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Real Property - Mortgages (4). Redback Tours Inc. v. Canadian Equipment Finance & Leasing Inc. [Mortgages Act s.17 'Payment of principal upon default']
In Redback Tours Inc. v. Canadian Equipment Finance & Leasing Inc. (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, here where the "application judge held that future interest was properly owing under the contract and that s. 17 of the Mortgages Act did not apply in the circumstances".
Here the court extensively considers s.17 ['Payment of principal upon default'] of the Mortgages Act:2. Application of s. 17 of the Mortgages Act
[19] The second ground of appeal, relating to the application of s. 17 of the Mortgages Act, received the most attention during the hearing of the appeal. The appellants argue that the application judge erred in drawing a distinction between a collateral and conventional mortgage for the purposes of the Mortgages Act. They point to the definition of “mortgage” under s. 1 of the Act which is defined broadly to include “any charge on any property for securing money or money’s worth” (emphasis added). The appellants contend that s. 17 applies and allowed them to redeem the mortgage prior to the contractual maturity date by tendering the proceeds of the sale of the bus. In effect, they say that s. 17 serves as a cap on their liability, relieving them of all obligation to pay future interest, apart from three months’ interest.
[20] CEFL takes a very different view of s. 17. While it does not contest that the Mortgages Act applies to the collateral mortgage at issue in this case, it submits that s. 17 is only a mechanism to put a mortgage back in good standing, not an interest-capping provision on amounts payable after default. It notes that if the appellants’ interpretation were adopted, it would allow a borrower, by their own act of default, to convert a closed mortgage into an open-ended one. Moreover, it would render s. 18 of the Mortgages Act, which gives a borrower a right to redeem a mortgage after five years upon payment of the outstanding principal with three months’ interest, redundant because a borrower could redeem the mortgage in advance of the five years simply by going into default. CEFL argues, in the alternative, that the appellants did not properly invoke s. 17, because they did not pay three months’ interest in addition to the principal.
[21] I agree with the appellants that the Mortgages Act applies to both collateral and conventional mortgages. The definition of “mortgage” under the Act is broad, and the object of the Act – being, in part, to provide “a measure of protection to mortgagors” and to “mitigate the harshness of the common law in its treatment of mortgagors” – is equally served by its application to both conventional and collateral mortgages: 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 699, 142 O.R. (3d) 1, at para. 36. I would nonetheless reject this ground of appeal. As I will explain, s. 17 of the Mortgages Act only applies upon post-maturity default in the payment of principal. It does not apply in a case such as this one, involving defaults occurring during the term of a mortgage.
[22] Section 17 of the Mortgages Act provides:17 (1) Despite any agreement to the contrary, where default has been made in the payment of any principal money secured by a mortgage of freehold or leasehold property, the mortgagor or person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay the same, or the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice, and in the event of making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment. [23] This provision was enacted in 1903: An Act respecting Mortgages of Real Estates, 1903 (U.K.), 3 Edw. VII, c. 11, art. 1. It has not undergone any meaningful revision since that date. Like many enactments from this time period, s. 17 is not a model of clarity. It is understandable then that the parties have taken wildly divergent interpretations of the provision. A review of the caselaw in the courts below quickly reveals similar discord. Notwithstanding the confusion, two aspects of the text are relatively clear and worth highlighting.
[24] First, the provision refers to “default […] in the payment of any principal money secured by a mortgage” (emphasis added). It is thus not just any default that will trigger s. 17 – a default purely in the payment of interest, for instance, is insufficient. This limitation in the language of s. 17 may be contrasted with that of other provisions of the Act which refer to “default […] in making any payment of principal or interest due under a mortgage or in the observance of any covenant in a mortgage”: see ss. 22-23.
[25] Second, on fulfillment of the requirements of the provision – namely, payment of the outstanding principal plus three months’ notice or three months’ interest in lieu thereof – the borrower is relieved of all obligation to make “any further payment of interest except to the date of payment [of the outstanding principal]”. Section 17 thus allows for redemption of the mortgage; it is not, as CEFL contends, just a mechanism to bring a mortgage back into good standing. Again, it is useful to contrast the language under s. 17 with that of s. 22 – a provision that is directed at allowing a borrower to put a mortgage back in good standing. Section 22 provides that, upon compliance with its requirements, “the mortgagor is relieved from the consequences of [...] default”.
[26] This does not, however, resolve the interpretive issue in this case. Although I would reject CEFL’s interpretation, it does not automatically follow that the appellants’ interpretation must be accepted. Although s. 17 allows for redemption of a mortgage, the question remains, does it do so here? To answer this question, one must have regard to the broader context of the provision.
