Court of Appeal of Quebec

Young c. Banque Toronto-Dominion

May 17, 2018

500-09-025975-160

Bich, Savard, Émery (ad hoc)

Appeal from a judgment of the Superior Court granting an action for the surrender of a building to be taken in payment. Allowed.

In 2009, the respondent loaned the debtor $306,000, which was secured by a first hypothec consented by the debtor on her building. At the same time, the debtor took out a loan for $94,160 with the appellants, secured by a second hypothec. In October 2011, following judgment, the appellants became the owners of the building by taking it in payment. In November 2011, in light of the debtor’s default, the respondent served a notice of the exercise of a hypothecary right and instituted a hypothecary action against her, which it abandoned once the appellants paid under protest an amount of $42,954. In July 2012, because the debtor was still in default, the respondent served a new notice of the exercise of a hypothecary right, but this time, it was served only on the appellants. The appellants then brought an action for a declaration that the hypothec was extinct and to obtain its cancellation and the reimbursement of the amount paid under protest. The trial judge granted the respondent’s hypothecary remedy, declared that the respondent was henceforth the owner of the building and ordered the appellants to abandon it. By doing so, he implicitly dismissed the appellants’ application for the cancellation of the entries in the land register. On the issue of prescription, the judge noted that the respondent had brought its proceeding in due time, that is, within a year from the debtor’s default, and that the fact that it had not served the originating proceeding on the debtor was not fatal.

Hypothecs are merely accessory to the obligations they secure. They cannot be extinguished when the creditor begins its hypothecary action, whether it is brought against the debtor or against the person who, without being personally liable for the payment of the obligation, holds the property encumbered by the hypothec intended to ensure that the obligation is performed. Moreover, the obligation extinguished by prescription is no longer due within the meaning of the second paragraph of art. 2748 of the Civil Code of Québec (S.Q. 1991, c. 64) (C.C.Q.). In this case, on the date the hypothecary action was brought against the appellants, the claim on which the respondent’s action was based was not prescribed. However, on both November 2, 2015, when the hearing before the Superior Court began, and February 19, 2016, when the Court was about to render judgment, the respondent’s claim against the debtor was extinguished by the effect of the three-year prescription period (arts. 1671 and 2925 C.C.Q.) and had been since July 2015, because there was no interruption that could have stopped it. In accordance with arts. 2892 and 2896 C.C.Q., the interruption of prescription has effect only with regard to the parties to the judicial application. Bringing a hypothecary action against the owner of the property who is not the debtor of the obligation does not interrupt its prescription, which will continue to run during the proceedings. If, on the day the judgment is rendered, the debtor’s obligation is extinguished by prescription, as it could be for any other cause of extinction, the hypothec will follow (arts. 2661 and 2797 C.C.Q.). The trial judge should have dismissed the hypothecary action against the appellants. The cancellation of the hypothecary act and the notices should therefore be ordered.

*Summary by SOQUIJ
Text of the decision: Http://citoyens.soquij.qc.ca. This link open an external website in a new window.

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