Lefebvre (Trustee of); Tremblay (Trustee of), 2004 SCC 63, [2004] 3 SCR 326

Lefebvre (Trustee of); Tremblay (Trustee of), [2004] 3 S.C.R. 326, 2004 SCC 63

DaimlerChrysler Services Canada Inc.                                                          Appellant

v.

Jean-François Lebel                                                                                      Respondent

and between

GMAC Leaseco Limited                                                                                 Appellant

v.

Raymond Chabot Inc.                                                                                   Respondent

Indexed as:  Lefebvre (Trustee of); Tremblay (Trustee of)

Neutral citation:  2004 SCC 63.

File Nos.:  29770, 29780.

2004:  April 20; 2004:  October 28.

Present:  McLachlin C.J. and Major, Bastarache, Binnie and LeBel JJ.

on appeal from the court of appeal for quebec

Bankruptcy and insolvency — Long-term lease — Setting up of lessor’s right of ownership against lessee’s trustee in bankruptcy — Failure to publish rights resulting from lease within legislated time limit — Whether long-term lessor of automobile may set up right of ownership against lessee’s trustee in bankruptcy even though lessor failed to publish rights within time prescribed in art. 1852 C.C.Q. — Whether lessor’s right of ownership equivalent to simple security — Whether trustee may be considered third person for purposes of art. 1852 C.C.Q. — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 67 , 71 , 81 .

Two debtors leased motor vehicles for 36-month terms under leases of movables, and the related rights were assigned to the appellants.  Before the leases had terminated, the debtors made assignments in bankruptcy that included the vehicles, and the respondents were appointed trustees in bankruptcy.  The appellants sent the trustees proofs of claim so as to be put in possession of the vehicles, of which they were the owners.  The trustees disputed the claims because the leases had not been published in the register of personal and movable real rights within the time limit provided for in art. 1852 C.C.Q.  The Superior Court and Court of Appeal agreed with the trustees.  They felt that the appellants’ rights of ownership could not be set up against the trustees because of the late publication thereof.

Held:  The appeals should be allowed.

A lease contract does not effect a conveyance of ownership between the lessee and the lessor.  The leased property remains in the lessor’s patrimony.  The lessee has only the status of a holder, which means that the property must be surrendered upon termination of the lease.  Although the lessor’s right of ownership does not arise out of the lease, the rules respecting the publication of rights alter its effects in relation to third persons, since it cannot be set up against third persons unless it is published.  However, the publication requirement does not transform the right of ownership into a simple security.  Nothing in the Civil Code of Québec or the Bankruptcy and Insolvency Act  alters the nature of the lessor’s right of ownership in the leased property or the resulting rights in relation to the lessee.

The status and duties attributed to the trustee following the initial bankruptcy event do not mean that he or she can be regarded as a third person against whom the lessor of the motor vehicle may not set up his or her rights owing to the failure to satisfy the publication requirement.  The nature and legal characterization of the trustee’s role vary depending on the nature of his or her actions.  On the one hand, the trustee is subrogated to the bankrupt’s rights in the exercise of his or her powers to hold and dispose of property of which he or she has been granted seisin; on the other hand, the law treats the trustee as the creditors’ legal mandatary who will liquidate the property entrusted to him or her for the creditors’ benefit.  This dual nature does not give the trustee the status of a third person in relation to the bankrupt, especially given all the powers conferred upon the trustee by law in order to preserve and liquidate the debtor’s property.  When the trustee takes control of the property, his or her seisin is limited to the property in the debtor’s patrimony and, apart from special powers, the trustee has no more rights with respect to the property than did the debtor.

In the case at bar, the appellants’ rights of ownership can accordingly be set up against the trustees and their claims should have been admitted.  The leased vehicles were never part of the debtors’ patrimonies.  The trustees, in refusing to deliver possession of the property, intended to dispose of property that was not included in their seisin.

Cases Cited

Referred to:  Ouellet (Trustee of), [2004] 3 S.C.R. 348, 2004 SCC 64; Giffen (Re), [1998] 1 S.C.R. 91; Massouris (Syndic de), [2002] R.J.Q. 901; Mervis (Syndic de), [2002] R.J.Q. 2268; Civano Construction Inc. v. Crédit M.-G. Inc., [1962] C.S. 45; Kowalski v. Trust Général du Canada, [1976] C.A. 93; Poliquin v. Banque de Montréal, [1998] R.L. 560; Mercure v. A. Marquette & Fils Inc., [1977] 1 S.C.R. 547; Flintoft v. Royal Bank of Canada, [1964] S.C.R. 631.

Statutes and Regulations Cited

Act to amend the Civil Code and other legislative provisions as regards the publication of personal and movable real rights and the constitution of movable hypothecs without delivery, S.Q. 1998, c. 5, ss. 6, 7, 8, 24.

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 67 , 71(2) , 81 .

Civil Code of Québec, S.Q. 1991, c. 64, arts. 1749, 1752, 1756, 1847, 1852, 1890, 2647, 2941.

Consumer Protection Act, R.S.Q., c. P-40.1, s. 150.14.

