CIBC Mortgage Corp. v. Vasquez

CIBC Mortgage Corp. v. Vasquez
Collection
Supreme Court Judgments
Date
2002-09-12
Neutral citation
2002 SCC 60
Report
[2002] 3 SCR 168
Case number
27963
Judges
L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Bastarache, Michel; Arbour, Louise; LeBel, Louis
On appeal from
Quebec
Subjects
Priorities and hypothecs
Notes
SCC Case Information: 27963
Decision Content
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] S.C.R. 678.
By LeBel J. (dissenting)
Doré v. Verdun (City), [1997] 2 S.C.R. 862; 167599 Canada Inc. v. 9007‑4337 Québec Inc., [1997] R.J.Q. 2657; Québec (Procureur général) v. Kabakian‑Kechichian, [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] 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 th