Garcia Transport Ltée v. Royal Trust Co.

Garcia Transport Ltée v. Royal Trust Co.
Collection
Supreme Court Judgments
Date
1992-06-25
Report
[1992] 2 SCR 499
Case number
21935
Judges
Lamer, Antonio; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Stevenson, William
On appeal from
Quebec
Subjects
Action
Civil law
Civil procedure
Notes
SCC Case Information: 21935
Decision Content
Garcia Transport Ltée v. Royal Trust Co., [1992] 2 S.C.R. 499
Royal Trust Company
and
Federal Business Development Bank Appellants
v.
Garcia Transport Ltée Respondent
and
The Registrar for the division of
Laprairie and the Sheriff for the
district of Montreal Mis en cause
Indexed as: Garcia Transport Ltée v. Royal Trust Co.
File No.: 21935.
1992: February 25; 1992: June 25.
Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Gonthier and Stevenson* JJ.
on appeal from the court of appeal for quebec
Obligations ‑‑ Extinction of obligations ‑‑ Discharge of certain debtors ‑‑ Public order ‑‑ Waiver ‑‑ Debtor waiving rights conferred by arts. 1202a et seq. C.C.L.C. before sheriff's sale took place ‑‑ Whether arts. 1202a et seq. C.C.L.C. public order legislation ‑‑ If so, whether debtor's waiver valid ‑‑ Civil Code of Lower Canada, arts. 1202a to 1202l.
Obligations ‑‑ Extinction of obligations ‑‑ Discharge of certain debtors ‑‑ Requirements ‑‑ Articles 1202a et seq. C.C.L.C. ‑‑ Debtor's hypothecated lots adjudged to creditor in two separate sheriff's sales ‑‑ Three‑month period between sales ‑‑ First sale sufficient to satisfy debtor's debt to creditor ‑‑ Debtor's motion to be discharged made after second sale took place ‑‑ Whether debtor entitled to be discharged after first sheriff's sale ‑‑ Whether second sheriff's sale can be vacated ‑‑ Civil Code of Lower Canada, arts. 1202a to 1202l.
Civil procedure ‑‑ Vacating of sheriff's sale ‑‑ Requirements ‑‑ Code of Civil Procedure, R.S.Q., c. C‑25, arts. 698, 699, 700.
Judgments and orders ‑‑ Res judicata ‑‑ Preliminary exception -- Motion to dismiss ‑‑ Superior Court granting creditor's preliminary motion in part and striking conclusions in debtor's action relating to vacating of sheriff's sale ‑‑ No appeal from judgment within prescribed time ‑‑ Whether judgment constitutes res judicata ‑‑ Civil Code of Lower Canada, art. 1241.
Royal Trust Co. acted as a trustee on behalf of the Federal Business Development Bank, which lent $250,000 to the respondent. The loan was secured by a hypothec on three lots. When the respondent defaulted on its payments, the appellants took action for the balance remaining on the loan, obtained judgment and seized the hypothecated lots. The parties then entered into an agreement: the respondent waived its right to obtain its discharge under arts. 1202a et seq. C.C.L.C., whatever the price obtained for the lots at the sheriff's sales or the real value of the property; in return, the appellants agreed to initiate a second sale to auction the third lot only if the proceeds from the sale of the two undeveloped lots were insufficient to satisfy their judgment against the respondent. At the first sale, the appellants acquired the first two lots, and three months later, at the second sale, successfully bid for the third one. After the second sale was held, the respondent instituted an action against the appellants, alleging that it was entitled to its discharge under art. 1202b C.C.L.C. on the basis that the immoveables sold at the first sheriff's sale had a value superior to its debt towards the appellants. The respondent also requested that the second sale be vacated.
In a preliminary motion, the appellants argued that arts. 698 and 699 C.C.P. provided the only basis on which a sheriff's sale could be set aside, and that the respondent had not alleged facts supporting the vacating of the second sale pursuant to these provisions. The Superior Court granted the appellants' motion in part, striking those conclusions in the respondent's action concerning the vacating of the second sale. The respondent did not appeal this ruling and the case proceeded to trial, where the court dismissed the respondent's action for discharge on the ground that the real value of the properties sold at the first sale was insufficient to satisfy the debt owed to the appellants.
The majority of the Court of Appeal allowed the respondent's appeal. The majority found that the Superior Court had underestimated the value of the first two lots and that the amount was sufficient to satisfy the respondent's debt. With respect to the respondent's waiver of the discharge, the majority held that one cannot renounce rights conferred by legislation of public order before they are acquired, and concluded that the waiver was void since the debtor signed it before its right to claim its discharge had materialized, and that it was now at liberty to seek the vacating of the second sheriff's sale.