Federal Law — Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4, ss. 25 , 28 .

Authors Cited

Auger, Jacques, and Albert Bohémier.  “The Status of the Trustee in Bankruptcy” (2003), 37 R.J.T. 57.

Cantin Cumyn, Madeleine.  Traité de droit civil:  L’administration du bien d’autrui, sous la direction de Paul-A. Crépeau.  Cowansville, Qué.:  Yvon Blais, 2000.

Lafond, Pierre-Claude.  Précis de droit des biens. Montréal:  Thémis, 1999.

Lamontagne, Denys-Claude, avec la collaboration de Pierre Duchaine.  La publicité des droits, 3^e éd.  Cowansville, Qué.:  Yvon Blais, 2001.

Macdonald, Roderick A.  “Faut-il s’assurer qu’on appelle un chat un chat?  Observations sur la méthodologie législative à travers l’énumération limitative des sûretés, ‘la présomption d’hypothèque’ et le principe de ‘l’essence de l’opération’”, dans Mélanges Germain Brière.  Montréal:  Wilson & Lafleur, 1993, 527.

Payette, Louis.  Les sûretés réelles dans le Code civil du Québec, 2^e éd.  Cowansville, Qué.:  Yvon Blais, 2001.

Quebec.  Civil Code Revision Office.  Report on the Québec Civil Code, vol. II, Commentaries, t. 1.  Québec:  Éditeur officiel du Québec, 1978.

Québec.  Ministère de la Justice.  Commentaires du ministre de la Justice — Le Code civil du Québec: Un mouvement de société, t. II.  Québec:  Publications du Québec, 1993.

APPEAL from a judgment of the Quebec Court of Appeal, [2003] R.J.Q. 819, 229 D.L.R. (4th) 697, [2003] Q.J. No. 2304 (QL), affirming a decision of the Superior Court, [2001] R.J.Q. 2679, [2001] Q.J. No. 5074 (QL).  Appeal allowed.

APPEAL from a judgment of the Quebec Court of Appeal, [2003] Q.J. No. 2305 (QL), affirming a decision of the Superior Court, [2001] Q.J. No. 3446 (QL).  Appeal allowed.

Yves Lacroix and Gary Makila, for the appellant DaimlerChrysler Services Canada Inc.

Hugues La Rue, for the appellant GMAC Leaseco Limited.

Martin P. Jutras, for the respondent Jean-François Lebel.

No one appeared for the respondent Raymond Chabot Inc.

English version of the judgment of the Court delivered by

LeBel J. —

I.  Introduction

1                                These two appeals raise a similar issue:  whether a long-term lessor of an automobile may set up his or her right of ownership against the lessee’s trustee in bankruptcy even though the lessor failed to publish his or her rights in the Register of personal and movable real rights (“RPMRR”) within the time prescribed in the Civil Code of Québec, S.Q. 1991, c. 64.  The appeals were heard at the same time as a third case, which concerned an instalment sale contract and in which the issue was whether the seller’s reservation of ownership had effect against the buyer’s trustee in bankruptcy (Ouellet (Trustee of), [2004] 3 S.C.R. 348, 2004 SCC 64).  Separate reasons for judgment were handed down in that case.

2                                In both of these cases, the Quebec Superior Court and Court of Appeal held that the lessor’s right of ownership could not be set up against the trustee unless it was published in a timely manner.  For the reasons that follow, I am of the opinion that the right of ownership justified the claim for the property in the trustee’s hands and could be set up against the trustee.  In my view, in light of the facts of these cases, the trustee cannot be considered a third party in relation to the appellants, who may lawfully exercise their rights to follow and rights of revendication as owners of the leased property.  Consequently, I would allow both appeals and admit the appellants’ claims.

II.  Origin of the Cases

A.  DaimlerChrysler Services Canada Inc.

3                                In this case, Alfred Lefebvre leased a Dodge Dakota vehicle from an automobile dealership, Jules Baillot et Fils Ltée.  The lease of a movable for a 36‑month term was signed on April 19, 1999.  On that same date, the dealer assigned the lease contract to the appellant, which now operates as DaimlerChrysler Services Canada Inc. (“DaimlerChrysler”).  At the time the lease was signed, art. 1852 C.C.Q. had required since 1998 that rights arising out of leases of movables be published in the RPMRR.  In this case, the rights were not published until November 24, 2000.  That delay gave rise to this litigation.

4                                Alfred Lefebvre made an assignment in bankruptcy on November 1, 2000, at a time when he was still the lessee of the Dodge Dakota, and the respondent Jean‑François Lebel was appointed trustee.  On November 24, 2000, in accordance with s. 81  of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3  (“B.I.A. ”), DaimlerChrysler sent the trustee a proof of claim so as to be put in possession of the vehicle, of which it was still the owner.  As has been mentioned, DaimlerChrysler published its rights in the RPMRR that same day.

