therefore filed a proof of claim as a secured creditor, claiming that it had a hypothec on the universality of MCE’s movable property. The bankruptcy trustee rejected this proof of claim on the basis that the Bank Account was not secured by the Hypothec.

The Court’s Decision

Both in appeal and at trial, the City contested the rejection of its proof of claim based on two main grounds:

  1. It argued that the Hypothec secured MCE’s accounts receivable, and as such the City held a valid security interest in the Bank Account; and
  2. In the alternative, it also argued that the Bank Account (or, rather, the money therein) was subject to a movable hypothec with delivery within the meaning of articles 2713.1 et seq in the CCQ.

Both arguments were rejected by the Superior Court and the Court of Appeal.

The secured property must be clearly identified in the deed of hypothec

The Court of Appeal first found that the Hypothec, as drafted and signed by the parties, did not secure the universality of MCE’s claims and accounts receivable, because this category of property had not been identified by the parties as being covered by the Hypothec.

The Court stated that that the Hypothec must clearly identify the property that it charges and, if securing a universality of property, the nature of such universality:

[24]      [translation] The deed of hypothec without delivery must contain a sufficient description of the property that it relates to or, if on a universality of property, indicate the nature of such universality. This description must have a shared characteristic that makes it possible to determine whether or not certain property is charged with the hypothec. The purpose of indicating the nature of a universality is therefore to facilitate the proper identification of property that is a part thereof. The nature of a universality therefore includes all the characteristics of a type of property. If the property does not have such characteristics, it is not included in the universality. The ultimate goal is a description that removes all doubt as to what is covered by the hypothec.

In the case at hand, the form identified the secured property by way of checked off boxes that were also initialled by the parties, the property that was to be charged with the Hypothec. The property identified as being charged included “all present and future property used in the operation of the grantor’s business, such as equipment, machinery, tools, furniture, motor vehicles.” However, the boxes for the categories of property for a “Universality of claims and accounts receivable” and a “Particular (or specified) universality of claims” were not checked off or initialled.

The City argued that despite the absence of check marks and initials next to the categories identified as the “universality of claims,” the words “present and future property” in the expression “all present and future property used in the operation of the grantor’s business, such as equipment, machinery, tools, furniture, motor vehicles” had the effect of encumbering MCE’s receivable accounts with a movable hypothec.

The Court rejected this argument based on the ejusdem generis rule of interpretation, a well-known contractual interpretation principle where a broad general wording accompanying a narrow list of elements is restricted to things of the same type as those listed.[3] Accordingly, the expression “present or future property” could only cover property of the same or similar nature as the listed property.

The Court also rejected the City’s argument that the intention of the parties, as clearly set out in the credit agreement, was to include claims in the MCE property to be charged. The Court stated that the movable hypothec without delivery must be clearly set out in writing and that such instrument must confirm “[translation] the creation of a hypothec and not an undertaking to create one.”[4] As such, while the credit agreement may help interpret the deed of hypothec, it may not extend the scope of the Hypothec granted beyond that which was contemplated.

A movable hypothec with delivery under article 2713.1 CCQ may not be created without the parties’ express intention to do so

The second argument raised by the City relied on the scope of the new articles 2713.1 et seq CCQ. The City claimed that the money deposited by MCE in the Bank Account gave the City “control” of the Bank Account as provided under articles 2713.1 et seq CCQ and, thereby granted a movable hypothec with delivery.

According to the City, the Caisse had “control” of the Bank Account under a standard clause in the general conditions that applied to the financing which entitled the Caisse to contractual compensation. The City added, relying on doctrine, that a contractual compensation clause may give a creditor the control required to create a movable hypothec with delivery over a monetary claim.[5]

The Court rejected this position for three main reasons.

First, without confirming nor invalidating the doctrinal argument that a contractual compensation clause could grant sufficient “control” over a monetary claim, the Court found that the provisions of the Hypothec did not establish a right to contractual compensation, and that they were rather terms pertaining to the imputation of payments supplementing the provisions of the CCQ. The provisions relating to the imputation of payments were not sufficient to give the Caisse control of the Bank Account for the purposes of article 2713.1 CCQ and, as such, the Caisse did not have a movable hypothec with delivery.