This appeal is to determine whether the respondent is entitled to a discharge after the first sheriff's sale and whether the second sheriff's sale should be vacated.
Held: The appeal should be allowed.
Articles 1202a et seq. C.C.L.C. constitute a law of economic protective public order. These provisions, which provide for the discharge of the debtor upon a sale at law and adjudication to the creditor of the immoveable which guarantees the debt, were intended not only to protect a limited group, but also to promote the economic health of society in general. If they were merely facultative, these provisions could not achieve the purpose of the law: a waiver of their benefit would quickly become a standard clause in every loan contract in Quebec. The absence of a specific reference by the legislator is not an obstacle to a judicial finding that the provisions were enacted for public order.
The party in whose favour the public order legislation has been enacted may waive the benefit of such legislation since its breach results in relative nullity only. A valid waiver, however, can only be given after that party has acquired the right created under the legislation. It is only then that the weaker party can make an enlightened choice between the protection afforded by the law, and some advantage that it may derive from the other party in exchange for its waiver of that protection. Here, the respondent waived the protection of arts. 1202a et seq. C.C.L.C. after it had defaulted and judgment on the balance of its debt had been rendered against it. At that time, it had not yet acquired the right to ask for its discharge because this right arises only after a sheriff's sale has taken place. The respondent's waiver, signed before any sale had taken place, was thus premature and, given that the discharge provisions were of public order, is null. Since the appellants did not challenge the Court of Appeal's finding that the value of the property sold at the first sheriff's sale was sufficient to satisfy the judgment in its totality, the respondent had grounds to seek its discharge based on the value of the property sold.
While arts. 1202a et seq. C.C.L.C. are remedial provisions which must be afforded a large and liberal interpretation, the right to be discharged is not an absolute right. The debtor must exercise the right, must do so in a timely fashion, and must follow the proper procedure. In light of art. 1202i, a debtor who has hypothecated more than one piece of land to secure a single loan must take positive steps to obtain a discharge after a first sale at law, in order to prevent its creditor from enforcing its rights with respect to other securities associated with the same debt, even when the value of a property sold at a first sheriff's sale was sufficient to satisfy the balance of the debt owing to its creditor. The debtor must act diligently. If it stands idly by while other legal proceedings take place, courts will not remedy this inaction. Besides, art. 1202k is a clear indication that once the judgment has been fully executed, as here by the second sale at law, although the debtor can still obtain its discharge (provided the value of the property is sufficient to cover the debt), it cannot claim the amount which may have been a windfall to the creditor and to which it may otherwise have been entitled. Here, the respondent's claim for a discharge after the first sheriff's sale must fail. The respondent could have prevented, or at least delayed, the second sheriff's sale simply by following the procedure set out in art. 1202j C.C.L.C. Since it failed to claim its discharge before the second sale took place, the respondent was barred both from seeking its discharge and obtaining reimbursement from the appellants. Its failure to observe the procedural requirements to avail itself of its rights was fatal.
The respondent is also barred from claiming the vacating of the second sheriff's sale. Given the role of sheriff's sales in the execution of judgments, the rights conferred by them, and the necessity of guaranteeing the stability and certainty of titles, these sales are generally final and binding. It is only exceptionally, and on the very limited grounds set out in arts. 698 and 699 C.C.P., that they can be set aside. A demand to vacate a sheriff's sale must be made within the short time period prescribed by art. 700 C.C.P. This delay is peremptory. Petitioners who could have opposed the seizure and sale, but who failed to do so, generally do not succeed in having a sheriff's sale set aside because their failure to act earlier implies that they consented to whatever irregularity they might later invoke. In this case, there is no ground for attacking either the validity of the judgment originally obtained by the appellants or the second sheriff's sale. The respondent never denied that it owed the amount claimed by the appellants after it defaulted on its payments and it did not initiate any proceeding to be discharged from its debt to the appellants before the second sheriff's sale took place. The appellants seized the property, as they were entitled to do, and the second sheriff's sale proceeded legally. While the respondent may have been within the time period prescribed by art. 700 when it initiated its action, it did not allege any of the grounds set out in the Code of Civil Procedure which would support the vacating of the second sheriff's sale. In allowing the appellants' preliminary motion, the Superior Court found that neither fraud nor the non‑observance of essential conditions and formalities with respect to the second sale had been made out. Consequently, the respondent's demand that the second sheriff's sale be vacated must be denied. Its claim did not fall within the strict provisions of the Code of Civil Procedure.
