CIBC Mortgage Corp. v. Vasquez, [2002] 3 S.C.R. 168, 2002 SCC 60

CIBC Mortgage Corporation Appellant

v.

Marcella Vasquez Respondent

and

Canada Mortgage and Housing Corporation Intervener

and

Antonio Fernandez and the Directors of the Condominium

“Association Place Garland” and the Registrar of the Montreal

Registration Division Mis en cause

Indexed as: CIBC Mortgage Corp. v. Vasquez

Neutral citation: 2002 SCC 60.

File No.: 27963.

2002: February 12; 2002: September 12.

Present: L’Heureux‑Dubé, Gonthier, Bastarache, Arbour and LeBel JJ.

on appeal from the court of appeal for quebec

Hypothecs — Exercise of hypothecary rights — Taking in payment — Need for hypothecary creditor to obtain authorization from court before taking property in payment where debtor has already discharged one-half or more of obligation secured by hypothec — Whether expression “obligation secured by the hypothec” in art. 2778 C.C.Q. refers to capital and interest on capital.

In 1986, the appellant lent the respondent $40,800 to purchase a residential condominium. The deed of hypothecary loan provided for annual interest of 11 percent as well as monthly payments of $392.71, which included interest and capital, for a term of five years. The capital was amortized over 25 years. The loan was renewed several times and was to expire on October 30, 1997. On June 30, 1997, the respondent defaulted on her obligations under the deed of loan. The appellant served a prior notice of the exercise of a hypothecary remedy on her informing her that it would be exercising the remedy of taking of the immovable in payment, unless she remedied the defaults indicated within 60 days. When the respondent did nothing, the appellant served a motion for forced surrender and taking in payment on her. The respondent objected, contending that in calculating the “obligation secured by the hypothec” within the meaning of art. 2778 C.C.Q., both the capital and the interest paid had to be included. By that method of calculation, she had paid more than half of the amount secured, and the appellant was therefore not entitled to take in payment without prior judicial authorization. At the hearing at first instance, the appellant obtained leave to amend its motion to include a motion in the alternative to authorize the taking in payment remedy. The Superior Court accepted the respondent’s objection and declared that the motion for taking in payment could not be allowed. The Court of Appeal, in a majority decision, upheld that decision.

Held (Bastarache and LeBel JJ. dissenting): The appeal should be dismissed. The expression “obligation secured by the hypothec” in art. 2778 C.C.Q. refers to both the capital and the interest on the capital.

Per L’Heureux-Dubé, Gonthier and Arbour JJ.: For the purposes of art. 2778 C.C.Q., the interest paid by the respondent should be included in calculating the percentage of the debt that she had already discharged at the point when the prior notice of exercise of the remedy was registered. The deed of loan between the parties expressly states that the respondent’s obligation is to repay both the capital and the interest. It also provides for an additional hypothec to secure the additional interest that was not covered automatically with the same rank as the principal hypothec. In addition, the prior notice of the exercise of the hypothecary remedy stipulated that the respondent’s default related to the non‑payment of the monthly payments of capital and interest. The clauses of the deed of loan and the prior notice of exercise of the remedy therefore indicate that the parties had agreed to include interest in the obligation secured by the hypothec. The analysis of the statutory provisions that are related to art. 2778 also shows that the expression “obligation secured by the hypothec” covers not only the obligation in respect of the capital but also the obligation to pay interest. Finally, the legislative origin of art. 2778 and the Commentaires du ministre de la Justice concerning the provision, as well as the overall approach taken by the legislature to hypothecs, all support the inclusion of interest. Article 2778, which is new law, is modelled on s. 142 of the Consumer Protection Act and creates equitable measures designed to protect a debtor who has already discharged a substantial portion of his or her obligations against loss of the hypothecated property. The common purpose of art. 2778 and s. 142 is to prevent a creditor from becoming the owner of property the value of which is much greater than the balance owing on the debt to the creditor. The provisions relating to taking in payment in the Civil Code of Québec are one of a number of measures implemented to protect the hypothecary debtor that are aimed at preventing a hypothec from being granted too easily and permitting the debtor to defeat the exercise of the creditor’s hypothecary rights even after the prior notice of exercise of a right has been served on the debtor.

For the purposes of art. 2778 C.C.Q., what must be done, first, is to calculate the percentage of the obligation that had been discharged by the respondent. The obligation secured by the hypothec is calculated by adding what has already been paid to the remainder owing at the time of registration of the prior notice of exercise of the right. Here, the method of calculation applied by the courts below is incorrect since it includes the additional hypothec provided for in the deed of loan while there is no evidence that any amounts covered by that hypothec had been incurred. In view of the total amount of the obligation secured by the hypothec and of the repayment made by the respondent on the date of the prior notice, the respondent had discharged more than half the obligation secured by the hypothec and the appellant therefore had to obtain the authorization of the court before taking property in payment.

The court hearing such a request for authorization must exercise the discretion given to it by art. 2778 C.C.Q. judicially, that is, having regard to the relevant factors. The main factors to be taken into consideration are the balance of the debt and the value of the goods. The court must also take into consideration the conduct of the parties to the litigation. In this case, the parties did not tender any evidence relating to the factors that are relevant to the exercise of the discretion and this Court is therefore not in a good position to decide a question of fact that was never argued in the courts below. The judgment of the Court of Appeal should therefore be affirmed and judicial authorization to take property in payment denied.

Per Bastarache and LeBel JJ. (dissenting): In the case of a loan of money secured by hypothec, the expression “obligation secured” in art. 2778 C.C.Q. refers only to the capital advanced.

The agreement or the right protected must be examined, and the nature of that right or agreement defined, to understand what the expression “obligation secured” in art. 2778 C.C.Q. means. Here, the hypothec is connected to a loan of money, which was granted for the purpose of acquiring an immovable. A loan creates ancillary obligations, the main one being the payment of interest from the date the money is handed over. Interest essentially represents rent on the money, while protecting the creditor in whole or in part from the vicissitudes of monetary depreciation and the risks inherent in the transaction. In a hypothecary loan, there is a close correlation between the money advanced by the creditor and the security given to the creditor. The capital that the debtor acquires corresponds to the capital that the creditor lends. The objective of art. 2778 is therefore to prevent the debtor from losing his or her own capital when the creditor has recovered his or her capital or what is deemed to be a significant portion of that capital. Payment of interest compensates the creditor for making his or her capital available to the debtor. On the other hand, once the capital has been repaid, interest ceases to run and the obligation has been extinguished. In accordance with the principles of the law of obligations that define the effect of payment, the extinction of the principal obligation, the obligation to repay the capital, results in the cancellation of the accessory obligations included in the contractual obligations, and of the security given to guarantee performance of those obligations. The interpretation of the concept of the “obligation secured” is consequently based on the concept of capital. The appellant was thus entitled to take in payment, since it had not yet received half of the capital advanced. Its motion for taking in payment should therefore have been allowed.

Cases Cited

By L’Heureux-Dubé and Gonthier JJ.

Referred to: Sommers v. The Queen, 1959 43 (SCC), [1959] S.C.R. 678.

By LeBel J. (dissenting)

Doré v. Verdun (City), 1997 315 (SCC), [1997] 2 S.C.R. 862; 167599 Canada Inc. v. 9007‑4337 Québec Inc., 1997 10072 (QC CA), [1997] R.J.Q. 2657; Québec (Procureur général) v. Kabakian‑Kechichian, 2000 7772 (QC CA), [2000] R.J.Q. 1730; Bank of America Canada v. Mutual Trust Co., [2002] 2 S.C.R. 601, 2002 SCC 43.

Statutes and Regulations Cited

Civil Code of Lower Canada, arts. 1040a et seq.

Civil Code of Québec, S.Q. 1991, c. 64, arts. 6, 7, 1406, 1437, 2329, 2330, 2332, 2660, 2664, 2667, 2687, 2688, 2689, 2690, 2693, 2696, 2747, 2748, 2757, 2758, 2760, 2761, 2762, 2767, 2771, 2775, 2778, 2779 [am. 1992, c. 57, s. 716], 2782, 2789, 2797, 2805, 2959, 2960.

Consumer Protection Act, R.S.Q., c. P-40.1, ss. 67, 70(a), 71, 91, 93, 109, 142, 143.

Regulation respecting the application of the Consumer Protection Act, R.R.Q. 1981, c. P-40.1, r. 1, ss. 51‑61.

Authors Cited

Baudouin, Jean-Louis, et Pierre-Gabriel Jobin. Les obligations, 5e éd. Cowansville, Qué.: Yvon Blais, 1998.

Ciotola, Pierre. Droit des sûretés, 3e éd. Montréal: Thémis, 1999.

Ciotola, Pierre. “The Reform of Security under the Civil Code of Quebec”. In Reform of the Civil Code, vol. 4B, Prior Claims and Hypothecs, Reform of Security, Publication of Rights. Translated by Susan Altschul. Text written for the Barreau du Québec and the Chambre des notaires du Québec. Montréal: Barreau du Québec, 1993.

