Les suretes reelles dans le Code civil du Quebec.
Montesquieu is famously reported to have declared: "It takes much audacity to teach about something one does not know; it takes even more audacity to teach about something one does know." The same could be said for authors of legal monographs and treatises.
In 1994, Louis Payette produced the first edition of Les suretes dans le Code civil du Quebec (Cowansville, Qc.: Yvon Blais, 1994). This monograph constituted a significant revision, updating, and amplification of his text "Des priorites et des hypotheques" which appeared in La reforme du Code civil (Quebec City: Presses de l'Universite Laval, 1993), a three volume collection sponsored by the Bar Association and the Board of Notaries of Quebec and published the previous year.
To intimate that Payette did not know anything about the Quebec law of security on property in 1994 would, of course, be an egregious falsehood. For more than twenty-five years he had been producing a steady stream of articles, book chapters, case comments, and continuing education lectures in this field. Moreover, during the 1970s he was a member of the subcommittee of the Civil Code Revision Office that produced the title on security on property for the Office's Draft Civil Code. Furthermore, in the 1980s and 1990s he was a member of two separate committees of the Quebec Bar Association that reviewed and critiqued both the 1986 Projet du Code civil and Book Six of the proposed Civil Code of Quebec itself.
Still, it is universally acknowledged that the enactment of Book Six, entitled "Prior Claims and Hypothecs", operated nothing short of a revolution in this area of the law. For an early discussion of these "revolutionary" changes see the symposium sponsored by the Quebec Comparative Law Association in 1993. The six texts delivered at this symposium were later published in (1992) 23 R.G.D. 357-448. So it could be justly said that in 1994, Payette, along with everybody else in Quebec, really did not know all that much about "les suretes dans le Code civil du Quebec". Those of us teaching and practising secured transactions law, nonetheless, welcomed the display of audacity represented by the publication of the first edition of this monograph.
Now, some eight years later, Payette has delivered a second edition, all the more remarkable than the first for its scope, erudition, and sophistication. It is obvious that, whatever may be the case for the rest of us, he certainly does know quite a lot about secured transactions law. And now, some eight years later, we are even more in his debt for this display of even greater audacity.
By any standard, Les suretes reelles dans le Code civil du Quebec is a magnificent opus. I do not propose here to provide a detailed account of its various chapters. I should, however, like to suggest something of the flavour of the work. Let me begin with the bibliographic apparatus that sustains the text. The comprehensiveness of the author's research is manifest in its 112 pages of tables of legislation and cases, and its 95-page analytical index. While there is, regrettably, no table of doctrinal references, my rough scan of the work's 2949 footnotes uncovered citations to almost 200 articles and monographs. Given Payette's extensive references to the Civil Code of Lower Canada and to pre-C.C.Q, legislation, his careful use of French law, and his rich comparative insights into developments under article 9 of the Uniform Commercial Code, it is tempting to see the work as the Quebec equivalent of Grant Gilmore's magisterial two volume U.C.C. treatise, Security Interests in Personal Property (Boston: Little Brown, 1965).
Indeed, however laudatory one may be about the depth and breadth of Payette's research, one must be even more enthusiastic about the comprehensiveness of the monograph, its conceptual organization, and the detail and subtlety of his analysis. The "Avant-propos" states, modestly, that his aim has been to update the first edition with references to cases, doctrinal sources, and his own research dossiers, as well as to discuss legislative amendments that have more fully integrated the security trust and the instalment sale into the overall logic of secured transactions. The "Avant-propos" also notes his substantive expansion of the focus of the work to include detailed consideration of new "dematerialized" objects of security--notably securities and intellectual property (at vii). These prefatory comments understate both how broadly he has defined the scope of his work and the sophistication with which he elaborates the subject so defined.
Of course, the domain of secured transactions is vast, and its content largely a matter of definition. While Payette does not take the broadest view possible of the field, he does substantially expand the coverage of his first edition in three distinct dimensions. I should like to note these, also indicating where he may have taken this expanded coverage even further.
First, federal security interests. A number of sui generis security rights arise in whole or in part by operation of federal law. Among the most important are security under section 427 of the Bank Act, maritime liens and hypothecs, security on aircraft and railway rolling stock, security in respect of "lands reserved to Indians", security on negotiable instruments, security on intellectual property, and the panoply of federally created liens and priorities. Payette acknowledges the importance of these federal security rights, but in principle limits his coverage to those substantive rights created under federal law that are susceptible to security interests created by the Civil Code of Quebec. So the impact of Book Six on negotiable instruments and on various intellectual property rights is extensively considered (nos. 911-29; 1302-1401). Some coverage is also devoted to hypothecs on aircraft (nos. 947-64) and security on ships (nos. 967-72)), but the central role of Bank Act security and like devices is not explored.