In any event, since the Superior Court's decision granting the appellants' preliminary motion to strike part of the respondent's action concerning the vacating of the second sheriff's sale constituted a final judgment on the point and was not appealed within the prescribed time period, either independently or within the context of the appeal from the decision on the merits, that judgment constituted res judicata. Accordingly, the respondent could not then relitigate the matter and seek, as it did on appeal, the vacating of the second sheriff's sale, even if it may have had the right to succeed on that claim.
Cases Cited
Referred to: Placements Racine Inc. v. Trust général du Canada, [1989] R.J.Q. 2287; Pauzé v. Gauvin, [1954] S.C.R. 15; Landry v. Cunial, [1977] C.A. 501; Pouliot v. Cie Trust Royal, [1980] C.A. 157; Belgo‑Fisher (Canada) Inc. v. Lindsay, [1988] R.J.Q. 1223; Stern v. G.S.A. Management Inc., C.A. Montreal, No. 500‑09‑000485‑813, December 19, 1983; In re Réserves du Nord (1973) Ltée: Biega v. Druker, [1982] C.A. 181; Girard v. Groupe Desjardins assurances générales, [1989] R.R.A. 153; Pomerleau v. 2319‑8419 Québec Inc., [1989] R.J.Q. 137; Gélinas v. Caisse populaire de St‑Sévère, [1990] R.R.A. 566; Letellier v. Century 21 Citadelle Ltée, [1990] R.D.I. 42; Bérard v. Barrette (1874), 5 R.L. 703; Lymburner v. Courtois (1922), 34 Que. K.B. 341; Patton v. Morin (1865), 16 L.C.R. 267; Perrault v. Mousseau (1896), 6 Que. Q.B. 474; Dyer v. Bradbury‑Parry, [1976] C.A. 106; Boileau v. Procureur général du Québec, [1957] S.C.R. 463; Town of Anjou v. C.A.C. Realty Ltd., [1978] 1 S.C.R. 819, aff'g [1974] C.A. 197, aff'g [1972] C.S. 808; St-Gelais v. Banque de Montréal, [1968] S.C.R. 183, aff'g [1966] B.R. 365; Gobeil v. Cie H. Fortier, [1982] 1 S.C.R. 988; Canada Investment and Agency Co. v. McGregor (1892), 1 Que. Q.B. 197, aff'd (1892), 21 S.C.R. 499; Genier v. Kerr (1893), 3 C.S. 409; Veilleux v. B. Trudel et Cie (1933), 55 Que. K.B. 481; Leclerc v. Phillips (1894), 4 Que. Q.B. 288; Roy v. Lavallée, [1960] Que. Q.B. 438; Office du crédit agricole du Québec v. Gauvin, [1977] C.S. 589, aff'd C.A. Quebec, No. 200‑09‑000306‑77, August 12, 1977; Fort Garry Trust Co. v. Roberts Sprinkler Ltd., [1981] C.S. 905; Janelle v. Champagne, [1981] C.S. 898; Caisse populaire de St‑Eustache v. Entreprises Blainville Ltée, [1989] R.D.I. 355; Dufresne v. Dixon (1889), 16 S.C.R. 596; Vézina v. Lafortune (1917), 56 S.C.R. 246; Peiffer v. Lafrance, [1987] R.J.Q. 2616; Roberge v. Bolduc, [1991] 1 S.C.R. 374; Davis v. Royal Trust Co., [1932] S.C.R. 203; Dominion Textile Co. v. Skaife, [1926] S.C.R. 310; Ville de St. Jean v. Molleur (1908), 40 S.C.R. 139; Fraternité des Policiers de la Communauté urbaine de Montréal v. City of Montreal, [1980] 1 S.C.R. 740; Brandt Plumbing Co. v. Nozetz, [1984] R.D.J. 219; Laforge v. White, [1990] R.J.Q. 2124; Placements Monga Inc. v. Lalonde, [1986] R.L. 264; Interprovincial Building Credits Ltd. v. Pelletier, [1970] C.S. 94; Lafaille v. Banque nationale du Canada, [1987] R.J.Q. 1509; Labine v. Viau, [1942] Que. K.B. 406; Ocean Accident & Guarantee Corp. v. Air Canada, [1975] R.P. 193; Venne v. Quebec (Commission de protection du territoire agricole), [1989] 1 S.C.R. 880; Mongrain v. Auger, [1967] Que. Q.B. 332; Brousseau v. Hamel, [1968] Que. Q.B. 129; Martel v. Martel, [1967] Que. Q.B. 805.
Statutes and Regulations Cited
Act respecting the release of certain debtors, S.Q. 1938, c. 90.
Act to amend the Civil Code, S.Q. 1947, c. 71.
Civil Code of Lower Canada, arts. 13, 1040a to 1040e, 1202a to 1202l, 1241.