5                                On December 5, 2000, the trustee notified DaimlerChrysler that he disputed its claim.  According to him, the contract could not be set up against him because it had been published late.  For that reason, he refused to deliver possession of the vehicle to DaimlerChrysler, which then filed a motion for appeal against this decision in the Quebec Superior Court.  In that proceeding, DaimlerChrysler asked the court to recognize that its right of ownership was valid and could be set up against the trustee.

B.  GMAC Leaseco Limited

6                                In this case, Martin Tremblay leased a Chevrolet Cavalier automobile from an automobile dealership, Marlin Chevrolet-Oldsmobile Inc., for a 36‑month term on September 28, 1998.  That same day, the dealer assigned the contract to the appellant, GMAC Leaseco Limited (“GMAC”).  The rights arising out of the lease were not published until January 9, 2001.  On December 13, 2000, the lessee received a notice of repossession pursuant to s. 150.14 of the Consumer Protection Act, R.S.Q., c. P‑40.1.  On December 14, 2000, Mr. Tremblay went bankrupt.  The respondent, Raymond Chabot Inc., was appointed trustee in bankruptcy.  On December 15, 2000, GMAC sent the trustee a proof of claim pursuant to s. 81  B.I.A.  and requested that it be put in possession of the vehicle.

7                                The trustee responded by giving notice that it disputed the claim on the ground that GMAC’s rights could not be set up against it because they had not been published in the RPMRR in a timely manner.  On January 17, 2001, GMAC filed a motion for appeal in the Superior Court with a view to having its rights of ownership in the vehicle recognized and to repossessing it.  During the course of this appeal, the parties agreed to sell the vehicle and place the proceeds in escrow.

III.  Judicial History

A.  Superior Court

(1)    DaimlerChrysler

8                                Trudel J. heard DaimlerChrysler’s motion for appeal.  She first conceded DaimlerChrysler’s point that a lessor’s right of ownership is not, strictly speaking, a right resulting from the lease.  The principal rights are the lessor’s right to receive lease payments and the lessee’s right to use the vehicle.  However, relying on Giffen (Re), [1998] 1 S.C.R. 91, a case whose principles she felt were applicable in Quebec law, she expressed the opinion that, as a result of the rules respecting the publication of rights in Quebec and of the requirement now imposed on lessors to publish rights arising out of a long‑term lease of a motor vehicle published in the RPMRR, an unpublished lease cannot be set up against the lessee’s trustee in bankruptcy.  The right to repossess the property in the event of bankruptcy — which is defined as a default under the lease — must be treated as a right resulting from the contract of lease.  This right is governed by art. 1852 C.C.Q.  A failure to publish it therefore permits the trustee both to refuse to deliver possession of the property to its owner and to dispose of it for the benefit of the estate of the bankrupt.  Trudel J. accordingly dismissed the appellant’s motion: [2001] R.J.Q. 2679.

(2)    GMAC

9                                GMAC was no more successful in the Superior Court than DaimlerChrysler had been.  Boisvert J. did recognize that GMAC’s right of ownership did not arise out of the contract of lease.  However, relying on Giffen, he held that, since the coming into force of art. 1852 C.C.Q., a right of revendication can no longer be set up against a trustee in bankruptcy where rights resulting from a lease have not been published within the prescribed time limits.  Boisvert J. therefore dismissed GMAC’s motion for appeal, as GMAC had not published its rights in a timely manner: [2001] Q.J. No. 3446 (QL).

B.  Quebec Court of Appeal (Beauregard, Dussault and Thibault JJ.A.)

10                            The appeals of DaimlerChrysler and GMAC were heard by the same panel of the Quebec Court of Appeal.  The Court of Appeal delivered common reasons for judgment in the two cases; the majority rejected the arguments of the property owners, holding that their rights could not be set up against the trustees in bankruptcy: [2003] R.J.Q. 819, 229 D.L.R. (4th) 697, and [2003] Q.J. No. 2305 (QL).  Thibault J.A. wrote the principal opinion, and Dussault J.A. concurred in it in separate reasons.  Both of them held that the appellants’ appeals should be dismissed.  Beauregard J.A. wrote dissenting reasons in which he held that the lessors’ rights of ownership could be set up against the trustees even though the rights resulting from the leases of movables in issue had not been published.

11                            The majority opinions endorsed a line of authority established by the Quebec Court of Appeal in Massouris (Syndic de), [2002] R.J.Q. 901, and Mervis (Syndic de), [2002] R.J.Q. 2268, which addressed the effect of the failure to publish a contract of lease or a contract of sale with a reservation of ownership in respect of movable property on the possibility of setting up a right of ownership against a trustee.  These cases decided that trustees had the status of third persons in relation to property owners.