Côté, Pierre-André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough: Carswell, 2000.

Crépeau, Paul-André. “Essai de lecture du message législatif”, dans Mélanges Jean Beetz. Montréal: Thémis, 1995, 199.

Huet, Jérôme. Traité de droit civil: Les principaux contrats spéciaux, sous la direction de Jacques Ghestin, 2e éd. Paris: L.G.D.J., 2001.

L’Heureux, Nicole. Droit de la consommation, 5e éd. Cowansville, Qué.: Yvon Blais, 2000.

Loungnarath, Vilaysoun, Jr. “L’endettement de l’entreprise au Québec : paramètres juridiques” (1995), 26 R.D.U.S. 1.

Masse, Claude. Loi sur la protection du consommateur: analyse et commentaires. Cowansville, Qué.: Yvon Blais, 1999.

Mayrand, Albert. “De l’équité dans certains contrats: nouvelle section du Code civil”. Dans Lois nouvelles. Montréal: Presses de l’Université de Montréal, 1965, 51.

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

Pineau, Jean, Danielle Burman et Serge Gaudet. Théorie des obligations, 4e éd. par Jean Pineau et Serge Gaudet. Montréal: Thémis, 2001.

Pratte, Denise. Priorités et hypothèques. Sherbrooke: Éditions Revue de Droit Université de Sherbrooke, 1995.

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, [2000] R.D.I. 188, [2000] Q.J. No. 1169 (QL), allowing in part the appellant’s appeal from a decision of the Superior Court, [1998] R.D.I. 612. Appeal dismissed, Bastarache and LeBel JJ. dissenting.

Michel Deschamps and Jean‑François Boisvenu, for the appellant.

Alain Barrette and Vincent Kaltenback, for the respondent.

Raynold Langlois, Q.C., and Éric Simard, for the intervener.

English version of the judgment of L’Heureux-Dubé, Gonthier and Arbour JJ. delivered by

L’Heureux‑Dubé and Gonthier JJ. —

I. Introduction

[1] The issue in this appeal is the interpretation of art. 2778 of the Civil Code of Québec, S.Q. 1991, c. 64 (“C.C.Q.”), which reads as follows:

Where, at the time of registration of the creditor’s prior notice, the debtor has already discharged one‑half or more of the obligation secured by the hypothec, the creditor shall obtain authorization from the court before taking property in payment, except where the person against whom the right is exercised has voluntarily surrendered the property.

[2] We have read the reasons of LeBel J., and with respect, we do not share our colleague’s opinion that the interest is not included in the expression “obligation secured by the hypothec” in art. 2778 C.C.Q. We are of the opinion that this expression refers to both the capital and the interest on the capital. The deed of loan signed by the parties (Exhibit R‑1), the statutory provisions related to the article in question, the legislative origin of the article, the Commentaires du ministre de la Justice — Le Code civil du Québec: Un mouvement de société (1993), vol. II, and the overall approach taken by the legislature to hypothecs all support the inclusion of interest in the calculation of the obligation that has been discharged by the debtor at the time of registration of the creditor’s prior notice of the exercise of taking in payment. Vallerand J.A., who wrote the reasons of the majority of the Court of Appeal, agreed with the trial judge on this point, and like the courts below, we conclude that the respondent has discharged slightly more than half of the obligation secured by the hypothec, and therefore that authorization from the court was required in order to take the property in payment.

II. Deed of Hypothec Signed by the Parties

[3] The trial judge and the majority judges of the Court of Appeal interpreted the expression “obligation secured by the hypothec” (art. 2778 C.C.Q.) having regard to the deed of loan signed by the parties (Exhibit R‑1). It should be noted, first, that because there is no evidence that the appellant and the respondent did not freely agree to the terms set out in the deed of loan, the contract is binding on the parties. The deed of loan very plainly provides that the respondent’s obligation is to repay both the capital and the interest. We must conclude from this that the parties had mutually agreed to include the interest in the obligation secured. Clause 6 of the deed of loan reads as follows:

(6) To secure repayment of all advances made to him or on his behalf by the Lender and payment of all interest thereon . . . the Borrower firstly hypothecates in favour of the Lender . . . . [Emphasis added.]

[4] In addition, even interest that has lost its hypothecary rank because of the combined effect of arts. 2959 and 2960 C.C.Q. (which is not the case here) is protected, in this case, by clause 13 of the deed of loan. In that clause, the parties provided for an additional hypothec in an amount equal to 20 percent of the capital amount, to secure the additional interest that was not covered automatically with the same rank as the principal hypothec.

(13) To secure the payment of all sums payable to the Lender under any provision of this deed and not secured by the hypothec hereinabove created, the Borrower hypothecates the property in favour of the Lender for the further sum of twenty percent (20%) of the principal sum determined in Section 1 hereof. [Emphasis added.]

[5] In Priorités et hypothèques, Professor Pratte explains that the creation of this kind of additional hypothec is the result of a practice that developed in order to avoid the situation that a creditor might face by the operation of arts. 2959 and 2960 C.C.Q. (see D. Pratte, Priorités et hypothèques (1995), at p. 74). By inserting clause 13 in the deed of loan, the parties expressed their intention to include all of the interest that had fallen due, even any interest that had lost its rank. Accordingly, the interpretation advanced by the appellant and the intervener, by which the interest is excluded, cannot be retained, because it is contrary to the clauses of the deed of loan itself, which expressly provide for inclusion of the interest in the obligation secured by the hypothec granted.

[6] In addition, the appellant stipulated, in the prior notice itself of the exercise of the hypothecary remedy that it sent to the respondent, that the respondent’s default related to the non‑payment of the monthly payments of capital and interest (Exhibit R‑3). This is another indication of the clear intention of the parties in this case to extend the amount secured to include interest payments. The clauses of the deed of loan signed by the parties and the prior notice of exercise of the remedy therefore clearly indicate that the parties had agreed to include interest in the obligation secured by the hypothec. Accordingly, for the purposes of art. 2778 C.C.Q., the interest paid by the respondent should be included in calculating the percentage of the debt that she had already discharged at the point when the prior notice of exercise of the remedy was registered.

III. Statutory Provisions Related to Art. 2778 C.C.Q.

[7] The parties cited a series of provisions of the Civil Code that are related to art. 2778 C.C.Q. in support of their respective interpretations of the expression “obligation secured by the hypothec”. At paras. 80‑81 of his reasons, LeBel J. refers to “slippage” and “subtle differences” in vocabulary when he reviews the related provisions. The appellant and the intervener also invite us to consider the obligation secured by the hypothec to be limited to the capital alone. Those arguments do not stand up to analysis.

[8] We cannot ignore art. 2667 C.C.Q., which is a key provision in this case. In it, the legislature is very clear as to what the hypothec secures. That article expressly provides that interest is included in the obligation secured by the hypothec:

2667. A hypothec secures the capital, the interest accrued thereon and the legitimate costs incurred for recovering or conserving the charged property. [Emphasis added.]

[9] As well, arts. 2689 and 2690 C.C.Q., when read together, imply that interest is included in the obligation secured by the hypothec.

2689. An act validly constituting a hypothec indicates the specific sum for which it is granted.

The same rule applies even where the hypothec is constituted to secure the performance of an obligation of which the value cannot be determined or is uncertain.

2690. The sum for which the hypothec is granted is not considered to be indeterminate where the act, rather than stipulating a fixed rate of interest, contains the necessary particulars for determining the actual rate of interest on the obligation.

[10] Article 2689, para. 1 requires that the parties indicate in the act constituting the hypothec the specific sum for which it is granted. Payette notes that this requirement applies not only to the capital, but also to the interest and costs (L. Payette, Les sûretés réelles dans le Code civil du Québec (2nd ed. 2001), at p. 282).

[11] Article 2690 C.C.Q. implies that the interest is included in the sum secured, by providing for the case in which the deed of loan stipulates an interest rate that is not fixed. Because the legislature must be seen to speak for a purpose, the reason why it specified, in art. 2690 C.C.Q., the circumstances in which that sum may nonetheless be deemed to be sufficiently specific for the purposes of art. 2689 C.C.Q. is that it was starting from the position that interest is included in the amount secured, whether or not the interest is stipulated to be at a fixed rate. This logical deduction is also an application of the principle that a legislative provision must be construed so as to permit it to serve a useful purpose (P.‑A. Côté, The Interpretation of Legislation in Canada (3rd ed. 2000), at p. 369).

[12] Article 2747 C.C.Q. refers to “the obligation owed in capital, interest and expenses”:

2747. The creditor remits to the grantor any sums collected over and above the obligation owed in capital, interest and expenses, notwithstanding any stipulation by which the creditor may keep them on any ground whatever.

[13] The appellant and the intervener cite that article in support of their argument that the interest is merely an accessory obligation, and that when the legislature intended to include interest, it referred to them expressly, as it did in art. 2747 C.C.Q. They therefore invite the Court to conclude that the expression “obligation secured by the hypothec” in art. 2778 C.C.Q. refers solely to the capital, because there is no express reference to the interest, which is, in their submission, accessory.