Civil Code of Québec, S.Q. 1991, c. 64 [not yet in force], arts. 1417 to 1421, 1695 to 1698.
Code of Civil Procedure, R.S.Q., c. C‑25, arts. 599, 695, 696, 698, 699, 700.
Authors Cited
Azard, Pierre. "Le contrat d'adhésion" (1960), 20 R. du B. 337.
Baudouin, Jean‑Louis. Les obligations, 3e éd. Cowansville, Qué.: Éditions Yvon Blais Inc., 1989.
Carbonnier, Jean. Droit civil, t. 4, Les obligations, 15e éd. Paris: P.U.F., 1991.
Ciotola, Pierre. "Aperçu des conditions illicites et immorales" (1970), 72 R. du N. 315 et 407.
Coipel, Michel. "La liberté contractuelle et la conciliation optimale du juste et de l'utile" (1990), 24 R.J.T. 485.
Côté, Pierre‑André. The Interpretation of Legislation in Canada, 2nd ed. Translated by Katherine Lippel, John Philpot and William Schabas. Cowansville, Que.: Éditions Yvon Blais Inc., 1991.
Couturier, Gérard. "L'ordre public de protection, heurs et malheurs d'une vieille notion neuve". Dans Études offertes à Jacques Flour. Paris: Répertoire du notariat defrénois, 1979, 95.
Crépeau, Paul‑André. "Contrat d'adhésion et contrat type". Dans Adrian Popovici, dir., Problèmes de droit contemporain (Mélanges Louis Baudouin). Montréal: Presses de l'Université de Montréal, 1974, 67.
Ducharme, Léo. Précis de la preuve, 3e éd. Montréal: Wilson & Lafleur, 1986.
Farjat, Gérard. L'ordre public économique. Paris: L.G.D.J., 1963.
Ghestin, Jacques. Le contrat dans le nouveau droit québécois et en droit français: principes directeurs, consentement, cause et objet. Montréal: Institut de droit comparé, 1982.
Ghestin, Jacques. Traité de droit civil, t. 2, Les obligations -- Le contrat: formation, 2e éd. Paris: L.G.D.J., 1988.
Josserand, Louis. "Aperçu général des tendances actuelles de la théorie des contrats" (1937), 36 Rev. trim. dr. civ. 1.
Jukier, Rosalie. "Banque Nationale du Canada v. Houle (S.C.C.): Implications of an Expanded Doctrine of Abuse of Rights in Civilian Contract Law" (1992), 37 McGill L.J. 221.
Juris‑classeur civil, Art. 6, fasc. 1 et 2, par Maurice Gégout.
LeBel, Louis. "L'appel des jugements interlocutoires en procédure civile québécoise" (1986), 17 R.G.D. 391.
Marler, William deMontmollin. The Law of Real Property. Toronto: Burroughs & Co., 1932.
Perrault, Antonio. "Ordre public et bonnes moeurs" (1949), 9 R. du B. 1.
Pineau, Jean et Danielle Burman. Théorie des obligations, 2e éd. Montréal: Thémis, 1988.
Popovici, Adrian. "Les contrats d'adhésion: un problème dépassé". Dans Adrian Popovici, dir., Problèmes de droit contemporain (Mélanges Louis Baudouin). Montréal: Presses de l'Université de Montréal, 1974, 161.
Quebec. Civil Code Revision Office. Report on the Québec Civil Code: Draft Civil Code, vol. I. Québec: Éditeur officiel, 1978.
Ripert, Georges. "L'ordre public et la liberté contractuelle". Dans Mélanges François Gény. Paris, 1936.
Royer, Jean‑Claude. La preuve civile. Cowansville, Qué.: Éditions Yvon Blais Inc., 1987.
Tancelin, Maurice. Des obligations: contrat et responsabilité, 4e éd. Montréal: Wilson & Lafleur, 1988.
Traité de droit civil du Québec, t. 8 bis, par Léon Faribault. Montréal: Wilson & Lafleur, 1959.
Trudel, Gérard. "Des frontières de la liberté contractuelle". Dans Adrian Popovici, dir., Problèmes de droit contemporain (Mélanges Louis Baudouin). Montréal: Presses de l'Université de Montréal, 1974, 217.
APPEAL from a judgment of the Quebec Court of Appeal, [1990] R.J.Q. 925, [1990] R.D.I. 285, setting aside a judgment of the Superior Court. Appeal allowed.
Gabriel Kordovi and Pierre de Granpré, Q.C., for the appellants.
Benoit Rivet, for the respondent.