12                            Thibault J.A. conceded that the classic principles of civil law recognize the right of the owner of a movable to revendicate it against its possessor without further formalities.  However, she relied on Massouris and Mervis to conclude that, where long‑term leases and instalment sales involving motor vehicles are concerned, the Quebec legislature intended to change these traditional rules.  In these situations, to prevent the creation of hidden securities, the legislature imposed a publication requirement and it intended to treat as a security the reservation of ownership that was in its opinion provided for in the lease.  In the case of long‑term leases of motor vehicles, art. 1852 C.C.Q. clearly entrenches this new principle, which the courts must apply.  The trustee, who stands in the legal position of a third person for the purposes of art. 1852 C.C.Q., may therefore, on behalf of all the creditors, challenge the security the owner‑creditor attempted to create for him or herself.  Consequently, in Thibault J.A.’s opinion, the appellants could not exercise their rights of revendication against the trustees in bankruptcy of their lessees.  Dussault J.A. reached the same conclusion.  In his view, the legislature had implicitly equated a reservation of ownership under a lease or an instalment sale contract with a security.

13                            Beauregard J.A. found himself in fundamental disagreement with his learned colleagues’ reasons.  He began by asserting the view that the cases at bar could be distinguished from Giffen.  Unlike the Civil Code of Québec, the British Columbia legislation provided that the lease of a vehicle for a term of over one year was equivalent to a security interest and that if it were not published, it had to be treated as an unperfected security interest.  In Beauregard J.A.’s opinion, the provisions relating to the publication of long-term leases and instalment sales have not changed the basic principles of civil law or, more specifically, the essential difference between a right of ownership and a security.  A right of ownership need not be published.  Although a right of ownership cannot be set up against certain subsequent acquirers identified in the Civil Code of Québec, the trustee in bankruptcy is not one of them.  Bankruptcy does not confer any more rights on the trustee against the owner of the property than the bankrupt had, and the trustee cannot contest the appellants’ claim.  Beauregard J.A. would have allowed the appeals and recognized the appellants’ rights.

14                            The appellants were then given leave to appeal to this Court.  In the case of GMAC, the respondent trustee did not take part in the proceedings in this Court but left the matter up to the Court.  In the case of DaimlerChrysler, the respondent actively contested the appeal in all respects.

IV.  Relevant Legislative Provisions

15                            Civil Code of Québec, S.Q. 1991, c. 64

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.

2941.   Publication of rights allows them to be set up against third persons, establishes their rank and, where the law so provides, gives them effect.

Rights produce their effects between the parties even before publication, unless the law expressly provides otherwise.

V.  Analysis

A.  Issues

16                            These cases raise issues relating to the interplay between Quebec civil law and federal bankruptcy and insolvency legislation.  It will be necessary to review the legal characterization of certain movable real rights created under the Civil Code of Québec and the role and powers of trustees in bankruptcy in the exercise of those rights.  This part of the analysis requires that we revisit the interpretation of the provisions of the Civil Code of Québec, art. 1852 C.C.Q. in particular, to determine whether the trustee may be considered a third person in relation to the lessor for the purposes of that provision.  To do this, we will first consider the nature of the rights in issue and the scope and effect of the requirement to publish them in the RPMRR.  Next, we will review the status of the trustee to determine whether the trustee may set up the failure to publish the rights against the lessor of the movable property.  In short, it must be asked whether a long‑term lessor of a motor vehicle has rights equivalent to a security and whether those rights must be published. It must then be asked whether the trustee is in the position of a third person and whether he or she may rely on the failure to publish the rights to defeat the claim for the property.

B.  Submissions of the Parties

17                            The appellants adopted a common position in these appeals.  Their arguments can be summed up in a few basic propositions.  The first is that the signing of a long‑term lease does not reduce the lessor’s right of ownership to a simple security.  The lessor’s right remains one of ownership, not one resulting from the lease within the meaning of art. 1852 C.C.Q.  This right is therefore not subject to the publication requirement, as only rights resulting from the lease must be published.  A failure to publish bars claims against third persons only.  Owing to the nature of their role with respect to the property of bankrupts and the nature of their seisin under the Bankruptcy and Insolvency Act , trustees cannot be considered third persons in relation to lessors.  A trustee has no more rights in the leased property than the bankrupt did, and this would also be true under art. 1749  C.C.Q. of property subject to a reservation of ownership as a result of an instalment sale.  The failure to publish the lease does not effect a transfer of ownership, and the trustee cannot set up the failure to publish against the lessor’s claim.  In this context, Giffen cannot be said to apply.  In that case, the British Columbia legislation provided that an unpublished automobile lease was not effective against a trustee or against creditors, as it treated the lease as a security interest, whereas Quebec’s civil law does not attach such consequences to a failure to publish in relation to trustees in bankruptcy.

18                            According to the respondent in the DaimlerChrysler appeal, the principles in Giffen do in fact apply.  As was the case in British Columbia, the Quebec legislature has imposed publication as a necessary condition for setting up rights against third persons, including trustees in bankruptcy of lessees.  In the respondent’s opinion, the Court of Appeal’s decision to equate a lease and the rights it recognizes or establishes with a security subject to publication is in keeping with the requirements of commercial life and with the legislature’s intent.  The legislature has made it clear that publication is required to set up a lease against third parties.