[14] While it is true that art. 2778 C.C.Q. does not expressly use the word “interest”, as do art. 2747 C.C.Q. and arts. 2758, 2760 and 2775 C.C.Q., it should be noted that art. 2778 C.C.Q. also does not expressly use the word “capital”. Moreover, we believe that in art. 2778 C.C.Q. the legislature used a broadly inclusive expression, “the obligation secured by the hypothec”, while in arts. 2747, 2758 and 2775 C.C.Q., it chose to break down the concept. As a result, arts. 2747, 2758 and 2775 C.C.Q. confirm that interest is included in the obligation secured, since those articles include the words “obligation” or “claim” just before they list the items that make up the obligation or claim. Given that the legislature used a broadly inclusive expression in art. 2778 C.C.Q. (“obligation secured by the hypothec”), and that the expression in question refers to a concept that was broken down in the preceding articles, the items that make up the breakdown are necessarily included in that broadly inclusive expression.

[15] Article 2760 C.C.Q. was argued as an exception to this scheme:

2760. The voluntary alienation of property charged with a hypothec, effected after the creditor has registered a prior notice of the exercise of a hypothecary right, may not be set up against the creditor unless the acquirer, with the consent of the creditor, personally assumes the debt, or unless a sum sufficient to cover the amount of the debt, interest and costs due to the creditor is deposited.

[16] That article refers to the “amount of the debt, interest and costs due to the creditor”, and not to the amount of “capital, interest . . .”, as do the other articles referred to supra. The use of the word “debt” in art. 2760 C.C.Q. would suggest, in the appellant’s submission, that the obligation secured means only the capital and not the interest or costs, because the word “debt” is used as a synonym for “capital”.

[17] However, having regard to arts. 2747, 2758 and 2775 C.C.Q., even if art. 2760 C.C.Q. can remotely be regarded as vague drafting, it in no way limits the scope of the expression “obligation secured by the hypothec” in art. 2778 C.C.Q. We find it hard to see how art. 2760 C.C.Q., alone, could justify excluding interest, when arts. 2667, 2690, 2747, 2758 and 2775 C.C.Q. include them. As well, if the legislature had intended for art. 2778 C.C.Q. to deal only with capital, we might ask why it did not use the expression “obligation owed in capital” as it did in art. 2747 C.C.Q.

[18] The appellant also cites art. 2762 C.C.Q., which deals with interest and costs in the same manner, to show that the interest is accessory and separate:

2762. A creditor having given prior notice of the exercise of a hypothecary right is not entitled to demand any indemnity from the debtor except interest owing and costs.

[19] However, as we have noted, whether a component of an obligation is principal or accessory is of no relevance for our purposes, since in art. 2778 C.C.Q., the legislature uses a broadly inclusive expression which includes both principal and accessory amounts.

[20] The appellant and the intervener base another part of their argument on the principle of uniformity of expression. In their submission, the fact that arts. 2747, 2758, 2760 and 2775 C.C.Q. are drafted to make express reference to interest shows that, a contrario, art. 2778 C.C.Q. is meant to refer only to capital. However, if we examine those articles and their sources, we see that the variations in the terminology used by the legislator are better explained by the diverse nature of the legislative sources than by an express intention to express different ideas. It must be noted that art. 2778 C.C.Q. is new law, and has no equivalent in the former code. It is modelled on s. 142 of the Consumer Protection Act, R.S.Q., c. P‑40.1 (“C.P.A.”), which uses the concept of “total obligation”, echoing the choice of the word “obligation” in art. 2778 C.C.Q. We would also note that the principle of uniformity of expression is not an infallible guide (see Côté, supra, at p. 332). Professor Côté comments that in Sommers v. The Queen, 1959 43 (SCC), [1959] S.C.R. 678, at p. 685, Fauteux J. is of the opinion that “[t]his rule of interpretation is only . . . a presumption, and furthermore, a presumption which is not of much weight.” Professor Côté adds that the value of this presumption is mitigated inter alia “because it assumes a level of drafting, which, in reality, is not always attained” (Côté, supra, at p. 333).

[21] In addition, if we were to adopt the position taken by the appellant and the intervener, it would produce incongruous results in relation to the practical effects of taking in payment that we cannot simply ignore. First, art. 2782, para. 1 C.C.Q., which the respondent cites, is part of the same Section as art. 2778 C.C.Q., and it provides that taking in payment extinguishes the obligation. If the word “obligation” included only capital and not interest, that would mean that the debtor would still have an obligation to his or her creditor for payment of the interest even after the creditor had taken the hypothecated property in payment. That position is untenable, because it would benefit the creditor unduly; in addition to losing the property given as security for the amounts the debtor had already paid, the debtor would still be liable to pay the remaining interest and any costs that had been incurred by the creditor. Plainly, such a result is completely contrary to the very principle of taking in payment.

[22] Moreover, article 2797 C.C.Q. provides that “[a] hypothec is extinguished by the extinction of the obligation whose performance it secures”. If the expression “obligation” includes only the capital, that would mean that the debtor could repay only the capital, and that this would be sufficient under art. 2797 C.C.Q. to extinguish the hypothec that he or she had granted. That position seems to us to be as untenable as the first, because it would benefit the debtor unduly; the debtor could require that the hypothec be struck out after repaying only the capital of the debt, and thereby cause the creditor to lose the security for the interest owing. In short, having regard to art. 2782, para. 1 and art. 2797 C.C.Q., adopting the interpretation advanced by the appellant and the intervener would produce unfair results for both the debtor and the creditor.

[23] We conclude this analysis of related statutory provisions with art. 2959 C.C.Q., which the appellant discussed at the hearing and to which LeBel J. referred briefly at para. 66 of his reasons:

2959. Registration of a hypothec preserves, in favour of the creditor, the same rank for the interest due for the current year and the three preceding years as for the capital.

Similarly, the registration of an annuity preserves, in favour of the annuitant, the same rank for the periodic payments for the current year and the arrears for the three preceding years as for the prestation.

[24] This article secures the interest due for the current year and the three preceding years at the same rank as for the capital. In his comments, the Minister of Justice said that the previous five‑year time limit was reduced to three years [translation] “out of concern for consistency with the new law of prescription” (Commentaires du ministre de la Justice, supra, at p. 1861). The appellant submits that art. 2959 C.C.Q. is an indication that the capital is an obligation that is automatically secured by the hypothec, but that the same is not true of the interest.

[25] Article 2959 C.C.Q. in fact simply provides for the extinction of the hypothecary rank of the interest due prior to the preceding three years; it in no way limits the extent of the secured obligation. There is no indication either in art. 2959 C.C.Q. or even in art. 2960 C.C.Q. to suggest that the interest is not included in the expression “obligation secured by the hypothec” (art. 2778 C.C.Q.). On the contrary, those articles make it plain that the interest is in fact included in the obligation secured, subject, with respect to the interest due for more than three years, to the requirement that a notice stating the amount claimed for that surplus be registered. The legislature has thereby ensured that the creditor will exercise diligence, since the security provided by the Code for the interest due will be preserved, and will enjoy the same rank as the capital, only in respect of the period provided by art. 2959, para. 1 C.C.Q. This deters the creditor from remaining idle by not claiming the interest due from the creditor for any longer than that period. This requirement also reflects the legislature’s objective in art. 2689 C.C.Q., that the act constituting a hypothec must indicate the specific sum for which it is granted, the purpose being, according to the Commentaires du ministre de la Justice, supra, at p. 1684, [translation] “to inform third parties of the extent of the amount secured”. As well, the purpose of the requirement of registration of a notice setting forth the amount claimed for the surplus over the amount provided in art. 2959, para. 1 C.C.Q., is to inform third parties of the extent of the amounts covered by the hypothec where the effect of the accumulated interest is that the amount shown in the hypothec registered may not be an accurate reflection of that extent. By imposing this time limit, therefore, the legislature has qualified the duration, but not the nature, of the protection provided by the hypothec.

[26] The analysis of the statutory provisions that are related to art. 2778 C.C.Q. thus shows that the expression “obligation secured by the hypothec” covers both the obligation in respect of the capital and the obligation to pay interest. Moreover, the legislative origin and the Commentaires du ministre de la Justice, supra, in relation to art. 2778 C.C.Q. indicate the intention of the legislature in respect of that article.

[27] As we noted earlier, art. 2778 C.C.Q. is a new provision which creates equitable measures designed to protect a debtor who has already discharged a substantial portion of his or her obligations against loss of the hypothecated property. That article is modelled on s. 142 C.P.A., which reads as follows:

142. If, upon his default, the consumer has already paid at least one‑half of the amount of the total obligation and of the down payment, the merchant cannot exercise his right of repossession unless he obtains the permission of the court. [Emphasis added.]

