Vauclair, Hamilton, Cournoyer

Appeal from a judgment of the Superior Court granting an application to partition a residence held in undivided co-ownership by the debtor. Dismissed.

The debtor and the appellant purchased a residence in equal shares. The act of sale published in the land register contained a clause providing that the proceeds from the sale of the immovable must be used in priority to reimburse the appellant’s down payment. The debtor assigned his property under the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3). The respondent creditor filed a proof of claim and obtained authorization to bring an action in lieu of the trustee to have the residence sold and partitioned and for a declaration that the indivision agreement could not be set up against the trustee and the creditors.  

Section 67(1)(d) of the Bankruptcy and Insolvency Act provides that in the context of the debtor’s bankruptcy, the trustee is granted the debtor’s power over the property vested in him or her. The only condition for exercising such power by the trustee is that it is limited to exercising such powers as might have been exercised by the debtor for his or her own benefit. In this case, none of the limitations on the debtor’s power to demand partition and terminate the indivision, set out in article 1030 of the Civil Code of Québec (S.Q. 1991, c. 64) (C.C.Q.), apply. The indivision agreement expressly provides that he can demand partition at any time. Moreover, the immovable is not a family residence within the meaning of the law. Thus, the judge did not err in authorizing the partition of the debtor’s residence.

The judge also did not err in finding that the appellant did not have priority in the distribution of the sale price of the residence, even though she assumed sole responsibility for the down payment. Indeed, the relevant clause in the act of sale does not grant her real rights over the debtor’s undivided half. In addition, the appellant’s claim does not satisfy the definitions of “secured claim” or “preferred claim” under sections 2 and 136 of the Bankruptcy and Insolvency Act. The judge correctly characterized this claim as a personal right. The appellant therefore has only a simple ordinary claim within the meaning of the Act. Allowing her to be paid in priority from the balance of the sale of the residence would be contrary to section 141 of the Act and unfair to the mass of creditors.

Furthermore, the publication of the act of sale in the land register does not compel the trustee to comply with this clause. Indeed, even though such a clause is valid between the parties and may be set up against third persons if published (art. 1014 C.C.Q.), it creates no real right in favour of the appellant. Thus, according to the scheme of distribution set out in section 136 et seq. of the Bankruptcy and Insolvency Act, the appellant, as an ordinary creditor, is entitled to be paid rateably with the other ordinary creditors, once the prior creditors have been paid, subject to the rights of the secured creditors. Because the clause in dispute derogates from the scheme of distribution by giving priority to the appellant, it is invalid in a bankruptcy.

Text of the decision: http://citoyens.soquij.qc.ca