C.  The Legislative Context: Reform of the Law of Security at the Time of the Coming into Force of the Civil Code of Québec

19                            Before discussing the arguments advanced by the parties, we must make a few brief comments on the structure of the law of security in Quebec civil law following the coming into force of the Civil Code of Québec in 1994.  At the same time, a review of some of the fundamental concepts of property law might be useful for the purposes of defining the nature of the issues, correctly characterizing the parties’ rights and assessing the validity of the solutions proposed for resolving the difficulties these cases raise.

20                            The coming into force of the Civil Code of Québec marked an important step in the evolution of the Quebec law of real security  (L. Payette, Les sûretés réelles dans le Code civil du Québec (2nd ed. 2001)).  The legislature reorganized this field of civil law, structuring it primarily around a single type of security, the hypothec, which applies to both movable and immovable property, although it also recognized, in art. 2647 C.C.Q., another type of right, the prior claim, which protects certain kinds of claims. (See Payette, supra, at pp. 2-3 and 59.)  This solution was adopted in preference to the presumption of hypothec recommended by the Civil Code Revision Office, which would have grouped all forms of security, including “ownership securities” (sûretés-propriétés), under a single concept:  the hypothec  (Report on the Québec Civil Code (1978), vol. II, t. 1, at pp. 427-31).  That proposal had attracted strong objections from many critics.  (See Payette, supra, at pp. 60-64; R. A. Macdonald, “Faut-il s’assurer qu’on appelle un chat un chat?  Observations sur la méthodologie législative à travers l’énumération limitative des sûretés, ‘la présomption d’hypothèque’ et le principe de ‘l’essence de l’opération’”, in Mélanges Germain Brière (1993), 527; see also Commentaires du ministre de la Justice (1993), t. II, at p. 1654.)  Thus, instead of agreeing to organize the law of real security around the concept of presumption of hypothec, the Quebec legislature set up a simplified, unified security system that nevertheless maintained the fundamental distinction between the legal concepts of security and ownership in relation to the creation and exercise of real securities.

21                            This distinction between security and rights of ownership remains a fundamental element of the classification of real rights in property law in the Civil Code of Québec.  The right of ownership, which is the fundamental real right that theoretically confers full legal control over property, can be distinguished from a security such as a hypothec, which is an incidental real right.  One author characterizes incidental real rights as “real rights of security” (droits réels de garantie) that relate to the monetary value of a thing rather than to the thing itself and are designed to complement another right by securing it or guaranteeing the payment of a claim (P.‑C. Lafond, Précis de droit des biens (1999), at p. 192).

22                            Together with the reform of the law of security, the codification of 1994 brought significant changes to the system for publishing rights.  At the same time as it substantially revised the rules governing land registration, the legislation provided for the creation of the RPMRR.  This register was established to remedy some serious flaws in the former system, which had to deal with a wide variety of types of security whose true nature was often not readily apparent because of the absence of a general publication mechanism.  This meant that transactions involving many classes of movable property were risky from a legal standpoint.  A fundamental goal in setting up this institution was to make public the types of security in respect of movable property that were created under the rules of the new Civil Code of Québec.  (See D.‑C. Lamontagne, in collaboration with P. Duchaine, La publicité des droits (3rd ed. 2001), at p. 301.)  As in the case of land registration, the purpose of publication, as provided for in art. 2941 C.C.Q., is not to effect transfers of ownership but, generally speaking, to allow rights that may or must be published to be set up against third persons.  (See Lamontagne and Duchaine, supra, at pp. 31-32.)

23                            When the Civil Code of Québec came into force in 1994, it did not yet require that rights resulting from long-term leases of road vehicles be published in the RPMRR.  This requirement was not introduced until 1998, when art. 1852 C.C.Q. was amended by s. 8 of the Act to amend the Civil Code and other legislative provisions as regards the publication of personal and movable real rights and the constitution of movable hypothecs without delivery, S.Q. 1998, c. 5.  This new provision required that such rights be published from then on as a condition for setting them up against third persons so as to facilitate trading in movable property.  It  applied to leases already in existence when it came into force.  Sections 6 and 7 of this amending Act also established publication requirements in respect of leasing and of reservations of ownership under instalment sale contracts by amending arts. 1752 and 1847 C.C.Q.  A transitional provision, s. 24 of the Act, provided for a time limit of one year from its coming into force for publication of the rights in question.

D.  The Legal Position of Lessees in Relation to Lessors

24                            The contract in issue in the case at bar is a lease.  According to the fundamental rules applicable to leases, such a contract does not effect a conveyance of ownership between the lessee and the lessor.  It merely gives the lessee the status of a holder and user by precarious title, which means that the property must be surrendered upon termination of the lease, as provided for in art. 1890 C.C.Q.  The contracts in issue remain, by their very terms, leases, albeit long-term ones.  Regardless of the nature of the legal relationships as described in these contracts, it must be determined whether they should be recharacterized in light of the wording of art. 1852 C.C.Q. and the requirement to publish imposed by it since 1998, to ensure that the rights arising out of them can be set up against third persons.