//L'Heureux-Dubé J.//
The judgment of the Court was delivered by
L'Heureux-Dubé J. -- This appeal concerns the application of those provisions of the Civil Code of Lower Canada which provide for the discharge of a debtor upon a sale at law and adjudication to a creditor of an immoveable which guarantees a debt (arts. 1202a to 1202l C.C.L.C. (hereinafter "arts. 1202a et seq. C.C.L.C.")).
Specifically, the issue is whether the respondent, on the facts of this case, could have availed itself of these provisions. In order to answer that question, the nature of the provisions of arts. 1202a et seq. C.C.L.C. will have to be examined as will the procedural requirements associated with them.
Relevant Legislation
Selected provisions of Section VIII, Chapter 8 of the Civil Code of Lower Canada, entitled "Of the Discharge of Certain Debtors" read as follows:
1202a. In this section,
a. "claim" includes the principal, interest, law costs taxed against the debtor and those which have been effected in the common interest;
b. "immoveable" includes one or more immoveables;
c. "value", applied to any immoveable or property whatsoever, means its fair yielding, investment or commercial value in times of normal economic activity, regardless of its depreciation for the time being through a regional or general economic depression.
1202b. Whenever an immoveable has been sold at law and adjudged to the creditor of a debt guaranteed by privilege or hypothec upon such immoveable, the debtor has the right to obtain his release as regards this creditor, with respect to such debt or, as the case may be, with respect to any residue of such debt, and with respect to any judgment in connection therewith, in the following cases:
a. When the immoveable, at the time of the adjudication, had a value at least equal to the total amount of the purchaser's claim and of every other hypothecary or privileged claim affecting the immoveable and ranking ahead of that of the purchaser;
b. When the purchaser has resold the immoveable, or part of the immoveable, for a price at least equal to the total amount of his claim, of the expenses incurred by the purchaser for the maintenance and the improvement of the immoveable with interest at the rate of five per cent per annum upon such expenditure, and of every other hypothecary or privileged claim affecting the immoveable and ranking ahead of that of the purchaser;
c. When, through any transaction or operation whatsoever respecting such immoveable, the purchaser has received or realized, in money or in property, a value at least equal to the total amount of his claim, of every other hypothecary or privileged claim affecting the immoveable and ranking ahead of that of the purchaser, and of the expenses of maintenance and improvement of the said immoveable or of any other immoveable received in exchange. [Emphasis added.]
1202d. In determining the amount of the claim, interest shall be calculated at a rate of five per cent per annum unless the agreement stipulates a lower rate and the sums exigible as penalties for the non-fulfilment of any obligation of the debtor shall be added to the interest.
However, when the total amount of the interest and of the penalties exceeds the amount with interest at a rate of five per cent per annum upon the principal and the costs would produce, such total amount shall be reduced accordingly.
1202e. When the claim is greater than the value of the immoveable at the time of the adjudication, than its resale price or than the value received or realized through transactions or operations respecting the immoveable, the debtor may nevertheless obtain his release by paying to the creditor the amount required to make up the difference.
1202i. The release of the principal debtor entails the release of his sureties and warrantors.
When a debtor has, in virtue of this division, the right to obtain his release with respect to a debt or residue of debt, any person who has become surety or warrantor for the payment of such debt or such residue has the right to obtain his own release and may exercise his recourse for such purpose, independently of the principal debtor, by following the procedure hereinabove set forth.
1202j. The debtor may, in so far as his recourse for release is not prescribed, invoke as a defence to a suit, as an opposition to a seizure in execution or as a contestation of a seizure by garnishment, as the case may be, the grounds which he may invoke in support of an application for release, and, upon conclusions to that effect in the said defence, opposition or contestation, the court may award the release.
1202k. The release of the debtor shall not have the effect of compelling the creditor to remit any sums which he legally collected under his judgment before such release.
1202l. The application for release must, under pain of forfeiture, be instituted:
a. In the case of paragraph a of article 1202b, within the two years counting from the adjudication;
b. In the cases of paragraphs b and c of the said article, within the two years counting from the date when the right to release arose, but prior to the expiration of the five years following the adjudication.
From the sections entitled "Opposition to Seizure in Execution" and "Vacating of Sheriff's Sale", the following provisions of the Quebec Code of Civil Procedure, R.S.Q., c. C‑25 ("C.C.P."), are also relevant:
599. The service of the opposition stays proceedings upon the execution; and the seizing officer must forthwith return it to the prothonotary who issued the writ, together with the writ itself and all proceedings thereon.
If, however, the opposition is founded on grounds which only go to reduce the amount claimed, or to withdraw from seizure a part of the property seized, the seizing officer is bound, unless a judge has ordered all proceedings to be stayed, to proceed with the execution in virtue of a copy, prepared by him, of the writ and of the minutes of seizure, either to satisfy the uncontested part of the claim, or to sell the property against which the opposition is not directed. [Emphasis added.]
