For a hypothec to be considered valid under Québec law it is necessary that i) it be established for a particular amount and ii) such amount be precisely determinable in the deed of hypothec itself. Article 2689 of the Civil Code of Québec (“CCQ”) establishes the requirement that a deed constituting a hypothec indicate the “specific sum” for which it is granted. This is true whether the underlying asset is movable (personal) or immovable (real) property.
The Québec courts have held that a critical nuance to the “specific sum” requirement imposed by article 2689 is that, in order to be considered specific, the sum of the hypothec must be indicated in Canadian dollars. Although it is possible to determine the exchange rate between US and Canadian currency at any given moment, Québec courts have held that fluctuations in such rates over time render the amount of a hypothec indicated in a foreign currency insufficiently precise and therefore not a “specific sum” in the meaning of article 2689 CCQ.
In Trans-America Trade Exchange Inc. v. Haltrecht, the Québec Court of Appeal upheld a lower court decision invalidating a hypothec on the grounds that it was not denominated in Canadian dollars. Similarly, in Caisse populaire Desjardins de Baie-Comeau v. Gérald Robitaille et Associés Ltée the Québec Superior Court held that because the amount of the hypothec was indicated in US dollars, it did not meet the precision requirements necessary for validity under Québec law. Indeed, this interpretation of the “specific sum” requirement is settled in Québec doctrine and jurisprudence and subsists regardless of whether the grantor of the hypothec intends or is bound to repay the amount in a foreign currency.
Legal practitioners in Canada’s common law jurisdictions may note that this requirement is unique to the province of Québec. In circumstances where a Québec hypothec must be drafted to secure an amount owed in US currency, the generally accepted practice is to indicate a “specific sum” equivalent of 150% to 200% of the amount owed.
Indicating a “specific sum” that greatly exceeds the secured debt is bound to offend those unfamiliar with the civil law. For this reason, it is important to stress that doing so creates no additional risk or exposure for the grantor of the hypothec: Québec hypothecs are rights that are accessory to the secured debt and cannot be used to collect more than what is owed.