25                            The majority of the Court of Appeal held that a recharacterization was necessary and, consequently, that the failure to publish could be relied on by the trustee, who had to be considered a third person for the purposes of art. 1852 C.C.Q.  However, as Beauregard J.A. noted in his dissenting opinion, this position tends to confuse the concepts of ownership and security.  This problem lies at the very heart of the solutions adopted by the Quebec Court of Appeal since Massouris to resolve conflicts that have arisen in the decisions of Quebec’s trial courts with respect to long‑term leases, leasing or instalment sales of vehicles, the related publication requirements and the rights of trustees in bankruptcy.  In line with the very clear positions that were adopted in Massouris, the decisions of the Court of Appeal have presumed that all legal transactions by means of which an automobile is placed at the disposal of a user are secured credit transactions.  This analysis and this characterization have made it possible subsequently to treat the owner’s rights as the rights of the holder of a simple security.  When this security has not been perfected because of a failure to publish it in a timely manner, it cannot be set up against a trustee in bankruptcy, who is regarded as a third party in his or her capacity as the creditors’ representative.

26                            This interpretation seems to reintroduce into Quebec’s law of real security a concept that was rejected by the legislature in the 1994 codification, namely the presumption of hypothec.  It might also be thought that this approach stems from a desire to identify the essence of the transaction and recharacterize the transaction accordingly.  From an economic standpoint, it is quite likely that the various methods used by automobile dealers — long‑term leases, leasing and instalment sales — all have the same objective: finding a customer, obtaining for the customer the credit needed to complete the transaction and placing the vehicle at the customer’s disposal while protecting the interests of the credit provider.  However, before dismissing all the applicable legal categories, it is necessary to consider the content of the contracts and where they fit in the classes of contracts established by the Civil Code of Québec and used by the parties.

27                            In the context of these transactions, we must be careful to disregard neither the fundamental categories of property law nor the nature of the rights arising out of the framework of the type of nominate contract entered into in respect of the property in issue, namely, in the case at bar, a lease.  Contrary to the proposals of the Civil Code Revision Office, no provisions of the Civil Code of Québec transform the lessor’s right of ownership into a hypothec or bar the lessor from trading in automobiles by means of the legal instrument of a lease under which he or she retains ownership of the property.  Under such an agreement, the automobile remains in the lessor’s patrimony and the lessee has only a right to use it in accordance with the lease and the applicable legislation.  It is therefore necessary to analyse the legal situation based on the fact that the lessor retains a right of ownership in the instant case, although the legislature may choose to adjust its effects in relation to third persons and trustees in bankruptcy.  This raises the issue of the scope of the requirement to publish rights resulting from a lease on the right of ownership and the effectiveness of the right of ownership.

E.  The Requirement to Publish Rights

28                            When considering the publication requirement, it is important to first take into account the basic principle underlying Quebec’s system for publishing rights.  As stated in art. 2941 C.C.Q., be it for security on movables or immovables, publication is not a mechanism for transferring rights of ownership.  Even if they are not published, the rights subject to the publication requirement retain their effects between the parties unless the law specifically provides otherwise.  The function of the requirement is to allow these rights to be set up against third persons and to establish their rank or give them effect as provided by law:

2941.  Publication of rights allows them to be set up against third persons, establishes their rank and, where the law so provides, gives them effect.

Rights produce their effects between the parties even before publication, unless the law expressly provides otherwise.

29                            The lessor’s right of ownership does not arise out of the lease.  It could be said that the right of ownership is pre-existing in relation to the lease.  However, the rules respecting the publication of rights alter its effects in relation to third persons.  Publication of these rights is now mandatory if they are to be set up against third persons.  A failure to satisfy the publication requirement may therefore result in effective transfers of ownership based on the legal appearance created by possession, making it impossible to claim property in the hands of third persons.  It does not follow from these possible consequences of implementing the rights publication system that

publication creates the lessor’s right of ownership or that publication is necessary for this right to exist.  Publication is needed only to protect the right as against third persons, which is the essence of the concept of setting up rights.

30                            Of course, the legislature may play a more active role in the legal relationships of the parties or other interested persons by recharacterizing the rights established by contracts or giving a more radical scope to the consequences of the failure to publish.  An example of legislative action of this sort is found in art. 1756 C.C.Q., which governs sales with a right of redemption.  In this provision of the Civil Code of Québec, a right of redemption used to secure a loan is equated with a hypothec.  The seller is deemed to be a borrower, and the acquirer, a hypothecary creditor.  The acquirer exercises his or her rights in accordance with the rules respecting hypothecs.  Another example of this can be found in the law of bankruptcy and insolvency.  In amendments made to the Bankruptcy and Insolvency Act ’s definition of “secured creditor” by the Federal Law — Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4 , Parliament equated the rights of a seller under a conditional or instalment sale, or of an acquirer under a sale with a right of redemption, with the rights of a secured creditor (ss. 25  and 28 ).  Thus, as a result of this Act, the rights in question are subject to the publication requirement.  The right of ownership accordingly becomes a debt relationship protected by a security that must be published.