698. A sheriff's sale may, at the instance of any interested person, be vacated:
(1) If, with the knowledge of the purchaser, fraud was employed to keep persons from bidding;
(2) If the essential conditions and formalities prescribed for the sale have not been observed; but the seizing creditor cannot vacate the sale for any irregularity attributable to himself or his attorney.
699. A sheriff's sale may also be vacated at the instance of the purchaser:
(1) If he is liable for eviction by reason of some real right from which the property is not discharged by the sale;
(2) If the immoveable differs so much from the description in the minutes of seizure that it is to be presumed that he would not have bought had he been aware of the true description.
700. The demand to vacate a sheriff's sale, which is a proceeding incidental to the execution, must be made by motion served on all the interested parties within ninety days of adjudication. This delay is peremptory; nevertheless, the court may, provided not more than six months have elapsed since the adjudication, relieve from the consequences of his default a party who shows that in fact it was impossible for him to act sooner. [Emphasis added.]
Facts
The respondent Garcia Transport Ltée ("Garcia") is a shipping and storage company. It operated its business in a building erected on one of three lots of land it had acquired from the town of Brossard. The other two lots remained vacant.
In 1975, the appellant Royal Trust Company acted as trustee on behalf of the Federal Business Development Bank (hereinafter referred to, along with Royal Trust Company, as "the Bank"), which lent $250,000 to Garcia. The loan was secured by a hypothec on the three lots owned by Garcia.
In 1983, after Garcia defaulted on its payments, the Bank took action for the balance remaining on the loan and, in January 1984, obtained judgment for $151,238.97 with interest at the rate of 21.75% from July 24, 1983, plus costs. The Bank then seized all three of the lots hypothecated by Garcia to secure the debt, for the purpose of selling them in a single sheriff's sale. Before the sale took place, however, apparently at the instigation of Garcia, the parties entered into a written agreement (hereinafter "the waiver") which reads as follows:
[translation]
AGREEMENT
GARCIA TRANSPORT LTÉE OF THE FIRST PART
ROYAL TRUST COMPANY OF THE SECOND PART
AND
FEDERAL DEVELOPMENT BANK
WHEREAS the ROYAL TRUST COMPANY in its capacity as trustee for the FEDERAL DEVELOPMENT BANK has obtained a judgment condemning GARCIA TRANSPORT LTÉE to pay the sum of $151,238.97 with interest at the rate of 21 3/4% per annum beginning on July 24, 1983, with costs;
WHEREAS the said judgment also declared the immoveables commonly known as lots 244‑1, 245‑1 and 43‑1 of the official cadaster of the parish of Laprairie de la Madeleine, with the building constructed thereon, to be hypothecated;
WHEREAS GARCIA TRANSPORT LTÉE is asking the ROYAL TRUST COMPANY and the FEDERAL DEVELOPMENT BANK to begin by selling the two lots which are vacant and not developed, being lots 244‑41 [sic] and 245‑1, even if lot 43‑1 with the building erected thereon together with all the immoveables by their destination are sold subsequently in the event that the adjudication price of the two lots is not sufficient to cover the claim;
ACCORDINGLY, THE PARTIES AGREE:
1. GARCIA TRANSPORT LTÉE declares that whatever the adjudication price may be, even if the ROYAL TRUST COMPANY or the FEDERAL DEVELOPMENT BANK are declared to be the vendors for setting the reserve price which is one quarter of the municipal assessment, the adjudication price shall be considered to be the market value of the immoveable by all the parties concerned;
2. GARCIA TRANSPORT LTÉE waives all recourse under articles 1202 et seq. of the Civil Code and declares and undertakes accordingly not to apply to be discharged from the balance of the claim owing to the ROYAL TRUST COMPANY or to the FEDERAL DEVELOPMENT BANK in the event that they are declared to be the vendors for any price whatsoever and even if the ROYAL TRUST COMPANY or the FEDERAL DEVELOPMENT BANK subsequently resells the said immoveables for a price greater than the adjudication price for which they acquire the immoveables at the sheriff's sale;
3. GARCIA TRANSPORT LTÉE acknowledges that immediately after the sheriff's sale of the two lots bearing numbers 244‑41 [sic] and 245‑1, if the adjudication price is less than the claim owing to the ROYAL TRUST COMPANY or to the FEDERAL DEVELOPMENT BANK, and regardless of the balance owing after deduction of the adjudication price, the ROYAL TRUST COMPANY or the FEDERAL DEVELOPMENT BANK shall be entitled to give new instructions to the sheriff to sell lot 43‑1 with the building erected thereon and also with all the equipment listed in the judgment and declared to be immoveables by nature or by their destination, as the case may be;
May 10, 1984
GARCIA TRANSPORT LTÉE
In short, Garcia renounced its right to obtain its discharge under arts. 1202a et seq. C.C.L.C., whatever the price obtained for the lots at the sheriff's sales or the real value of the property. In return, the Bank agreed to conduct the sale in two stages, starting with the two undeveloped lots. If the proceeds from the sale of the properties at the first sale were insufficient to satisfy the judgment against Garcia, the Bank would initiate a second sale to auction the third lot.
