December 1, 2022

RIGHT OF RETENTION

WHAT ARE YOUR RIGHTS?

Your company provides services to a client related to one of their assets, and the client refuses or is unable to pay. Under what circumstances does the right to retain their property until full payment of the debt arise?

The law provides that a creditor may, if certain conditions are met, retain the property of their client if the client fails to fully pay their invoice at the end of the contract. However, it’s essential to note that retaining is not the same as seizing. For example, a mechanic cannot decide to retain and sell a vehicle for which services have not been paid.

The 5 conditions for the right of retention to apply

According to legal precedent, the following five conditions must be met for the retention of property to be legal.

  1. The contract must be valid. The creditor should not have carried out work beyond what was agreed upon with the debtor.
  2. The property must have been handed over to the creditor in the course of contract execution.
  3. The debtor must be the owner of the property or the representative of the company that owns it. There is an exception when the debtor legally possesses the property, such as being a car lessee.
  4. There must be a connection between the debt and the property. For example, a mechanic cannot retain a customer’s computer if the debt is related to repairs made on their vehicle.
  5. The debt must be due and payable.

Although the Civil Code of Quebec is silent on this matter, it is recognized that the right of retention applies exclusively to movable property.

Other Limitations to the right of retention

Even when the conditions are met, a creditor must contend with additional limitations to ensure that the retention of the property is legal.

The creditor must have fulfilled all their obligations under the contract. They cannot retain the property of a debtor awaiting payment for services not yet rendered.

Moreover, the creditor’s right of retention on a property extinguishes when they voluntarily return it to the debtor, unless there is an agreement that the debtor must return it to the creditor later. Without such an agreement, an unpaid mechanic for repairs on a vehicle cannot retain it for the debt, even if entrusted with the same vehicle for additional repairs.

The creditor must return the retained property when the debtor settles their invoice, even if the creditor believes they have a right to claim additional sums. It is worth noting that the creditor cannot claim storage fees for the period during which they have retained the property.

Furthermore, for the purposes of the Consumer Protection Act, a merchant must, if intending to retain an automobile, provide a written estimate to the consumer before carrying out any repairs. The merchant cannot retain the property if the price for their services exceeds the estimated amount, and the consumer pays that latter amount.

Additionally, a mechanic must be validly certified to legally retain a vehicle, according to the Garage Keepers Act.

On the other hand…

What to do if a creditor wrongfully retains your property or a property of your business? The owner has several remedies to rectify the situation, including payment under protest and reclaiming through a legal seizure.

Payment under protest involves settling an alleged debt by a creditor, with the right to claim reimbursement of the paid amount before the relevant authorities.

Reclamation through a legal seizure, which can be executed directly by bailiffs, allows for the seizure of the property before obtaining a court judgment. However, the property must be held by a custodian throughout the subsequent legal proceedings, ensuring the owner’s property is properly safeguarded.

In all cases, damages caused by the unjust retention of property can be claimed, along with any incurred bailiff fees. Moreover, unless due to force majeure, the withholder is accountable for damages caused to the property while in their possession.

BUSINESS LAW EXPERTS ADVISORY BOX

If a client defaults on payment for services rendered on a movable property, before returning the property to the client, make sure to consult with a legal professional to understand your rights, including the right to retain the said property. The legal professional can then assist or represent you in the debt recovery process. They can also guide you if, conversely, your property is wrongfully retained by someone who provided services to you.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.