Hypothec (charge/lien) on Moveable Property

"2660. A hypothec is a real right on movable or immovable property made liable for the performance of an obligation. It confers on the creditor the right to follow the property into whatever hands it may come, to take possession of it, to take it in payment, to sell it or to cause it to be sold and thus to have a preference upon the proceeds of the sale, according to the rank as determined in this Code. 1991, c. 64, a. 2660; I.N. 2014-05-01; I.N. 2015-11-01."

In a title retention financing vehicle, the lessee may not validly grant security in the financed property [article 2681]. However, the lessor may obtain collateral security in the form of a hypothec (mortgage) on the other moveable property of its debtor or on the moveable property of a third party. The hypothec may be taken on specific property of the lessee, or on a universality of all of the lessee's property [article 2666]. The hypothec must be for a specific sum [article 2689], and the property must be carefully identified (including a full description with serial and model numbers, where applicable) [article 2697]. The hypothec must be registered in order to be set up against third parties, and has effect as of the date and time of its registration [articles 2663 and 2945]. In the event of default, in addition to its personal right of action, the lessor is entitled to exercise only the following recourses specified by the Civil Code of Quebec: a) taking in payment, which transfers the hypothecated property to the lessor in full payment of the debt; b) judicial sale of the hypothecated property; and c) sale of the hypothecated property by the creditor [articles 2748 ff]. In the last two instances, the lessor has preference upon the proceeds of sale in accordance with its rank, and may sue the lessee for any shortfall. The lessor is required to file and serve a 20-day prior notice to the lessee outlining its intended recourse [article 2757]. Prior to the expiry of the 20 days, the lessee has the right to remedy the default, preserve its rights in the property and continue its payments [article 2761]. In the event of a subsequent default, a new 20-day notice is required. As the lessor does not own the hypothecated property, it does not have the right to an immediate seizure of the property upon default. Furthermore, the lessee is entitled to sell the property, albeit subject to the hypothec. A hypothec on the lessee's property may be sufficiently general so as to secure all the obligations under the financing agreement as well as any other future debts, up to the specified amount. As there may be other creditors with security on the lessee's assets, the lessor will have to perform title searches in order to ascertain the rank of its security.