At the first sale, which took place in September of 1984, the Bank acquired the first two lots for $25,000. At the second sale, held in December 1984, the Bank successfully bid for the third lot at a price of $133,055.40.
In February 1985, after the second sale was held, Garcia instituted an action against the Bank in the Quebec Superior Court. Garcia alleged that it was entitled to its discharge under art. 1202b C.C.L.C. on the basis that the immoveables sold at the first sheriff's sale had a value superior to its debt towards the Bank. Garcia also requested that the second sale be vacated and that all further proceedings against it be suspended.
Judgments
Superior Court (Denis Lévesque J.)
In a preliminary motion, the Bank argued that arts. 698 and 699 C.C.P. provided the only basis on which a sheriff's sale could be set aside, and that Garcia had not alleged facts supporting the vacating of the second sale according to these provisions. In a ruling in May of 1985 (as corrected July 9, 1985), the trial judge granted the Bank's preliminary motion in part, striking those conclusions in Garcia's action concerning the vacating of the second sale and the suspension of proceedings. Garcia did not appeal this ruling and the case proceeded to trial.
In February 1986, the Superior Court dismissed Garcia's action for discharge on the ground that the real value of the properties sold at the first sale was only $156,100, an amount insufficient to satisfy the debt owed to the Bank, which stood, with interest, at $174,400. Given that the Bank had conceded that Garcia's debt was extinct as a result of the second sale, the judge did not rule on the legality of Garcia's waiver of its rights under arts. 1202a et seq. C.C.L.C.
Court of Appeal, [1990] R.J.Q. 925 (Monet, Jacques and Vallerand JJ.A.)
For reasons rendered by Jacques J.A., a majority of the court allowed the appeal, Vallerand J.A. dissenting on the issues of waiver and res judicata.
After reviewing the facts, Jacques J.A. concluded that the trial judge had underestimated the value of the two lots sold at the first sheriff's sale. According to his calculations, the two lots were in fact worth $206,100, an amount sufficient to satisfy Garcia's debt to the Bank.
With respect to the Bank's argument that, given its waiver, Garcia could not ask for its discharge, Jacques J.A. held that arts. 1202a et seq. C.C.L.C. were provisions of public order. Being of the view that one cannot renounce rights conferred by legislation of public order before they are acquired, he concluded that the waiver was void since Garcia signed it before its right to claim its release had materialized. In his opinion, Garcia acquired that right only after the first sale was held. Accordingly, Jacques J.A. allowed the appeal, concluding that Garcia was now at liberty to seek the vacating of the second sheriff's sale.
Assuming without deciding that arts. 1202a et seq. C.C.L.C. might be dispositions of economic public order such that any waiver of them might be struck down, Vallerand J.A. disagreed with the majority on two points. First, Garcia had not waived its rights prematurely, since, in his view, the purpose of the legislation was only the protection of the weaker party at the time of the signing of the original contract of loan, and not once the debtor was in default (at p. 931):
[translation] In the case at bar, the appellant did not, in the original deed of loan, and thus at the time when it was in a position of "weakness" and "ready to sign . . . anything . . .", waive the protection of articles 1202a et seq. It was at that point, and only at that point, that the appellant was prohibited from so doing; if indeed it were prohibited from so doing, of course, on which point, however, I reserve my opinion.
Moreover, he was of the opinion that, by signing the waiver, Garcia had obtained a concession from the Bank (the splitting of the sales at law), and that courts should not interfere with a bargain freely concluded between the parties simply because the price obtained for the property at the first sheriff's sale may have been insufficient to satisfy Garcia's debt to the Bank (at p. 931):
[translation] The contractual waiver which concerns us and which is therefore not set out in the original deed of loan was agreed upon solely for the benefit of the "weak" party, the borrower in default. The creditor could have had the two immoveables jointly affected by the warranty sold all together; the debtor could not have complained of this. The creditor wanted first to sell only the undeveloped lots, in the hope that this would be sufficient to pay the debt and would thereby discharge the developed lots: it was simply being obliging. However, as may be well understood, the obliging creditor wanted to protect itself in the event that the debtor's hopes were not met, and it therefore required, in consideration, a waiver of the protection of article 1202j. As I have said, this waiver would be valid even if we assume that the law prohibited the waiver being given at the time of the original deed of loan; it is a fortiori valid, then, when mere judicial policy might intervene: I find that there is scarce evidence of the will of the legislator to prohibit the creditor from obliging in this way; quite the contrary.