[28] The common purpose of art. 2778 C.C.Q. and s. 142 C.P.A. is to prevent a creditor from becoming the owner of property the value of which is much greater than the balance owing on the debt to the creditor. That objective is stated as follows in the Commentaires du ministre de la Justice, supra, at p. 1739:

[translation] This article [2778 C.C.Q.] is modelled on s. 142 of the Consumer Protection Act. It seemed fair to require authorization from the court for exercising the remedy of taking the hypothecated property in payment, where the debtor has already paid one half or more of the obligation. By exercising that right, the creditor could become the owner of property the value of which is much greater than the balance owing on the debt and thereby profit from the difference in value, since the creditor is not required to account to the debtor for that difference.

[29] We would note that the “total obligation” referred to in s. 142 C.P.A. is defined in s. 67 C.P.A. as encompassing “credit charges”, which, under s. 70, para. (a) C.P.A., include interest. The provisions of the Code in this instance therefore parallel the provisions in the C.P.A. Accordingly, art. 2778 C.C.Q. requires authorization from the court for taking in payment where, at the time of registration of the prior notice, the debtor has discharged one half or more of the obligation secured by the hypothec. Article 2667 C.C.Q. clarifies that requirement by providing that a hypothec secures, in addition to the capital, the interest accrued thereon and the costs incurred.

[30] At para. 84 of his reasons, our colleague maintains that the objective of art. 2778 C.C.Q. is “to prevent the debtor from losing his or her own capital when the creditor has recovered his or her capital or what is deemed to be a significant portion of that capital” (emphasis added). With respect, and for the reasons we have stated, we must conclude that the objective does not relate solely to the capital, but rather covers all amounts that have been paid out by the debtor.

[31] If the emphasis is placed on the equity that the debtor has in the property given as security, it might seem absurd, as Beauregard J.A., dissenting in the Court of Appeal, said, for a debtor who has repaid $4,800 on an interest‑free loan of $10,000 to be unable to benefit from the protection of the requirement for prior judicial authorization for taking in payment, while a debtor who borrows the same amount with interest could benefit from it because of having paid the interest that is added to the capital payments, despite the fact that the first person had acquired more equity in the immovable ([2000] R.D.I. 188, at para. 26). However, and with respect, that comment is unfounded. The “absurdity” exists only if we limit the analysis of art. 2778 C.C.Q. to the “equity” aspect, that is, the nominal balance of capital in the property. On the other hand, if we keep in mind that in reality, a debtor who has paid interest has paid out more money, in total, than a debtor who has repaid only a portion of the capital, there is no absurdity. To the debtor, whether his or her payments are allocated to capital or interest, they are nonetheless the debtor’s investment. Moreover, interest rates are set to take into account monetary devaluation, and the interest paid comprises a portion of the equity in the property.

[32] With respect to the comment by Beauregard J.A. that the more costs the creditor incurs for which the creditor will be reimbursed, where called for, by the debtor, the more the creditor’s right to take the hypothecated immovable in payment without judicial authorization is reduced, it must be recalled that the amount of the costs incurred by the creditor and paid by the debtor both increases the portion of the obligation already discharged and raises the 50 percent threshold. As well, more often than not, those costs will comprise only a relatively tiny portion of the obligation secured. In reality, there is little risk of variation in terms of the percentage represented by the portion of the obligation discharged by a debtor who is in default, even if the debtor occasionally pays the creditor the costs that the creditor has incurred.

[33] It could certainly happen that payment of the costs would end up raising that percentage to the point that it reached the 50 percent threshold provided in art. 2778 C.C.Q. For example, on a $50,000 debt on which $22,500 has been repaid, the threshold in art. 2778 C.C.Q. has not been reached; but if the debtor lets the amount of costs rise to $5,000 and pays it all at once, the debtor has then discharged half of his or her obligation. However, because the purpose of art. 2778 C.C.Q. is to protect the amounts paid out by the debtor, and the debtor has in fact paid out an amount that represents one half or more of the obligation secured by the hypothec, there is nothing incongruous in the creditor now being obliged to obtain authorization from the court before taking property in payment. Moreover, if the creditor wishes to avoid the situation in which the debtor allows costs to accumulate and pays them all at once in order to increase the portion that has already been paid when the prior notice is registered, the creditor need only exercise his or her hypothecary rights before that happens. However, if the creditor incurs costs and does not commence proceedings against the debtor, it is the creditor who must suffer the consequences.

IV. Overall Approach by the Legislature to Hypothecs

[34] The appellant submits that the C.C.Q. is a law of general application, and that unlike the C.P.A., its purpose is not to protect the debtor. That is not entirely true. There are various articles in the Code that are designed to minimize the inequitable effects that arise from the economic inequality of the parties. We need think only of the articles prohibiting abusive clauses or clauses contrary to public order, for example. In fact, the purpose of the reform of the former arts. 1040a and 1040c of the Civil Code of Lower Canada, relating to giving in payment, the predecessor of taking in payment, was precisely to protect the interests of the economically weaker contracting party (see J.‑L. Baudouin and P.‑G. Jobin, Les obligations (5th ed. 1998), at p. 233).

[35] Thus, while art. 2778 C.C.Q. is part of a law of general application, it was still modelled on the objectives set out in the C.P.A. that relate to protection. Although the provisions of the C.C.Q. in respect of hypothecs apply without regard to the nature of the debtor, that is, whether or not the debtor is a consumer within the meaning of the C.P.A., the provisions relating to taking in payment are one of a number of measures implemented to protect the hypothecary debtor, without regard to his or her financial situation. For example, art. 2664 C.C.Q. invalidates hypothecs that are not created on the conditions and according to the forms authorized by law. Article 2689 C.C.Q. requires that a specific sum for which the hypothec is granted be indicated, even where the value of the obligation secured cannot be determined or is uncertain. Article 2693 C.C.Q. requires, on pain of absolute nullity, that an immovable hypothec be granted by notarial act en minute. Professor Ciotola says that [translation] “[t]he notary acts both as a public officer, the guarantor of the accomplishment of the contractual formalities, and as advisor, the guarantor of the parties’ comprehension of the meaning and effects of the agreement.” (P. Ciotola, Droit des sûretés (3rd ed. 1999), at p. 401) The importance of that agreement would explain the requirement of notarial form, and it is the grantor of the hypothec that [translation] “the law is intended to protect by imposing these formal requirements” (Payette, supra, at p. 295). Article 2696 C.C.Q. requires the written form for granting a movable hypothec without delivery, and art. 2757 C.C.Q. requires that a prior notice be filed before hypothecary rights are exercised. Even after the prior notice is filed, art. 2761 C.C.Q. permits the debtor to defeat the exercise of the hypothecary right by paying the creditor the amount due to him or her or by remedying the omission or breach. In short, all of these articles have the same objective: to protect the hypothecary debtor by imposing formal requirements that prevent a hypothec from being granted too easily, and by permitting the debtor to defeat the exercise of the creditor’s hypothecary rights even after the prior notice of exercise of a right has been served on the debtor.

V. Application to the Facts of the Case

[36] Article 2778 C.C.Q. provides that authorization from the court is required where, at the time of registration of the prior notice, the debtor has already discharged one half or more of the obligation secured by the hypothec. What we need to do, first, is to calculate the percentage of the obligation that had been discharged by the respondent at the date of the prior notice.

[37] The formula proposed by the intervener for this purpose is incorrect, because it unduly increases the amount of the obligation secured by the hypothec. The intervener observes that in calculating the amount paid by the respondent, the courts below took into account the total amount of interest between May 1, 1986 and May 1, 1997, amortized over a 25‑year period. Consequently, the intervener submits, the interest that will accrue until the end of the term of that amortization period should be taken into account in calculating the amount of the obligation secured by the hypothec, in order to determine whether the 50-percent threshold provided in art. 2778 C.C.Q. has been reached. In our view, the reference period for calculating the interest ends on the date when the prior notice of the exercise of taking in payment was registered. The obligation secured by the hypothec, for the purposes of art. 2778 C.C.Q., is therefore calculated by adding what has already been paid to the remainder owing at the time of registration of the prior notice of exercise of the right, and nothing else.

[38] The method applied by the trial judge, and affirmed on appeal, is also incorrect. Because $6,860 in capital and $44,959 in interest had already been paid by the respondent when the prior notice was registered, and because the balance owing in capital and interest at that time was $34,096.80, the trial judge added those figures to the amount agreed to by the parties by way of additional hypothec, $8,160, and arrived at a total of $94,075.80. However, including the total amount of the additional hypothec in that calculation ignores the fact that the additional hypothec is not a debt in itself. It merely provides the creditor with hypothecary protection for the additional claims that the creditor might acquire against the debtor that would not be protected by registering the principal hypothec; one example of this might be the interest that has been due for more than three years which, in terms of rank, has lost the protection of the principal hypothec, under art. 2959, para. 1 C.C.Q. However, as long as no debt of that nature has fallen due, the amount for which the additional hypothec was registered should not be added to the total obligation secured by the hypothec. The opposite approach would violate the principle that we stated earlier, that the calculation of the obligation secured by the hypothec covers only what is due at the time of registration of the prior notice of exercise of the right. In this case, the evidence does not establish that any amounts covered by the additional hypothec provided for in clause 13 of the deed of loan had been incurred. Consequently, the amounts already paid by the respondent at the time of registration of the prior notice, $6,860 in capital and $44,959 in interest, should be added to the balance due in capital and interest at that time, $34,096.80, to reach the total amount of the obligation secured by the hypothec for the purposes of art. 2778 C.C.Q., i.e. $85,915.80. Because the respondent had repaid a total of $51,819 on the date of the prior notice, the proportion of the obligation secured by the hypothec that had been discharged by the respondent on that date is 60.31 percent, which is more than 50 percent.

