Taking in Payment

Overview

Choosing taking in payment (prise en paiement) exchanges the secured obligation for ownership of the charged property. The creditor accepts the property's value and the consequences of becoming its owner. If the value ultimately proves insufficient, the extinguished debt cannot simply be revived to collect the difference.

That effect explains the protections surrounding the remedy. The debtor can remedy the default. Judicial authorization may be required because of the portion of the obligation already discharged. The debtor or a subsequent hypothecary creditor can require a sale instead. Earlier rights and specially ranked securities also require attention before the creditor treats the property as free of competing claims.

This lesson follows JurisClasseur Québec, Droit civil, Sûretés, fascicule 20, « Prise en paiement », paras. 1–29, combined PDF pp. 646–661. Read the notice and surrender lesson for the general procedure. The central analysis here is whether ownership is worth accepting, whether the remedy can proceed, and which rights survive it.

Learning Objectives

• Apply the preliminary conditions and the judicial-authorization requirement when half or more of the secured obligation has been discharged.
• Distinguish curing the default from requiring abandonment of taking in payment in favour of a sale.
• Determine the consequences for ownership, the debt, sureties, other properties and competing secured rights.

Choosing ownership as the remedy

Taking in payment is available to a hypothecary creditor on movable or immovable property and is not restricted to enterprise property. The creditor must nevertheless satisfy the ordinary conditions: an existing secured claim, a liquid and exigible obligation, the debtor's default, a proper prior notice and effective surrender. Article 2748 CCQ provides the general basis; art. 2781 CCQ addresses the title by which the taking occurs. (Fascicule 20, paras. 1–5.)

The creditor does not sell the property on the debtor's behalf and distribute its proceeds. Instead, the creditor becomes owner in satisfaction of the secured obligation. The relationship between market value and the debt therefore affects the economic attractiveness of the choice without establishing a universal requirement that the values be equal. The remedy can operate whether the property is worth more or less than the debt, subject to its protective conditions.

A creditor considering this option should distinguish apparent value from usable value. Existing earlier hypothecs, property taxes that follow the immovable, preservation needs and the practical difficulty of disposing of the property can reduce the advantage of acquiring it. A gross valuation that ignores surviving charges answers a different question from the value of the interest the creditor will actually hold.

The source observes that taking in payment does not ordinarily require the creditor to obtain the valuation and sale conditions characteristic of a judicial sale. That procedural simplicity does not dispense with sensible valuation before choosing the remedy. Nor does it make valuation irrelevant when the court must decide whether to authorize the taking under art. 2778 CCQ. (Fascicule 20, paras. 10 and 12–13.)

The single-obligation trap

Article 2782 CCQ extinguishes the secured obligation when the property is taken in payment. If several properties secure one obligation, completing a taking against one can remove the debt supporting a later proceeding against the others. A creditor cannot safely take the warehouse today and reserve a second taking against the equipment tomorrow for the same extinguished debt.

The source recommends coordinating the taking against all properties the creditor intends to acquire. If movables and an immovable secure the same obligation, a coordinated prior notice can identify them together, with the longest applicable period observed before completing the taking. Required publication must still occur in each appropriate registry. Simultaneity concerns the effective realization, not merely preparing several notices on the same day. (Fascicule 20, para. 5, combined PDF p. 648; para. 24, pp. 658–659.)

This is a decision rule rather than a requirement to seize every available asset. A creditor may choose a single property with full knowledge that the debt will be extinguished. The error is assuming that the unselected collateral continues to secure a recoverable balance after the taking has completed.

Notice, surrender and the last opportunity to cure

The prior notice (préavis) must identify taking in payment as the proposed remedy. It states the defaults, reminds the recipient of the opportunity to remedy them, sets out capital and interest, describes the property and demands surrender. Article 2757 CCQ governs service on the debtor, the grantor when applicable and other persons against whom the creditor intends to exercise the right.