Second, the Court found that a movable hypothec with delivery may not be created without the financial account holder’s intention to constitute a hypothec on that account.

In this regard, the City essentially argued that a movable hypothec with delivery on a monetary claim may be created without the express intention of the parties to do so, where certain contractual provisions in a credit agreement allow for compensation or imputation of payments by the financial institution. Had it been accepted, this argument would have had a significant impact on the financial sector given that pursuant to article 2713.8 CCQ, for example, the holder of a movable hypothec with delivery on a monetary claim ranks ahead of any other hypothec encumbering that claim.

The Court rejected this claim by mainly relying on article 2713.3 CCQ, which requires the grantor to consent to the claim securing an obligation towards the creditor:

2713.3. A creditor obtains control of a monetary claim that the grantor of the hypothec has against him if the grantor has consented to the claim’s securing the performance of an obligation towards the creditor 

According to the Court:


[77]      As such, to constitute a movable hypothec with delivery on the credit balance of a financial account, control of the account must be obtained in order for this claim to be used to secure the performance of an obligation. Without the consent of the grantor-client, there can be no movable hypothec without delivery.

[78]      Had the legislator wanted to constitute a movable hypothec with delivery from the mere control of a balance of a financial account, as argued by the City, it would not have expressed the need to obtain consent for this balance be used to secure the performance of an obligation.

Lastly, the City faced further difficulty in that, even if the Caisse had held a movable hypothec with delivery on the Bank Account, this hypothec would have been extinguished as a result of the City’s subrogation to the rights of the Caisse. In fact, in order for the movable hypothec with delivery to continue, either a control agreement had to be entered into or the City itself had to become the account holder.


This decision highlights the inherent risks associated withusing a standardized form for hypothecs. It is all too easy to forget to check off a box in such a form, or to mistakenly check off the wrong box. These issues can be avoided by providing a detailed description of the secured property in the deed of hypothec.

Moreover, this case provides useful clarifications on articles 2713.1 et seq CCQ, which had not yet been the subject of a case law analysis. As noted by the Court, these articles were very broadly drafted. They were adopted in the context of the rapid evolution of international business transactions and for the purpose of harmonizing the laws governing commercial sureties to fit “[translation] an increasingly anglo-American mold.”[6]

While many questions remain unanswered as to what creates a movable hypothec with delivery under 2713.1 CCQ and its scope, three important points were clarified by the Court:

  1. a mere contractual clause that provides for the imputation of payments by a financial institution is not sufficient to grant “control” over an account within the meaning of article 2713.1;
  2. to create a movable hypothec with delivery on sums of money in a financial account, the client must consent to such amounts being used to secure the performance of his obligation and therefore, must consent to the creation of this hypothec; and
  3. to be valid, the assignment of the movable hypothec with delivery must be either accompanied by a control agreement or the creditor must have become the account holder. Otherwise, the assignee does not have the necessary control for a movable hypothec with delivery to exist.

[1] 2020 QCCA 1609 (Justices Julie Dutil, J.C.A., Dominique Bélanger, J.C.A., and Robert M. Mainville, J.C.A.), upholding the Superior Court decision 2019 QCCS 455 (Justice Martin Castonguay, J.S.C.).

[2] Adopted through the An Act mainly to implement certain provisions of the Budget Speech of 4 June 2014 and return to a balanced budget in 2015-2016, SQ 2015, c 8, art. 361, 362, 367, 368. 370 and 372.

[3] Syndic de Montréal c’est électrique, 2020 QCCA 1609, para. 30.

[4] Ibid, para. 33.

[5] See: Jacques Deslauriers and Aurore Benadiba, Les sûretés au Québec, 2nd Ed., Montréal, Wilson & Lafleur, 2018, no. 1160; see also Aurore Benadiba, “A Critical Examination of Special Pledges: New Aspects of Techniques for the Direct Appropriation of Value,” (2018) 59 C. de D. 351, par. 40 of the QL Ed., cited by the City in the appeal.

[6] See Syndic de Montréal c’est électrique, 2020 QCCA 1609, para. 47, 59-60.

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