On January 11, 2012, in 9089-3777 Québec Inc. c. Fischer (Fischer), the Québec Court of Appeal (the Court) confirmed the right of a lessor to claim its vehicles seized by its lessee’s unsecured creditor even though the underlying lease had not been published in accordance with Article 1852 of the Civil Code of Québec (the CCQ). Thus, the Court reaffirmed the principle set out in 2004 by the Supreme Court of Canada (the SCC) in Lefebvre (Trustee of); Tremblay (Trustee of) (Lefebvre) that the publication of a lease of movable property does not create the lessor’s right of ownership and is not necessary for the right to exist but is required only to protect such right with respect to third parties.

Background

In Fischer, Walter Fischer instituted legal proceedings before the Court of Québec against its debtor 9192‑0090 Québec Inc. (the debtor) with a seizure before judgment of certain property in the debtor’s possession, including two trucks owned by 9089‑3777 Québec Inc. (the opposing party).

Upon learning that the vehicles it had leased under a long-term lease to its sister company were being seized, 9089-3777 Québec Inc. intervened aggressively in Walter Fischer’s action to oppose the seizure and claim its property.

While acknowledging the existence of a long-term lease between the opposing party and the debtor, the Honourable Antonio De Michele concluded at trial that the lease could not be set up against the creditor Walter Fischer because it had not been published in the Register of personal and movable real rights in accordance with Article 1852 of the CCQ.

Following this judgment delivered from the bench, 9089‑3777 Québec Inc. filed an appeal before the Court to determine whether Walter Fischer, as unsecured creditor, had the right to seize its property before judgment based solely on the fact that the lease, which had a term of more than one year, had not been published.

Decision

The Court unanimously maintained the lessor’s opposition and ordered that the lessor’s two trucks leased to the debtor be removed from the seizure.

The Honourable Justice Dalphond, speaking for the Court, stated that “[TRANSLATION] the publication of the lease does not create the lessor’s rights or his right of ownership (…). It merely makes the lease opposable to third parties.” Justice Dalphond further stated that failure to publish the lease “[TRANSLATION] merely confirms to a third party dealing in good faith with a person who seems to be in full possession of movable property that it may presume that such person is the owner thereof (Article 921 of the CCQ), even though such person is really just the holder of such property (…).” Specifically, Article 1852 of the CCQ provides as follows:

1852. The rights resulting from the lease may be published. Publication is required, however, in the case of rights under a lease with a term of more than one year in respect of a road vehicle or other movable property determined by regulation, or of any movable property required for the service or operation of an enterprise, subject, in the latter case, to regulatory exclusions; effect of such rights against third persons operates from the date of the lease provided they are published within fifteen days. A lease with a term of one year or less is deemed to have a term of more than one year if, by the operation of a renewal clause or other covenant to the same effect, the term of the lease may be increased to more than one year. The transfer of rights under a lease requires or is open to publication, according to whether the rights themselves require or are open to publication.

According to the Court, the purpose of the publication of a lease under Article 1852 of the CCQ is to protect transactions with third parties acting in good faith, such as the purchaser of property or the beneficiary of a hypothec on the property granted by the holder of such property.

However, the Court concluded that, even though the creditor Walter Fischer was clearly a third party with respect to the opposing party in this case, seizure before judgment does not create a right in the seized property nor does it dispossess the debtor or the opposing party of its rights in the property. The Court pointed out that seizure before judgment is merely a procedure to temporarily place property in the hands of the court where there is reason to fear that recovery of the debt will otherwise be jeopardized.

Conlcusion

The Fischer decision once again confirms the principle that the publication of a lease in accordance with Article 1852 of the CCQ does not create the lessor’s right of ownership and is not necessary for the right to exist but is required only to protect such right with respect to third parties.

The SCC had come to this same conclusion in Lefebvre but the facts in that case were different in that the lessor’s opposing party was a trustee in bankruptcy. The SCC found that the lessor had the right to claim the leased property which was in the trustee’s possession as a result of the lessee’s bankruptcy because the trustee was in fact the continuation of the lessee and could therefore not qualify as a third party.

Although the Court’s decision in Fischer should come as a comfort to equipment leasing companies and other lessors as it allows them to oppose seizures by their lessees’ creditors, the Court also suggests in this decision, as it did in Transport international pool inc. c. St-Georges, Hébert inc. (Transport international pool), that it would be impossible for a lessor who failed to publish its lease to claim its property from a third party acting in good faith, such as a purchaser of the leased property, from whom the lessor could claim the property only by refunding the price paid, or a beneficiary of a hypothec created by the lessee on the leased property (Fischer) or all of its movable property (Transport international pool).

In light of the foregoing, failure to publish the rights resulting from a lease may have significant consequences depending on the circumstances and the identity of the holder of the leased property. Given that the Court provided no further details in this regard, it will be interesting to see how the courts will apply the concepts established in Lefebvre, Fischer and Transport international pool in the future.

Finally, even though it is now well established that failure to publish a lease does not affect the lessor’s right of ownership as against the lessee or the lessee’s trustee in bankruptcy, or in the case where property is seized before judgment by a lessee’s unsecured creditor, it remains important for a lessor to protect its rights and to set them up against other third parties. Given the publication requirement provided for under Article 1852 of the CCQ and the risks that subsist with respect to third parties if the lease is not published, equipment leasing companies and other lessors should continue to publish their leases in a timely manner to safeguard their rights.