[39] With the exception of the inclusion of the amount of the additional hypothec, the trial judge’s calculation appears to be correct. On the other hand, the formula suggested by the intervener incorrectly imposes an additional amount of interest on the debtor that even the creditor did not request.

[40] The appellant argues that the trial judge’s calculation of the amount of the interest, which was adopted by the Court of Appeal, grants more protection to the debtor under the C.C.Q. than a consumer is given under the C.P.A., since the C.P.A. would consider the interest for the entire term of the contract. The appellant cites s. 71 C.P.A. in support of this argument:

71. The merchant must state the credit charges in terms of dollars and cents, and indicate that they apply

(a) to the entire term of the contract in the case of a contract for the loan of money or a contract involving credit, . . . .

[41] For the purposes of this appeal, it is not necessary to construe the provisions of the C.P.A. Nonetheless, we may think that s. 71 C.P.A. is simply a method by which the legislature has ensured that consumers will be informed that the credit charges are, as a rule, payable throughout the term of the contract. However, there is nothing in that section that suggests that for the purposes of calculating “one‑half of the amount of the total obligation” (s. 142 C.P.A.), the interest for the entire term of the contract will be included. In fact, s. 91 C.P.A. provides that the credit charges must be computed according to the actuarial method prescribed by ss. 51 to 61 of the Regulation respecting the application of the Consumer Protection Act, R.R.Q. 1981, c. P‑40.1, r. 1 (the “Regulation”). Those provisions make no reference to the entire term of the contract as the basis for the calculation. On the contrary, s. 52 of the Regulation provides that the charges must be computed in relation to the payment period. Moreover, s. 93, para. 1 C.P.A. provides that “[t]he consumer may make full payment or partial payment of his obligation before maturity”. Section 93, para. 2 C.P.A. provides that the balance owing is “the aggregate of the net capital balance and the credit charges computed in accordance with section 91”. Professor L’Heureux notes that in terms of the analogous context of forfeiture of term clauses in credit contracts, [translation] “the amount of which the merchant may require payment must be calculated in the same way as if it were a payment before maturity (s. 93)” (N. L’Heureux, Droit de la consommation (5th ed. 2000), at p. 127).

[42] Finally, this reading of art. 2778 C.C.Q. is consistent with the concept of interest. Interest is the price paid for the use of money over time, and compensates the lender for the unforeseeable risks of monetary depreciation and for the commercial risks inherent in a transaction of that nature (see J. Huet, Traité de droit civil: Les principaux contrats spéciaux (2nd ed. 2001), at p. 1000). If the capital that is lent is repaid to the lender in full, there is no basis for future rent on the money, because the repayment has stopped the time from running.

VI. Role of the Court Under Art. 2778 C.C.Q.

[43] If the debtor has discharged one half or more of the obligation secured by the hypothec at the time the creditor registers the prior notice of taking in payment, the creditor will have to obtain the authorization of the court to act on that notice. The judge who hears the application will exercise his or her discretion in authorizing or denying the taking in payment. It is important to note, however, that the requirement that the authorization of the court be obtained when the threshold provided in art. 2778 C.C.Q. has been reached is an inescapable, but not insurmountable, procedural requirement for the creditor who wishes to exercise this remedy. On this point, we would simply note the point made by Payette, supra, at p. 786:

[translation] The court is under no obligation to dismiss the application for taking in payment because half of the debt has already been paid. This is not an absolute ground for dismissal. The legislature does not systematically deny creditors who have been half paid the right to take in payment. Rather, it states a ground for denying it, on which a judgment may, having regard to the circumstances, be based. We must not forget that the judgment will be rendered after the time that is allowed for surrendering, during which time, theoretically, no interested person wished to remedy the default alleged in the prior notice (art. 2761 C.C.); this may create a presumption that the remedy exercised is not unfair. [Emphasis added.]

[44] The discretion given to the court by art. 2778 C.C.Q. must therefore be exercised judicially, that is, having regard to the relevant factors. The Commentaires du ministre de la Justice, supra, at p. 1739, identify two factors which, in our view, are the main considerations in the context of the exercise of this judicial discretion: the value of the property and the unpaid balance of the debt. Moreover, in exercising this discretion, the court will also take into consideration the conduct of the parties to the proceedings. There is a third criterion, which is referred to in art. 6 C.C.Q., where the legislator provides that civil rights must be exercised in good faith. It is therefore possible for the court to step in and, where necessary, sanction the conduct of a party who exercises his or her rights with the intent of injuring another or in an excessive and unreasonable manner (art. 7 C.C.Q.). We would note, however, that art. 2805 C.C.Q. enacts a general and rebuttable presumption of good faith (see Baudouin and Jobin, supra, at pp. 110‑11). The onus is therefore on the party who alleges bad faith to prove it.

[45] Section 109 C.P.A. also lists a series of factors that courts must consider, inter alia, before granting a creditor permission to exercise his or her right of repossession under that Act (ss. 142 and 143 C.P.A.). In addition to the value of the goods and the balance of the debt, the C.P.A. takes the following factors into consideration: the total of the amounts that the consumer must disburse under the contract; the sums already paid; the consumer’s ability to pay; and the reason for which the consumer is in default. Payette is of the view that the balance of the debt and the value of the property must be [translation] “the principal if not the only criteria” to be considered (Payette, supra, at p. 785). In his opinion, ability to pay and the reason for the default are criteria that are unrelated to the law of hypothecs, but are specific rather to the C.P.A., to the possibility of reducing or revising the principal obligation for which arts. 1437 and 2332 C.C.Q. provide, or to cases of lesion as provided for in art. 1406 C.C.Q. We agree with that author’s opinion, that in the context of a taking in payment, the balance of the debt and the value of the property given as security are the principal factors to be considered. The other criteria would be relevant in the case of a loan of money where the court would have to determine the proportion of prestations in order to determine whether there was lesion as provided in arts. 2332 and 1406 C.C.Q. Although this case involves a loan of money, there is no allegation that there is a serious disproportion in terms of the prestations of the parties to these proceedings.

[46] In this case, the trial judge decided not to grant the authorization, and the Court of Appeal affirmed that decision, observing that to date none of the parties to the proceedings had submitted arguments regarding that question of fact. The majority of the Court of Appeal was careful to point out that the matter of judicial authorization calls for providing all the evidence that the parties consider to be relevant, as well as arguments on the question.

[47] However, in this case, none of the parties tendered any evidence relating to the factors that are relevant to the exercise of the discretion that the court is given by art. 2778 C.C.Q. In her dispute of the application for forced surrender and taking in payment, the respondent alleged bad faith on the appellant’s part, but in her reasons, the trial judge made no comment on this point. The appellant argued that the immovable given as security is worth less than the balance owing to it. In our opinion, the majority of the Court of Appeal was correct to conclude that this part of the case involved a question of fact. This Court is not in a good position to decide a question of fact that was never argued in the courts below. If the appellant still wishes to exercise the remedy of taking in payment in the circumstances, it is free to make a fresh application and to prove its allegations. Absent evidence as to the facts that would justify authorizing taking in payment, the judgment of the Court of Appeal should be affirmed. Judicial authorization is accordingly denied.

VII. Conclusion

[48] For these reasons, we dismiss the appeal with costs throughout, those before this Court to include disbursements and reasonable fees on a solicitor‑client basis for the reasons stated by LeBel J.

English version of the reasons of Bastarache and LeBel JJ. delivered by

LeBel J. (dissenting) —

I. Introduction: Origin and Nature of the Case

[49] The parties to this appeal are a hypothecary creditor, CIBC Mortgage Corporation (“CIBC”), and its debtor, the respondent Marcella Vasquez (“Vasquez”). The issue is whether the creditor may exercise the remedy of taking in payment of the hypothecated property. To dispose of this appeal, the Court must examine the scope and interpretation of art. 2778 of the Civil Code of Québec, S.Q. 1991, c. 64 (“C.C.Q.”), in order to decide whether Ms. Vasquez has repaid at least half of the obligation secured by the hypothec and may therefore oppose the exercise of the remedy of taking in payment. For the reasons that follow, I conclude that the expression “obligation secured” in art. 2778 C.C.Q. refers only to the capital advanced, in the case of a loan of money secured by hypothec. Consequently, having failed to repay half of that capital, Ms. Vasquez could not have defended the taking in payment proceeding initiated by CIBC and the appeal by CIBC must be allowed.