A second dimension of Payette's expanded coverage has to do with what in France are called "proprietes-suretes". In his first edition, these various "title transactions" were treated summarily. Partly because of the need to review recent amendments to the Civil Code of Quebec that indicate that the National Assembly is at last beginning to understand the various ways in which title can be deployed as security, Payette devotes considerable attention in this edition to regimes governing the security trust, instalment sales, the finance lease, and the sale with a right of redemption (nos. 1868-2171). Yet other, equally problematic, manifestations of title security are either not examined in detail (most notably, the seller's legal right of resolution), or not directly discussed at all (sales under resolutory condition, sales under suspensive condition, ordinary leases, leases with option to purchase, and promises of sale, as well as various two-step transactions like double sales and sale-leaseback arrangements, and the deployment of rights of superficies or emphyteusis as security).
Payette also makes an effort to consider, if only summarily, the impact of a wide range of devices such as compensation, subrogation, actual possession of a negotiable instrument, seizing creditor's priority, and the Paulian action that indirectly, or by ricochet, generate an execution preference (nos. 128-50). Here again, however, he does not review the full range of techniques and mechanisms that creditors can use to obtain a preferential outcome in a bankruptcy proceeding. These include, for example, the priority effects flowing from the sale of an enterprise, the exception for nonperformance, the rules governing accessions to movables, and a number of subpriorities consequent upon the deferral of certain claims relating to partnership property or to certain matrimonial assets.
It is, I acknowledge, churlish to tax Payette with a failure to deal with every technique and device that comes to mind once one accepts the broad view of the subject that his conceptual framework invites. Should he not, rather, be congratulated for adopting such a perspective? Agreed. These points about coverage are raised not so much to criticize Payette as to provide a springboard for illustrating the under-theorization of the law of security on property in Quebec and the on-the-ground impacts of this under-theorization. While I strongly support Payette's decision to include many of these "collateral" transactions within a monograph entitled Les suretes reelles dans le Code civil du Quebec, there are occasions, especially in his discussion of the security trust and other title transactions, when I find myself disagreeing with the specific conclusions he draws.
These disagreements flow largely from the different interpretations we give to the National Assembly's failure to adopt a full-blown "substance of the transaction" rule in the Civil Code of Quebec. Payette apparently takes the position that the two governing principles in this field are those set out in article 2647 ("Prior claims and hypothecs are the legal causes of preference") and article 1801 ("Any clause by which a creditor, with a view to securing the performance of the obligation of his debtor, reserves the right to become the irrevocable owner of the property or to dispose of it is deemed not written"). Hence, he concludes, any attempt by a creditor to deploy title security must be viewed skeptically. The title transactions specifically authorized by the Civil Code of Quebec--for example, the instalment sale--must be read restrictively as exceptions to the general prohibition of article 1801. All other security-generating contractual clauses should be deemed not written (nos. 158-72, 186-88).
By contrast, it is also possible to see the basic regime of debtor-creditor law as the source of two different governing principles in this field: universal patrimonial liability (articles 2644-45 C.C.Q.) and equality of creditors (articles 2646-47 C.C.Q.). Each principle gives rise to its own distinct forms of security right. The various devices other than prior claims and hypothecs mentioned above as reflecting the third dimension of Payette's expanded view of secured transactions should be considered simply as further attenuations to the equality of creditors principle. All title transactions intended as security (the trust, sale devices, leases, consignments, assignments) should be considered as attenuations to the universal patrimonial liability principle. The four regulatory models for title transactions set out in the Civil Code of Quebec-seller-transfer (right of resolution); seller-retention (instalment sale); lender retention (rights of redemption); and lender-transfer (giving-in-payment)--should be seen as applying to any contract by which a creditor seeks to profit from the transactional logic of one or the other of these models. On this analysis, article 1801 C.C.Q. thus only applies to lender-transfer transactions; as for sales under resolutory condition, it is the legal right of resolution model (articles 1741-43 C.C.Q.) that applies; sales under suspensive condition and leases with options to purchase are governed by the logic of the instalment sale model (articles 1745-49 C.C.Q.); in structuring and interpreting double sales and sale-leaseback contracts, the right of redemption model (articles 1750-56 C.C.Q.) serves as the template. Adopting this four-fold legislative modelling approach, in which diverse title transactions are conceived as distinctive attenuations to the general principle of universal patrimonial liability, is the best way to reconcile the current regulatory regime of the Civil Code of Quebec with the needs and usages of contemporary commercial practice.
The conceptualization of title security in contemporary commercial practice is one--perhaps the only--part of this monograph where Payette's conclusions are not as well theorized as they might be. In itself, this is a paradox, for elsewhere his sensitivity to commercial practice is awe-inspiring. Without in any way stinting on his coverage of security on immovable property, Payette has devoted the bulk of this monograph to a careful analysis of business-related security--how does the codal regime accommodate security over shares, debentures, partnership shares, claims, and other incorporeal commercial collateral (nos. 983-1301)? Anyone who doubts the outstanding quality of Les suretes reelles dans le Code civil du Quebec need only take a look at how these topics are examined and assessed. Here one sees the apogee of Montesquieuian audacity.