Publication starts the ordinary waiting period: 60 days for an immovable, 20 days for a movable, or 30 days for the specified movable hypothec whose constituting act is accessory to a consumer contract. The consumer period does not replace the immovable period. Article 2749 CCQ prevents ordinary exercise before expiry, even if the owner agrees to hand over the property earlier. The notice also protects interested third persons. (Fascicule 20, paras. 3–5 and 9, combined PDF pp. 647–648 and 650–651.)

Article 2761 CCQ allows the debtor or another interested person to stop the remedy by paying what is owed or correcting the relevant defaults, with legitimate incurred costs. The detailed accounting rules belong to the notice and surrender lesson. For taking in payment, the decisive practical point is that curing must occur before the taking becomes effective.

Where the remedy proceeds judicially, the judgment effecting surrender and taking in payment is the decisive endpoint. Do not confuse that judgment with the later date fixed for physically leaving the building. A period to vacate does not give the former owner a further period to preserve ownership by curing. The source treats the judgment and the taking as legally coincident. (Fascicule 20, paras. 6–7 and 20–21.)

Voluntary surrender requires a suitable written act

Under art. 2764 CCQ, voluntary surrender (délaissement volontaire) for taking in payment must be recorded in writing. The act must express surrender and receive the creditor's acceptance. It can occur after expiry of the notice period if the creditor accepts it. Under art. 2781 CCQ, the accepted act supplies the creditor's title of ownership.

Returning keys, leaving equipment outside the creditor's premises or ceasing occupation does not supply the necessary written title by itself. The document must also be capable of registration where publication is required. A practical file should establish who owns the right surrendered, what property the act covers, the contemplated remedy and the creditor's acceptance.

Early agreement does not eliminate the statutory waiting period. The source warns against publishing an accepted voluntary surrender as a completed taking before expiry: the rights of others to intervene remain protected. The voluntary route avoids a contested surrender hearing only if the legal conditions for its use are respected. (Fascicule 20, para. 9, combined PDF pp. 650–651.)

Without voluntary surrender, art. 2765 CCQ requires proof of the claim, default, refusal to surrender and absence of valid opposition. The court's jurisdiction for this remedy is assessed by reference to the value of the property sought in payment rather than simply the creditor's outstanding balance. A modest debt secured on a valuable property therefore cannot be analysed solely by reading the repayment statement. (Fascicule 20, paras. 10–11.)

Judicial authorization at the half-paid threshold

Article 2778 CCQ requires judicial authorization where, at registration of the prior notice, the debtor has already discharged one-half or more of the obligation secured by the hypothec. Equality reaches the threshold: a rule requiring strictly more than half would be incorrect. The exception is voluntary surrender by the person against whom the right is exercised.

Keep three propositions separate. Reaching the threshold makes authorization necessary. It does not automatically prohibit taking in payment. Voluntary surrender dispenses with this particular authorization, while leaving the notice, waiting-period and third-person protections applicable. Conversely, paying less than half removes this particular threshold requirement; it does not excuse the creditor from obtaining a forced-surrender judgment where surrender is refused.

The calculation cannot be reduced to original capital minus outstanding capital. In C.I.B.C. Mortgage Corp. c. Vasquez, [2002] 3 R.C.S. 168, the Supreme Court's majority included interest in the secured obligation and in assessing what had been discharged. The source also directs attention to applicable paid costs. Reconstruct the payment history and the obligation from the documents instead of using the remaining capital as a shortcut. (Fascicule 20, paras. 12–13, combined PDF pp. 651–653; official judgment.)

The relevant snapshot is the position when the prior notice is registered. Later payments may affect cure and the remaining balance, but the statutory threshold is framed by that registration date. Keep a record showing the amounts paid, their allocation and the basis for comparing the discharged portion with the secured obligation. Ambiguity in a lender's summary statement should be resolved before the requested conclusions are finalized.

Worked application: interest changes the analysis

Factual Scenario

The following facts are hypothetical. A borrower received $240,000. Before registration of the notice, $70,000 of capital and $95,000 of interest have been paid, and $170,000 of capital remains.