31                            In the case of a long‑term lease, nothing in the Civil Code of Québec or the Bankruptcy and Insolvency Act  alters the nature of the lessor’s right of ownership in the leased property or the resulting rights in relation to the lessee.  The lessor retains his or her status and rights of ownership in relation to the lessee.  The lessee remains a holder by precarious title against whom the lessor may exercise, inter alia, the right to take back the property upon termination of the lease, upon resiliation of the lease or in cases provided for in the contract or by law.  It is now necessary to consider whether, in light of the status and duties attributed to the trustee following the initial bankruptcy event, the trustee can be regarded as a third person against whom the lessor of the motor vehicle may not set up his or her rights because of the failure to satisfy the publication requirement.  This question once again raises the difficulties resulting from the ambiguities inherent in the trustee’s status in the law of bankruptcy and insolvency and from the need to adapt federal insolvency law to two modern legal systems that differ in their methods, their terminology and, in some instances, their basic classifications.

F.  The Position of the Trustee in Bankruptcy

32                            Following the logic of its characterization of the lessor’s rights, the Quebec Court of Appeal equated trustees in bankruptcy with third persons and allowed the trustee to retain the property and dispose of it for the benefit of the bankrupt’s creditors on the basis that the lessor’s rights could not be set up against the trustee.  This conclusion is based on an oversimplification of the multifaceted role of the trustee and the dual nature of his or her status at the time of the initial bankruptcy event, as well as of the nature of the assignment to the trustee of the bankrupt’s property and the seisin the trustee consequently has of the property.

33                            The terminology used in the Bankruptcy and Insolvency Act  could lead a legal professional trained in the civil law to conclude too hastily that the assignment of property resulting from the bankruptcy constitutes a transfer of ownership to a third person.  Section 71(2)  B.I.A.  provides that the bankrupt’s property “shall . . . pass to and vest in the trustee”.  It would as a result be easy to believe that this is a case of alienation of property that, in a bankruptcy situation, would put the trustee in the position of a third person.

34                            The legal content of the trustee’s function is not easily defined.  I am aware that the assignee concept was employed in judgments on which the Quebec courts have based their decisions for some time now, including the decision of Bernier J., as he then was, in Civano Construction Inc. v. Crédit M.‑G. Inc., [1962] C.S. 45. (See also Kowalski v. Trust Général du Canada, [1976] C.A. 93; Poliquin v. Banque de Montréal, [1998] R.L. 560 (C.A.), at p. 566; see also the comments of professors J. Auger and A. Bohémier, “The Status of the Trustee in Bankruptcy” (2003), 37 R.J.T. 57.)  Defining the precise nature of the seisin vested in the trustee has proven to be extremely difficult.  Can it be regarded as a sui generis right of ownership, as fiduciary ownership or even as a case of administration of the property of others within the meaning of Title Seven of Book Four of the Civil Code of Québec?  (Auger and Bohémier, supra, at pp. 67 and 102-06)

35                            The strict concept of ownership accounts poorly for the nature of the trustee’s duties and the rights a trustee exercises over the bankrupt’s property following the initial bankruptcy event.  The trustee’s rights are exercised only in relation to a patrimony whose content is legally defined in s. 67  B.I.A.  This patrimony consists of only the property that could be liquidated for the benefit of the creditors.  The trustee exercises certain statutory rights over this property that are in part similar to the rights of an owner.  The trustee may dispose of the property of which he or she has seisin, but for a specific purpose, namely to pay the claims of the bankrupt’s creditors rateably following the order of priority provided for in the Bankruptcy and Insolvency Act .  In any cases, which are actually quite rare, in which there is a surplus following liquidation, the trustee may not retain the surplus but must return it to the bankrupt.  The attribution and exercise of such powers do not correspond perfectly to alienation, so much so that some authors have expressed very strong criticism of the use of the assignee concept to describe the function of the trustee in bankruptcy  (M. Cantin Cumyn, Traité de droit civil: L’administration du bien d’autrui (2000), at pp. 110-12).

36                            At any rate, the use of the concept of dévolution (vesting) in the French version of s. 71(2)  B.I.A.  does not eliminate the distinction between the two aspects of the trustee’s role following the initial bankruptcy event.  In Mercure v. A. Marquette & Fils Inc., [1977] 1 S.C.R. 547, this Court clearly noted this distinction, which serves as a basis for characterizing the legal position of the trustee when exercising the powers and performing the obligations the law ascribes to trustees.  Referring to the concept of representation to explain the trustee’s twofold responsibility, de Grandpré J. stated that in his view the trustee is a representative of both the debtor and the creditors (p. 553).  In order to liquidate the bankrupt’s property as directed by the Bankruptcy and Insolvency Act , the trustee must take control of it.  At this stage, the trustee is the bankrupt’s successor or, in a broad sense, his or her representative.  However, the trustee’s juridical personality is not to be confused with that of the debtor.  In fact, as de Grandpré J. noted, the law recognizes that the trustee has the right to sue the debtor if necessary (p. 553).  This power illustrates the importance of the other aspect of the trustee’s functions, that of representing the creditors in the management and liquidation of the bankrupt’s property.  The trustee’s legal position is therefore more akin to that of a third person in relation to the debtor.  On the one hand, the trustee is subrogated to the bankrupt’s rights in the exercise of his or her powers to hold and dispose of property of which he or she has been granted seisin.  On the other hand, the law treats the trustee as the creditors’ legal mandatary who will liquidate the property entrusted to him or her for the creditors’ benefit.  The dual nature of the trustee’s duties does not therefore make it possible to regard the trustee as a third person in relation to the bankrupt, given all the powers conferred upon the trustee by law in order to preserve and liquidate the debtor’s property.  The nature and legal characterization of the trustee’s role will vary depending on the nature of the duties that the trustee’s actions will entail.

