How does an asset purchase agreement work when buying a business in Quebec?

An asset purchase is a sale of a business’s assets rather than its shares. In Quebec, the Civil Code of Québec defines sale as a contract by which a seller transfers ownership of property to a buyer for a price in money, and it supplies rules that sit behind the agreement. This page covers Quebec only. For the general explanation, see what an asset purchase agreement is.

Warranties that exist by law

Article 1716 says the seller must deliver the property and warrant its ownership and quality, and that these warranties exist by operation of law whether or not the contract stipulates them. Under article 1732, the parties may add to the legal warranty, diminish its effects or exclude it, but the seller can never exempt itself from liability for its personal acts or omissions. Under article 1723, the seller must warrant that the property is free of all rights except those declared at the time of sale.

Hypothecs, floating hypothecs and reserved ownership

Article 1723 also requires the seller to discharge the property of all hypothecs, even declared or registered ones, unless the buyer has assumed the debt so secured. Article 2716 says a floating hypothec has effect only if it was published beforehand and, if immovables are charged, registered against each of them, and article 2720 says the sale of an enterprise by the grantor may not be set up against the holder of a floating hypothec. Under article 1745, a reservation of ownership on movable property acquired for the service or operation of an enterprise can be set up against third persons only if it has been published. Ask your lawyer how each would be handled in the agreement and at closing.

The movable-property registry

The Quebec Justice ministry’s RDPRM pages say a right over movable property must be registered there when it concerns a business asset such as equipment, tools, inventory or receivables, and that a registered right is considered known to everyone. The registry lets a buyer check whether a property was given as security or carries a debt or other right, such as a hypothec or reserved ownership. For how to search it, see what to check in the RDPRM.

Article 1714 adds that if a movable was sold in the ordinary course of an enterprise’s business, the true owner who revendicates it must reimburse the buyer in good faith for the price paid.