[50] This case arises out of a hypothecary loan given to Ms. Vasquez by CIBC. In April 1986, CIBC lent Ms. Vasquez $40,800 to purchase a residential condominium. The loan, which was evidenced by a deed of hypothecary loan, provided for annual interest of 11 percent. The contract provided for monthly payments of $392.71, which included capital and interest. The term was five years, and it was to expire on May 1, 1991. The capital was amortized over 25 years. At the end of the term the capital was repayable in full. Repayment of the loan was secured by an immovable hypothec.

[51] Pursuant to a renewal clause, the loan was renewed several times and was to expire on October 30, 1997. Unfortunately, the debtor ceased to make the scheduled monthly payments and repay municipal taxes on June 30, 1997. When the default continued, CIBC served a prior notice of the exercise of a hypothecary remedy on her under art. 2758 C.C.Q. The notice, which was registered at the Registry Office on October 24, 1997, informed Ms. Vasquez that her creditor would be exercising the remedy of taking of the immovable in payment, unless she remedied the defaults indicated within 60 days, as provided in art. 2761 C.C.Q. In practice, because the term of the loan was expiring, the respondent had to repay the balance of the capital of the loan, together with the arrears of interest and taxes. On that date, the unpaid capital was still $33,498.35.

[52] During the 60‑day notice period, Ms. Vasquez did nothing and repaid nothing, nor did she request, as she could have under art. 2779 C.C.Q., that the creditor abandon the taking in payment proceedings and have the property sold by judicial authority. A few weeks after the notice period expired, CIBC continued the proceedings for enforcing its hypothecary security. Accordingly, its solicitors served a motion for forced surrender and taking in payment on the respondent.

[53] Ms. Vasquez then contested the motion for taking in payment. She contended, first, that the interest paid had to be included in calculating the obligation secured within the meaning of art. 2778 C.C.Q. By that method of calculation, she had paid more than half of the amount secured, and consequently the creditor was not entitled to take in payment without prior judicial authorization. The CIBC amended its motion at the hearing in the Superior Court to add a motion in the alternative to authorize the remedy, in the event that the Superior Court accepted the interpretation of art. 2778 C.C.Q. proposed by the respondent. The issue was joined on that basis.

II. Judicial History

A. Superior Court of Quebec, [1998] R.D.I. 612

[54] Courteau J. heard the motion for forced surrender and concluded that art. 2778 C.C.Q. does not permit a creditor to take the hypothecated property in payment without judicial authorization if the amount repaid is half or more of the obligation secured, including interest and the capital lent. By her calculation, Ms. Vasquez had repaid 55.08 percent of the obligation secured within the meaning of art. 2778 C.C.Q. To determine the meaning of “obligation secured”, the concept referred to in that provision, Courteau J. relied on its legislative origin, which she found to justify an interpretation in the debtor’s favour: in her view, art. 2778 was modelled specifically on s. 142 of the Consumer Protection Act, R.S.Q., c. P‑40.1, and because that Act requires that amounts such as interest and certain ancillary obligations be included in a consumer loan when the creditor intends to retake a property, the interpretation of the Civil Code must lead to an analogous result. In addition, the deed of hypothecary loan defined the obligation secured as including capital and interest. In the opinion of Courteau J., the motion for taking in payment therefore could not be allowed. She dismissed it, but did not expressly dispose of the motion in the alternative for authorization to exercise the remedy.

[55] The judgment of the Superior Court went farther than that, however: Courteau J. ordered the creditor to renew the hypothecary loan for a term and on conditions that were not specified, but were characterized as “standard” in the relief granted by the decision. She also granted Ms. Vasquez 30 days to pay the arrears. The judgment was silent as to the reasons and legal basis for granting that relief.

B. Quebec Court of Appeal, [2000] R.D.I. 188

[56] CIBC failed again on appeal. The majority, for reasons written by Vallerand J.A., concurred in by Deschamps J.A., affirmed the interpretation of the concept of “obligation secured” in art. 2778 C.C.Q. that the Superior Court had applied. Beauregard J.A., dissenting, adopted CIBC’s argument and concluded that the calculation to be done included only the capital. However, all of the judges acknowledged that there was no legal basis for granting the relief of renewal of the loan, and it had to be set aside.

III. Relevant Statutory Provisions

[57] Civil Code of Québec, S.Q. 1991, c. 64

2748. In addition to their personal right of action and the provisional measures provided in the Code of Civil Procedure, creditors have only the hypothecary rights provided in this chapter for the enforcement and realization of their security.

Thus, where their debtor is in default and their claim is liquid and exigible, they may exercise the following hypothecary rights: they may take possession of the charged property to administer it, take it in payment of their claim, have it sold by judicial authority or sell it themselves.

2757. A creditor intending to exercise a hypothecary right shall file a prior notice at the registry office, together with evidence that it has been served on the debtor and, where applicable, on the grantor and on any other person against whom he intends to exercise his right.

Registration of such a notice is made in accordance with the Book on Publication of Rights.

2778. Where, at the time of registration of the creditor’s prior notice, the debtor has already discharged one‑half or more of the obligation secured by the hypothec, the creditor shall obtain authorization from the court before taking property in payment, except where the person against whom the right is exercised has voluntarily surrendered the property.

2779. Subsequent hypothecary creditors or the debtor may, within the time allotted for surrender, require the creditor to abandon the taking in payment and sell the property himself or have it sold by judicial authority; they shall have registered a notice beforehand to that effect, reimbursed the creditor for the costs he has incurred and advanced the amounts needed for the sale of the property.

The notice shall be served on the creditor, the grantor, the debtor and the person against whom the hypothecary right is exercised, and registration thereof is made in accordance with the Book on Publication of Rights.

Subsequent creditors who require the creditor to proceed with the sale shall also furnish him with a security guaranteeing that the property will be sold at a sufficiently high price to enable his claim to be paid in full.

IV. The Issues

[58] When this Court gave leave to appeal, the parties and an intervener, the Canada Mortgage and Housing Corporation (“CMHC”), first defined the problem to be examined as relating to the interpretation of art. 2778 C.C.Q. At that point, as noted earlier, the issue was still the meaning of the expression “obligation secured” in that provision. Did it consist only of the capital advanced by the lender, as CIBC and the CMHC contended? Must the interest and other ancillary charges be added to that, as Ms. Vasquez argued?

[59] This change in the nature of the appeal introduced two additional questions. First, the CMHC’s factum presented an alternative argument regarding the calculation of Ms. Vasquez’s payments and obligations. The argument was that the method of calculation argued by the respondent and adopted by Courteau J. contained fundamental errors. If an appropriate method of calculation were adopted, it would show that the debtor had paid only 41 percent of the obligation secured, even if the meaning given to that expression by the Superior Court is applied. The CMHC argued that for that reason alone, the opposition to the taking in payment could not succeed.

[60] Lastly, Ms. Vasquez returned at the hearing to the question of the extent of the powers of a judge who hears a motion for taking in payment. In her submission, art. 2778 C.C.Q. permits the judge to redefine certain of the terms and conditions of the debtor’s agreement and to grant the debtor, inter alia, time to pay, and even, in the judge’s discretion, to stay the enforcement of the creditor’s security completely. She defended the validity of certain of the heads of relief granted in the trial judgment, which the Court of Appeal had set aside and in respect of which she did not file any cross‑appeal, on that basis.

[61] In order to analyse the issues argued by the parties, we must genuinely examine the interpretation of art. 2778 C.C.Q. That examination cannot be reduced to a mere grammatical and linguistic analysis of the text. The provision, and the contract that was signed, must be considered in the more comprehensive context of the law of obligations and securities, in order to determine the legal scope of the provision in issue. The basis on which to calculate 50 percent of the obligation secured will not have to be examined, however, unless we adopt the respondent’s interpretation of art. 2778 C.C.Q. I shall now review the legal principles that govern hypothecs in the law of securities in Quebec. That review will include consideration of the remedies available to the creditor. It will be relevant, in our examination of taking in payment, to consider the function and powers of the judge in relation to reviewing and enforcing contracts secured by hypothec. The nature of the issues raised will justify a brief consideration of the law of obligations, the rules that apply to loans of money and certain aspects of the role of the courts in these matters.

V. Hypothec and its Structure and Functions

[62] This case does not involve merely an isolated statutory provision, to be discussed apart from its legal environment. It relates to the exercise of the leading example of real security recognized by the Civil Code of Québec. It should be pointed out that the area to which it applies extends beyond the realm of consumer protection. The more protective approach of civil legislation, a heightened desire to preserve the balance of contractual power and the creation of more stringent forms of public order, referred to as protection, do not eliminate the essential function of the Civil Code, as a body of rules that apply as the jus commune of Quebec, according to the legislative intention expressed in the preliminary provision of the Code (see Doré v. Verdun (City), 1997 315 (SCC), [1997] 2 S.C.R. 862, at paras. 15-16, per Gonthier J.). The Civil Code does not deal solely with legal relationships that arise out of consumer relationships. It may affect, inter alia, commercial law and business law. This aspect of the nature of the Code is particularly evident in the law of real security.