37                            When the trustee takes control or becomes seised of the universality of property defined in s. 67  B.I.A. , his or her seisin is limited to the property in the debtor’s patrimony.  Apart from the special powers accorded by law to the trustee, as representative of the creditors, to restore the patrimony to be liquidated in its entirety, the trustee has no more rights with respect to the debtor’s property than did the debtor, of whom the trustee remains the successor in this regard.  This principle is well established in relation to the application of s. 67  B.I.A.  It was laid down by Judson J. in Flintoft v. Royal Bank of Canada, [1964] S.C.R. 631, at p. 634.  More recently, Iacobucci J. confirmed the validity of the principle in Giffen.  In my view, the trustee has no greater interest in the property under his or her responsibility than that of the bankrupt, unless otherwise provided for by legislation (Giffen, at para. 50).

38                            This being said, under the Bankruptcy and Insolvency Act , and often under various provincial statutes, the trustee has special powers allowing him or her to restore the debtor’s patrimony to its former state or to the state it should have been in, or to protect the estate of the bankrupt against rights unduly claimed or exercised against it.  Such a situation may occur in cases where action must be taken to cancel preferential payments or improper transfers of the bankrupt’s property or to contest a security that has been granted illegally or has not been perfected in accordance with the law.

39                            However, these powers and the status they confer upon the trustee do not give the trustee the authority to liquidate property that was not in the bankrupt’s patrimony, which is similar to the situation that has arisen in this appeal.  The vehicles leased by the appellants were never part of the debtors’ patrimonies.  Since the lessors’ rights cannot be considered simple claims guaranteed by real securities, the trustees, in refusing to deliver possession of the property, intended to dispose of property that was not included in their seisin. 

40                            At this stage of my analysis of these cases, I believe a few comments about Giffen are necessary.  The Court of Appeal considered the principles in that case to be determinative in the case at bar.  However, that interpretation gave Giffen a significance it did not in fact have, as the court failed to take into account the statutory context established by the provincial legislation of British Columbia, which defined the respective rights of a long-term lessor of a motor vehicle and the trustee in bankruptcy of the lessee.  In Giffen, s. 20(b)(i) of the Personal Property Security Act, S.B.C. 1989, c. 36, provided that a lease in respect of an automobile was not effective against a trustee if the lease were not published as required by the Personal Property Security Act.  Thus, the provincial legislation itself defined the nature of the respective rights of lessors and trustees.  It allowed trustees to contest a lessor’s claim and liquidate property for the benefit of creditors.  As Iacobucci J. observed, s. 20(b)(i) of the Personal Property Security Act therefore gave the trustee an interest greater than that of the bankrupt, and this allowed the trustee to dispose of the property (para. 50).  As has already been mentioned, the Civil Code of Québec does not provide for a similar consequence for failure to publish the rights arising out of a lease.  In this context, Giffen did not justify the solution adopted by the Court of Appeal.  On the contrary, Giffen confirmed the rules governing the composition of the bankrupt’s patrimony.  The appellants’ claims should have been admitted.  Their appeals therefore appear to be well founded.

G.  Costs

41                            The circumstances of these cases warrant a departure from the usual rules on the awarding of costs.  In the appeal of GMAC, I would make no order as to costs, as the respondent did not participate in the appeal.  In the appeal of DaimlerChrysler, it would be appropriate to award costs to the respondent on a solicitor‑client basis.  The appellant brought before this Court an issue of particular interest that it was more concerned about than the actual outcome of the case.  The participation of the respondent and his counsel was helpful to the analysis of the issues raised by this case, and it would be unfair to make the respondent bear all the costs incurred in the general interest of the development of the law, which went beyond his narrow interest in the management of a relatively modest bankruptcy.

VI.  Conclusion

42                            For these reasons, I would allow the appeals and admit the appellants’ claims.  As the vehicle in GMAC has been sold, the appellant is entitled to the proceeds of the sale.  The appeals should be allowed without costs in the case of GMAC and with costs to the respondent on a solicitor‑client basis in the case of DaimlerChrysler.

Appeals allowed.

Solicitors for the appellant DaimlerChrysler Services Canada Inc.:  Fasken Martineau DuMoulin, Québec.

Solicitors for the appellant GMAC Leaseco Limited:  Pothier Delisle, Sainte-Foy, Québec.

Solicitor for the respondent Jean-François Lebel:  Martin P. Jutras, Westmount, Québec.