Authorization remains a judicial decision

The source identifies the property's value and the debt balance as the principal considerations for the court's discretion, with the parties' conduct also relevant. A considerable difference between a valuable property and a small balance supplies a reason to examine the proposed taking closely. The court must assess the circumstances rather than mechanically approve because a default exists.

For the creditor, prepare the alternative conclusions and evidence necessary for authorization when the threshold applies. For the debtor, prove the payment history and explain the economic consequences of the proposed remedy. An assertion that most of the loan has been paid should be translated into figures capable of judicial assessment. The source describes authorization as a procedural requirement that cannot simply be omitted, while recognizing that the court may grant it. (Fascicule 20, paras. 12–13.)

Requiring sale instead of taking in payment

Article 2779 CCQ protects the debtor and subsequent hypothecary creditors by allowing them to require abandonment of taking in payment in favour of sale by the creditor or sale under judicial authority. This preserves the possibility that sale proceeds will satisfy the enforcing creditor and leave something for later creditors or the debtor.

The right is not given to every interested person. A person with a prior claim does not qualify merely because that person would prefer a sale. Distinguish the broader class entitled to remedy a default under art. 2761 CCQ from the specified persons entitled to require sale under art. 2779 CCQ. A right of retention or an earlier secured position may engage other protections, but it does not rewrite this eligibility rule. (Fascicule 20, para. 14.)

The notice demanding abandonment must first be registered and then served on the enforcing creditor, the grantor or debtor, and the person against whom the right is exercised, with the required publicity notifications. The applicant must reimburse the creditor's incurred costs and advance the sums needed for the sale. A subsequent hypothecary creditor must additionally provide a surety ensuring that the sale will yield enough to pay the enforcing creditor's claim in full. The debtor is not subject to that additional surety requirement. (Fascicule 20, paras. 16–17, combined PDF pp. 654–656.)

A bare letter requesting a sale does not satisfy these cumulative requirements. Before intervening, obtain an estimate of sale funding, review the reimbursable costs and determine whether the applicant can provide the necessary surety. A subordinate creditor may have economic upside from a sale but also a financial exposure if the price is insufficient. That risk must be assessed as part of the decision to compel the change.

The deadline is not simply the notice's expiry

The source reports that Fabrication Al-Will Inc. c. KWP Inc., 2016 QCCA 22, rejects treating expiry of the notice's ordinary surrender period as the final endpoint in a contested proceeding. A demand can still be made before the judgment in surrender is rendered. This does not authorize waiting until the post-judgment date for leaving the property. (Fascicule 20, para. 15, combined PDF p. 654.)

The prudent calendar nevertheless places intervention within the notice period. A later opportunity before judgment is not a guarantee that the property remains available after a completed voluntary taking. Check whether a judgment has issued or an effective accepted voluntary surrender has completed the remedy before assuming the opportunity is still open.

Article 2780 CCQ requires the creditor faced with a valid demand to sell, subject to two alternatives. The creditor may satisfy the subsequent creditors who registered the demand. If the debtor registered it, the court may authorize taking in payment on conditions it determines. The source discusses consideration of delay, relative values and affected interests; its suggested conditions are illustrations, not an automatic entitlement. If the enforcing creditor fails to act, art. 2780 CCQ allows the court to authorize the person who registered the demand, or another person it designates, to conduct the sale.

The source identifies controversy over who chooses between the two forms of sale. Do not present one party's unilateral preference as an uncontested general rule. The sale ultimately pursued must comply with its own statutory conditions. The combined sale lesson explains the different powers, duties and effects. (Fascicule 20, paras. 18–19, combined PDF p. 655.)

Worked application: preserving possible equity

Factual Scenario

The following facts are hypothetical. An immovable may yield $420,000 after the expenses assumed for this example. The enforcing first creditor is owed $260,000; a subsequent hypothecary creditor is owed $80,000.