[63] The Civil Code of Québec sought to reorganize the often fragmented, not to say incoherent law of security around the institution of the hypothec and the concept of priority. The hypothec has become a form of flexible security (see P. Ciotola, Droit des sûretés (3rd ed. 1999), at pp. 197‑200; see also, by the same author, “The Reform of Security under the Civil Code of Quebec”, in Reform of the Civil Code (1993), vol. 4B, p. 26, at para. 95; L. Payette, Les sûretés réelles dans le Code civil du Québec (2nd ed. 2001), at pp. 1‑3).

[64] A hypothec may be used to provide ancillary security for a wide range of obligations, as art. 2687 C.C.Q. in fact provides. It has been in common use for a long time in the immovable loans market, where it secures repayment of the funds advanced by the creditor, as in this case. However, hypothecs are used in situations well outside this one. For example, a hypothec may secure the performance of a variety of obligations to do or not to do something, non‑competition agreements, advances such as lines of credit, and both agreements relating to ascertained amounts of money and agreements relating to other amounts that cannot be measured certainly (see Ciotola, Droit des sûretés, supra, at pp. 425‑26; Payette, supra, at p. 270).

[65] Because of the diverse nature of the obligations secured by this method, and the requirements of the scheme governing the publication of rights and the protection of third parties, the underlying security and the maximum amount for which the security is given will have to be specified (art. 2689 C.C.Q.). That rule, which is referred to as the specificity of the hypothec, is of particular importance in the case of obligations whose monetary value is uncertain, and even unascertainable. Once a hypothec is created, it secures the capital. It also protects interest, and sometimes a variety of ancillary costs and charges (art. 2667 C.C.Q.).

[66] However, the scheme that governs the publication of rights introduces certain complexities in the case of interest. Under art. 2959 C.C.Q., where a hypothecary remedy is exercised, the creditor’s preference extends only to the current year and the three preceding years. Any claim in excess of that ranks only as an unsecured debt, unless that portion is registered, but in that case its rank takes effect only as of the date of publication (see Payette, supra, at pp. 284‑85).

A. Hypothecary Remedies

[67] The reorganization of hypothecary remedies was one of the key aspects of the reform of the law of securities. The hypothecary creditor retains his or her personal remedies against the debtor to recover the debt. Ultimately, a judgment for the payment of the debt will result in a judicial sale and the establishment of a scheme of collocation, and the creditor will be paid on that basis according to the rank assigned to him or her by law. In addition to the common law remedy, art. 2748 of the Civil Code of Québec provides for four types of hypothecary remedies (see Payette, supra, at pp. 676‑78). Two of them, taking possession for the purpose of administration and sale by the creditor, apply only to business or commercial hypothecs (see V. Loungnarath, Jr., “L’endettement de l’entreprise au Québec: paramètres juridiques” (1995), 26 R.D.U.S. 1, at p. 29). The other two, taking in payment and sale by judicial authority, are available to all classes of hypothecary creditors.

[68] These remedies have a common procedural framework which we need not consider here, except in respect of certain specific aspects. However, one fundamental requirement of this scheme should be noted. As a condition precedent to the exercise of any hypothecary remedy, art. 2757 C.C.Q. requires that prior notice of the exercise of the remedy be published, and art. 2758 C.C.Q. specifies the content of the notice. The notice must indicate the nature of the remedy that the creditor intends to exercise, the instances of the debtor’s failure to fulfil his or her obligations on which the creditor relies, and the details of the hypothecary claim in capital and interest. The notice reminds the debtor that he or she has 60 days to remedy the failures indicated. During that period, the debtor may prevent the continuation of the proceedings by remedying the failures. That right in fact continues until the transfer of ownership by taking in payment or judicial sale (art. 2761 C.C.Q.). The prior notice procedure is modelled on the series of provisions in arts. 1040a et seq. of the Civil Code of Lower Canada, the purpose of which was to circumscribe the exercise of giving in payment or analogous rights and provide for review of obligations regarded as exploitive (see A. Mayrand, “De l’équité dans certains contrats: nouvelle section du Code civil”, in Lois nouvelles (1965), at pp. 51 et seq.). That procedural framework, with a number of adaptations and clarifications, is also found later in consumer protection law (see, for example, C. Masse, Loi sur la protection du consommateur: analyse et commentaires (1999), at p. 478; N. L’Heureux, Droit de la consommation (5th ed. 2000), at pp. 127 et seq.).

B. Taking in Payment

[69] As noted earlier, this appeal concerns the remedy of taking in payment. Because Ms. Vasquez did not remedy the defaults indicated in the notice served by CIBC, it used the procedure set out in art. 2778 C.C.Q. to take the hypothecated immovable in payment. A motion for taking in payment may take two forms. If, as was the case here, the creditor believes that the debtor has not paid half of the obligation secured, the substance of the motion will be for effect to be given to the taking in payment. If the halfway mark has been reached, the creditor must ask the court not only to order the taking in payment, but also, and first, to authorize it.

[70] Taking in payment has a significant legal effect for the debtor. Once it has been carried out, the transfer of ownership operates as payment and completely extinguishes the obligation secured by the hypothec, under art. 2782 C.C.Q. On the other hand, the debt survives a sale by judicial authority if the proceeds of sale are insufficient to satisfy it.

[71] Once proceedings have been initiated before the court, the debtor may still prevent the taking in payment (art. 2667 C.C.Q.) by requiring that the creditor instead have the property sold by judicial authority. Under art. 2779 C.C.Q., subsequent creditors have a similar right, but they must furnish a security guaranteeing that the property will be sold at a sufficiently high price to satisfy the debt.

[72] Of course, the debtor may argue that he or she has paid half of the obligation secured. If the creditor concedes this and applies for authorization for taking in payment, the debtor will challenge the justification for the motion. However, under art. 2778 C.C.Q., the Court has limited powers, and they are primarily procedural in nature. Essentially, it must ascertain that the creditor has met the requirements for exercising the remedy. If not, it will dismiss the motion, and this will leave the creditor free to claim its debt by other means, whether by an ordinary personal action or by sale by judicial authority or other remedies available in the case of hypothecs on enterprises. Because the remedy chosen will not correspond to the remedy of which the debtor was notified, however, the creditor must start the procedure over at the beginning by giving and publishing a new prior notice. The requirement for such notice cannot be circumvented (see 167599 Canada Inc. v. 9007‑4337 Québec Inc., 1997 10072 (QC CA), [1997] R.J.Q. 2657 (C.A.)).

[73] The value to the debtor in those instances is primarily limited to tactical considerations. The debtor gains time to find a solution. However, this does not solve the debtor’s problem; the obligation to the creditor remains intact and performance may still be demanded. In Ms. Vasquez’s case, the opposition to the taking in payment does not seem to procure any real benefits, except that she is able to remain in her property without paying her loan. On the contrary: she testified that the resale value of her property was less than the balance of the CIBC’s claim. If a judicial sale were to take place in these circumstances, after the creditor had exercised a personal remedy, she would lose her property and the debt would not be discharged. Taking in payment may, as it does here, represent the most practical and reasonable solution in a difficult situation. That being said, we must now determine the precise role of art. 2778 C.C.Q. in relation to the law of obligations and the Civil Code rules governing loans of money.

C. Review of Contractual Obligations and Art. 2778 C.C.Q.

[74] The argument made by the respondent at the hearing, in an attempt to find a legal basis for the relief granted by the trial judge in relation to the renewal of the loan and the time allowed for paying the loan arrears, is that art. 2778 C.C.Q. gives the judge significant power to review the content and performance of contractual obligations, such as repayment of a debt. That argument finds no express support in the text of the provision in question, which gives the court the power to ascertain that the conditions precedent to the exercise of the remedy have been met. That support would therefore have to be found elsewhere, for example, in the law of obligations and of the special contracts in question.

[75] Despite the greater flexibility and more extensive mechanisms for judicial intervention in respect of contracts, the civil law governed by the Civil Code of Québec does not give the courts a general power to review the content or performance of contractual obligations. For example, the remedy of lesion is available only in a limited number of cases (see J. Pineau, D. Burman and S. Gaudet, Théorie des obligations (4th ed. 2001), at p. 520; J.‑L. Baudouin and P.‑G. Jobin, Les obligations (5th ed. 1998), at pp. 360‑62; Québec (Procureur général) v. Kabakian‑Kechichian, 2000 7772 (QC CA), [2000] R.J.Q. 1730 (C.A.), at p. 1739).