Finally, in his opinion, since the trial judge's ruling on the Bank's preliminary motion had not been appealed, it constituted res judicata with which an appellate court could not interfere.
Analysis
The issues will be discussed in the following order:
1. The regime provided by arts. 1202a et seq. C.C.L.C.;
2. Public order;
3. The waiver;
4. Procedural requirements:
(a) vacating the second sheriff's sale;
(b) the discharge.
The Regime Provided by Arts. 1202a et seq. C.C.L.C.
Articles 1202a et seq. C.C.L.C. were originally enacted in a 1938 statute entitled An Act respecting the release of certain debtors, S.Q. 1938, c. 90, and adopted as Section VIII of the eighth chapter of the Civil Code of Lower Canada in 1947 by the Act to amend the Civil Code, S.Q. 1947, c. 71. In the Traité de droit civil du Québec (1959), vol. 8 bis, Léon Faribault describes the mischief that the legislation was intended to cure (at p. 639):
[translation] By adding this section to the code in 1947 . . . the legislature wished to put an end to an abuse which, as it spread, was threatening to become a genuine disaster. It often happened that after an hypothecary creditor had received payment by instalments of a large portion of its claim, it would refuse to give its debtor any additional time, when the residue owing was only quite small. It would obtain judgment against the debtor for the amount of the residue, and have the immoveable which was hypothecated to it seized and advertised for sale.
At the sale, it would purchase the immoveable for a song, generally for an amount lower than what was owing to it, and always for much less than its real value. Because it still had its judgment against the debtor for the portion of the debt which had not been paid by the adjudication price, it would exercise its recourse against the debtor's other property.
Frequently, it would succeed in reselling the immoveable at a much higher price than its adjudication price, and would thereby realize a significant profit at the expense of the debtor.
The consequence of this course of action was that the creditor was able to collect a rate of interest which was sometimes quite fabulous, at the expense of the debtor, who nonetheless had to pay the creditor the balance of its claim, with interest in addition.
This was the situation which the legislature wished to remedy by enacting the present section.
In Labine v. Viau, [1942] Que. K.B. 406, one of the first decisions dealing with the legislation, Bertrand J., sitting ad hoc, commented at p. 408:
[translation] The spirit of this legislation, which goes back to 1938, lies in the concern which is clearly reflected in its provisions with preventing the creditor of an hypothec on an immoveable from purchasing the immoveable itself for a sometimes minute fraction of its debt when the immoveable goes at sheriff's sale, and nonetheless continuing to be the creditor for all of the difference which was not satisfied or extinguished by the ranking of the creditor of the obligation on the proceeds, while at the same time becoming the owner of an immoveable the value of which covered the total amount of the debt in the first place. The aim of the new legislation is to prevent this sort of unwarranted but apparently legal enrichment.
(See also M. Tancelin, Des obligations: contrat et responsabilité (4th ed. 1988), at p. 494, paras. 835‑36.)
As we have seen, the purpose of these remedial provisions was to permit the discharge of a debtor upon the sale at law of an immoveable property, based not on the price obtained at auction, as before, but on the actual value of the property, independent of its sale price. Faribault, supra, explains how these provisions operate at pp. 639‑40:
[translation] Today, the adjudication price of the immoveable is not used to discharge all or part of the debt; rather, the real value of the immoveable at the time of the adjudication must be applied to reduce the debt.
The legislature has also provided for the case in which the creditor‑purchaser realizes a profit by reselling or exchanging the immoveable, and in order to remedy this situation has decreed that if, in that transaction, the creditor receives an amount which is sufficient to discharge the debt, including principal, interest and costs, the debtor is discharged as if it had paid with its own funds.
The Quebec Court of Appeal adopted this approach in Placements Racine Inc. v. Trust général du Canada, [1989] R.J.Q. 2287, at p. 2291:
[translation] In enacting these provisions, the legislature wished to provide that the hypothecary creditor could not, because of the operation of the rate of interest, find itself with the immoveable in addition to a sum of money which might amount to much more than the initial amount of the claim, and the opportunity of claiming payment of a residue in addition.
Accordingly, and solely for the purposes of this kind of situation, the legislature has established specific rules, and by operation of the law itself has created a sort of fiction. When the debtor applies for discharge, being of the opinion that the immoveable thus acquired is worth as much as or more than the total amount of the claim, a mechanism for evaluating the claim and the immoveab