GRANTING AN IMMOVABLE HYPOTHEC IN FRAUD OF THE RIGHTS OF A JUDGMENT CREDITOR

Judgment was rendered against Mme K in favour of 9073 for the amount of $27,204.45. To enforce payment of the judgment, 9073 seized and sold at justice Mme K's one-half undivided interest in two immovable properties. Two months after the date of the judgment and prior to the seizure of the properties, Mme K's son registered a hypothec against both properties to guaranty the reimbursement of a loan. According the statement of collocation prepared by the bailiff, the son's hypothec ranked ahead of the claim of 9073 and there were insufficient funds left over to pay 9073. 9073 contested the statement of collocation on two grounds: 1. The son's hypothec was null and void since the loan that it purported to guarantee was a sham; 2. Subsidiarily, the hypothec was granted to the son in fraud of the rights of 9073 and therefore was not opposable to 9073. The Court agreed with 9073 and rendered judgment in its favour: 9073-8824 Québec Inc. -vs- Khadija Kebboua et al., 2025 QCCS 1398. The Nullity of the Hypothec Article 2661 of the Quebec Civil Code provides that a hypothec is only an accessory to the debt that it purports to guaranty so if the debt does not or ceases to exist, the hypothec will cease to be legally valid. Articles 2803 and 2804 CCQ place the burden on 9073 to prove that the inexistence of the son's loan is more probable than its existence. 9073's legal burden was supported by a presumption of fact drawn from certain circumstances notably: the timing of the registration of the son's hypothec; certain statements by Mme. K that 9073 would never see a penny; and a complete absence of any credible documentary evidence regarding the existence of the son's loan. The Hypothec Was Made in Fraud of 9073's Rights When a debtor, in concert with a third party, grants a hypothec on an immovable property with a view to diminish its net value, the hypothec may be considered to be a fraudulent act made with a view to harm other creditors by making it more difficult if not impossible for them to get paid. To succeed with such a claim, four conditions must be satisfied: 1. the claimant must have a valid claim that predates that fraudulent act; 2. the creation of the fraudulent act must be prejudicial to the rights of the claimant; 3. the debtor must have acted with the intention to defraud; 4. the third party who acted in concert with the debtor must not have acted in good faith. Regarding the evidence required to satisfy the third condition i.e. the intention by the debtor to defraud, a malevolent intention of the debtor is not required, only an awareness that the granting of a hypothec would adversely affect the rights of the creditor. The Court noted the following evidence to support its conclusion that the hypothec was granted fraudulently: i. 9073 had a valid claim against Mme. K prior to the registration of the hypothec at the land register; ii. The hypothec caused 9073 a prejudice; iii. Mme K is an intelligent person with experience as a real estate broker. She understood the negative impact on the net value of her immovable property resulting from the granting of a hypothec in favour of her son; iv. The son was aware of his mother's debt to 9073 and the negative consequences to 9073 arising from the registration of the hypothec in his favour.