Ownership, extinction and surviving rights

Under art. 2781 CCQ, the judgment in surrender or the voluntary act accepted by the creditor supplies the title of ownership. Article 2783 CCQ gives that ownership effect from registration of the prior notice. Publication of the resulting title remains necessary for opposability to third persons. Article 2801 CCQ specifically makes extinction of the subsequent creditors' hypothecs depend on registration of the accepted voluntary act or surrender judgment. These are separate steps: notice, acquisition title, retrospective effect and publication of the title.

The retroactive effect does not make the creditor owner merely because it published a notice. The taking must actually occur. Nor does it justify ignoring the publication requirement in disputes with third persons. The source's discussion of rents illustrates the limit: retroactivity does not authorize recovery of rents received or receivable by the debtor before the taking was effectively exercised and publicized. (Fascicule 20, paras. 20–25, combined PDF pp. 657–659.)

Article 2782 CCQ extinguishes the obligation, including the foundation for further recovery of a deficiency on that debt. A contractual undertaking to pay the later difference between the debt and the creditor's resale proceeds cannot defeat the source's stated public-order consequence. Suretyship accessory to that extinguished obligation also falls away; an advance renunciation cannot preserve it against this protection. (Fascicule 20, paras. 24 and 26.)

The creditor also cannot recover from the former debtor what it pays to an earlier prior or hypothecary creditor, or claim subrogation against that debtor for such payments under art. 2782 CCQ. Thus an earlier charge left on the property is part of the acquisition risk. It cannot be treated as a bill automatically transferable back to the former owner.

Ordinary rank and the exceptions

Article 2783 CCQ states that the property is taken free of hypothecs published after the enforcing creditor's hypothec. Earlier hypothecs survive. Real rights created after registration of the prior notice are not opposable without the creditor's consent. Notice registration and hypothec publication therefore serve different comparisons; treating them as one date produces incorrect title analysis.

Special rank must also be respected. The construction legal hypothec can rank ahead for the value added despite later publication under art. 2952 CCQ. A conventional creditor cannot erase that protection simply by pointing to its own earlier publication. Taking in payment by another construction creditor likewise does not eliminate existing construction hypothecs that compete for the value added. The source distinguishes a construction right already existing from a real right created only after the enforcement notice. Other specially ranked movable securities likewise require their own rank analysis. (Fascicule 20, paras. 28–29, combined PDF pp. 659–660.)

A prior claim ordinarily lacks a right to follow the property after it leaves the debtor's patrimony. The source therefore explains why taking in payment does not generally oblige the new owner to discharge the former debtor's ordinary prior claims. It expressly preserves exceptions: the holder of a movable who surrenders subject to the prior claim arising from a right of retention under art. 2770 CCQ, and immovable property-tax prior claims having a real right and right to follow under art. 2654.1 CCQ. Avoid the blanket assertion that taking in payment clears every priority. (Fascicule 20, para. 27.)

A sound title review ends with a list of rights extinguished, rights surviving and rights whose status requires further proof. Combine registry history with the timing of creation and the applicable special rules. The property's post-taking value depends on that analysis as much as on its estimated selling price.

Practice Checklist

• Identify every property securing the same obligation and coordinate any intended simultaneous taking.
• Verify a liquid and exigible claim, default, proper service and registration, and the applicable waiting period.
• Determine whether the default has actually been cured before the taking becomes effective.
• Require an adequate written act and acceptance for voluntary surrender, or obtain the necessary judicial relief.
• Calculate the portion discharged at registration, including interest, and test the half-or-more threshold correctly.
• Where authorization is required, prepare evidence of payments, property value, debt balance and relevant conduct.
• Assess any demand for sale: applicant's standing, registration, service, costs, advances and additional surety.
• Distinguish the judgment date from any later deadline to leave the premises.
• Account for extinction of the debt, accessory suretyships and remedies against other collateral.
• Publish the acquisition title and verify earlier, specially ranked and property-tax rights before treating title as clear.