[76] One of the cases where the Civil Code allows for review of obligations based on lesion is a contract for a loan of money. Article 2332 C.C.Q. re‑enacts and amends certain of the provisions previously found in arts. 1040a et seq. of the Civil Code of Lower Canada. It allows the court to impose various sanctions, including reducing the obligations or varying the terms and conditions of the performance of the obligations, where it finds that the agreement involved lesion having regard to the risks involved and the circumstances. (See Pineau, Burman and Gaudet, supra, at pp. 222‑23.) In this case, Ms. Vasquez never alleged or established that lesion was present in respect of the loan she obtained. She merely asked the Court to exercise a power to review the terms and conditions of the performance of her contract, in a situation that is not governed by consumer protection legislation and in a case other than those in which the civil law allows for review of the obligations of the contract or the terms and conditions of the performance of those obligations. Accordingly, the issue is limited to whether CIBC had established that it met the conditions set out in the law for obtaining taking in payment without prior judicial authorization. We must therefore now return to the specific problem of the meaning to be given to the expression “obligation secured” in art. 2778 C.C.Q.

D. Interpretation of Art. 2778 C.C.Q.

[77] A grammatical and linguistic reading of the text is of course an essential step in analysing the particular provisions of the Civil Code in order to determine their meaning and scope (see P.‑A. Crépeau, “Essai de lecture du message législatif”, in Mélanges Jean Beetz (1995), 199, at pp. 204‑9). The parties tried their hands at doing that, and in this instance the limitations of the exercise were apparent. It confirmed the need, in a case like this, to focus the analysis on the nature of the legal transaction secured by the hypothec and the overall legislative framework provided for that transaction.

[78] An examination of the Title on hypothecs shows the widely varying uses of the concept of obligation. The vocabulary changes, as do the adjectives or nouns that accompany the concept in different places. Article 2660 C.C.Q. defines a hypothec as a real right made liable for the performance of an obligation. Article 2667 includes the interest and costs, as well as the capital, in what is secured by a hypothec. By connecting that definition of the object of the hypothec to the concept of the obligation secured, some learned commentaries propose that interest and other ancillary charges be included in calculating half of the obligation secured (see Payette, supra, at pp. 785‑86). However, the language used by the other provisions in that Title varies. Article 2687 C.C.Q., under the general heading “Obligations Secured by Hypothecs”, provides that a hypothec may secure any obligation. Article 2688 C.C.Q. deals with hypothecs granted to secure payment of a sum of money.

[79] We shall now consider the provisions that deal directly with hypothecary remedies. On the question of prior notice of the exercise of remedies, art. 2758 C.C.Q. requires that the amount of the “claim in capital and interest” be stated. Later, in art. 2760 C.C.Q., the Code says that a subsequent acquirer of a hypothecated property may deposit a sum sufficient to cover “the amount of the debt, interest and costs due to the creditor”. Article 2761 C.C.Q. then confirms the right of the debtor to halt the proceedings by paying what he or she owes to the creditor or by remedying the defaults cited in the prior notice. In art. 2767 C.C.Q., concerning surrender, the Code refers only to the “claim”, as it also does in art. 2771 C.C.Q.

[80] As we know, the Section of the Civil Code that deals with taking in payment provides other examples of slippage in the vocabulary. The application of that Section is based on the concept of the “obligation secured”, which is hardly mentioned except in the Title preceding art. 2687 C.C.Q. In fact, in that same Section, with respect to the right of subsequent creditors to prevent taking in payment, art. 2779 C.C.Q. provides for the deposit of sufficient security to pay the “claim”. We would also note that in providing that taking in payment has extinctive effect, art. 2782 C.C.Q. says that it “extinguishes the obligation”.

[81] The same subtle differences in vocabulary may be seen elsewhere in the Section of the Code dealing with sale by the creditor. In establishing the order for the distribution of the proceeds of the sale, art. 2789 C.C.Q. refers to the claim and costs owing to the creditor. Then, returning to the general concept of obligation, art. 2797 C.C.Q. provides that a hypothec is extinguished by “the extinction of the obligation whose performance it secures”. This drafting approach better reflects the diverse nature of the obligations secured by this type of security than do a number of the provisions in the Title on hypothecs. It gets to the heart of the legal transaction or the right protected by the hypothec. To understand what the expression “obligation secured” means, we must examine the agreement or the right protected, and define the nature of that right or agreement.

[82] As we have seen, a hypothec may secure a debt of money as well as the performance of an obligation to do or not to do. It is connected to a right, on which it depends, while at the same time protecting the efficacy of the right. Here, the hypothec is connected to a loan of money, which was granted for the purpose of acquiring an immovable. We must therefore look to the substance of that contract in order to understand what the concept of “obligation secured” will correspond to in the calculation provided for in art. 2778 C.C.Q.

E. Loan of Money: Nature of the Transaction

[83] A loan is a contract of a simple nature, at its source. It obliges the lender to hand a thing or a sum of money over to the borrower, and the borrower to return them to the lender, as set out in art. 2329 C.C.Q. The borrower is bound to return the same quantity and quality of property as he or she received and nothing more, notwithstanding any increase or reduction of its price. In the case of a loan of a sum of money, the borrower is bound to return only the nominal amount received, notwithstanding any variation in its value. A loan effects the transfer of ownership of the money lent (J. Huet, Traité de droit civil: Les principaux contrats spéciaux (2nd ed. 2001), at p. 968). It creates ancillary obligations, the main one being the payment of interest from the date the money is handed over (art. 2330 C.C.Q.). The payment of interest essentially represents rent on the money, while protecting the creditor in whole or in part from the vicissitudes of monetary depreciation and the risks inherent in the transaction (see Huet, supra, at p. 1000; see also the comments by Major J. in Bank of America Canada v. Mutual Trust Co., [2002] 2 S.C.R. 601, 2002 SCC 43, at paras. 21‑22).

[84] In a transaction such as the one out of which this case arose, there is a close correlation between the money advanced by the creditor and the security given to the creditor. The capital that the debtor acquires or possesses corresponds to the capital that the creditor lends. The objective of a provision such as art. 2778 C.C.Q. is therefore to prevent the debtor from losing his or her own capital when the creditor has recovered his or her capital or what is deemed to be a significant portion of that capital. Payment of interest compensates the creditor for making his or her capital available to the debtor. On the other hand, once the capital has been repaid, interest ceases to run. The obligation has been extinguished. Article 2782 C.C.Q. reflects this legal situation by recognizing that the loss of the debtor’s capital results in extinction of the obligation, where the creditor has opted to take the capital in payment. In accordance with the principles of the law of obligations that define the effect of payment, the extinction of the principal obligation, the obligation to repay the capital, results in the cancellation of the accessory obligations included in the contractual obligations, and of the security given to guarantee performance of those obligations. The parties then need not concern themselves with the problems of allocating payments, or what becomes of any balance remaining on the claim. By that reasoning, the interpretation of the concept of the “obligation secured” is based on the concept of capital. The debtor’s interest in the property given as security is given greater protection once the creditor has recovered what the legislature deems to be a sufficient portion of his or her capital. On the other hand, the creditor retains the right to take in payment, and that choice is up to the creditor alone.

F. Difficulties in the Respondent’s Interpretation

[85] The complex, not to say confused, argument that was made in this Court concerning the bases for calculating interest and the time limits that should or should not be included in that calculation, and concerning the problem of variable interest rates, led to scepticism as to the appropriateness of the interpretation suggested by the respondent. We also have doubts as to the nature of the ancillary charges or payments that should be taken into account in order to determine whether the creditor is entitled to take in payment without prior judicial authorization. The fact that the specific rules that govern the procedure of taking a property in payment under the Consumer Protection Act are not present here makes it doubtful that the legislature intended to adopt that interpretation. The rules concerning hypothecs, and the principles of the law of obligations, include their own mechanisms for protecting debtors, and it is those principles to which we must refer in these situations. Based on those principles, it is apparent that the appellant was entitled to take in payment, since it had not yet received half of the capital advanced. Its motion for taking in payment should therefore have been allowed.

VI. Costs

[86] The usual rule in this kind of case would require that the respondent pay costs to the appellant. However, when the leave application was made, the appellant made it plain that it was seeking a decision of this Court on a question of general interest for a significant segment of the financial services industry in Quebec, rather than a solution to the respondent’s particular case. A change to the usual rules regarding costs is justified in this case by the fact that the case was of such general interest, and by the situation the respondent found herself in, facing an appeal whose implications extend beyond her own particular case. From that standpoint, the respondent should be awarded the disbursements made and reasonable fees on a solicitor‑client basis.

VII. Conclusion

[87] For these reasons, the appeal must be allowed, the judgments of the Court of Appeal and Superior Court of Quebec set aside and the motion for taking in payment allowed, without costs in those two courts but with costs, including the disbursements incurred and reasonable fees on a solicitor‑client basis, to the respondent in this Court.

Appeal dismissed, Bastarache and LeBel JJ. dissenting.

Solicitors for the appellant: McCarthy Tétrault, Montréal.

Solicitors for the respondent: Barrette & Associés, Lachine.

Solicitors for the intervener: Langlois Gaudreau, Montréal.