[27] Section 17 of the Mortgages Act is an outgrowth of the common law. Any sophisticated understanding of the provision must thus begin there. At common law, the ability of a borrower to redeem a mortgage was highly circumscribed and the terms of mortgage agreements were strictly and literally interpreted. As a general rule, unless otherwise agreed to between the parties, a borrower had no right to redeem prior to the date fixed for the payment of principal in the contract, unless the lender had demanded payment of the mortgage debt, or taken steps to compel payment of it: Brown v. Cole (1845), 60 E.R. 424 (Ch.); Bovill v. Endle, [1896] 1 Ch. 648; Walter M. Traub, Falconbridge on Mortgages, 5th ed. (Thomson Reuters Canada, 2019), at § 29:2. Moreover, if the borrower missed the deadline to redeem at maturity, regardless of the length of delay, this right would be forfeited and the borrower would lose the mortgaged property forever: Traub, at § 2:2; Joseph E. Roach, The Canadian Law of Mortgages, 3rd ed. (LexisNexis Canada, 2018), at p. 266. This was highly unfair to borrowers. As put by Viscount Haldane L.C. in Kreglinger v. New Patagonia Meat and Cold Storage Co. Ltd., [1914] AC 25 (U.K. H.L.), at p. 35: “The case of the common law mortgage of land was indeed a gross one.”
[28] Eventually, the Courts of Equity intervened in this state of affairs by stipulating that a lender may only use their legal title as a mere security and that, once a right to redeem has arisen, nothing can fetter or clog that right to prevent the borrower from redeeming the mortgage on payment of what is due: Kreglinger. This did not, strictly speaking, grant the borrower a right to redeem, but merely saved the borrower from compliance with the strict terms of the agreement, granting relief from what would otherwise constitute forfeiture of a right of redemption.
[29] Equity did not, however, solely favour the borrower. Relief from compliance with the strict terms of the agreement came with a corresponding obligation. If the borrower did not comply with the terms of the agreement and redeem on the maturity date, they would be obligated to provide either six months’ notice of their intention to pay the outstanding debt (during which interest would continue to be owed) or six months’ interest in lieu of notice: Smith v. Smith, [1891] 3 Ch. 550; Archbold v. Building & Loan Ass’n, (1888), 15 O.R. 237 (H.C.), rev’d on other grounds, 16 O.A.R. 1 (C.A.); Traub, at § 29:5. This obligation was founded on the maxim “he who seeks equity must do equity”. Once the maturity date in the agreement had passed, the lender was left with no idea as to when the borrower might return the principal to them. Six months was seen as a reasonable period of notice, during which the lender could find a new vehicle for the investment of their money.
[30] Section 17 of the Mortgages Act codifies this equitable rule, while reducing the obligation to three months’ notice or three months’ interest in lieu thereof: Re Belyon Properties Ltd. v. Kelcey, 1968 CanLII 290 (ON CA), [1968] 2 O.R. 257 (C.A.), at p. 264, per Laskin J.A. (dissenting in part, but not on this point); Traub, at § 29:5; Roach, at pp. 276-277. As with the equitable rule, the right of redemption provided for in s. 17 only arises after the contractual maturity date: Re Belyon, at p. 264. This is why s. 17 refers solely to “default […] in the payment of any principal money secured by a mortgage” (emphasis added). It is only default in the payment of the principal due at maturity that triggers the provision.
[31] Although a right of redemption prior to maturity has been provided for pursuant to statue, this right is set out under a separate section of the Mortgages Act (s. 18) which provides:18 (1) Where any principal money or interest secured by a mortgage of freehold or leasehold property is not, under the terms of the mortgage, payable until a time more than five years after the date of the mortgage, then, if at any time after the expiration of such five years any person liable to pay or entitled to redeem tenders or pays to the person entitled to receive the money the amount due for principal money and interest to the time of such tender or payment, together with three months further interest in lieu of notice, no further interest is chargeable, payable or recoverable at any time thereafter on the principal money or interest due under the mortgage. [32] Consideration of s. 18 confirms that s. 17 can only apply to a default in the payment of principal, occurring upon the expiry of the contractual maturity date. If it were otherwise, s. 17 would render the five-year timeline set out under s. 18 meaningless. A borrower could abridge that timeline simply by going into default. Moreover, as s. 18 requires payment of three months’ interest in advance and does not give the option of providing three months’ notice, if s. 17 applied pre-maturity, a borrower who wished to provide notice rather than interest would be well-advised to simply default on their loan. This cannot have been the intent of the legislature.
[33] As with any statutory provision, s. 17 must be placed in its broader context. Here, that context includes both the common law and the Mortgages Act as a whole. Other provisions under the Act provide a right of early redemption (s. 18) and rights to put a mortgage back in good standing, even after the triggering of an acceleration clause (ss. 22-23). Section 17 must not be conflated with these other rights, nor undermine them. Having regard to the broader context, it is clear that s. 17 only allows for redemption after a default in the payment of principal due on maturity. It does not apply in this case, involving missed payments and other acts of default during the lifetime of the loan.
[34] I emphasize, however, that this decision is limited solely to the application of s. 17 of the Mortgages Act. The appellants did not argue that any other common law or equitable right, or any other statutory provision, applies in this circumstance to reduce their obligation to pay future interest. I express no opinion on these matters. . MCAN Home Mortgage Corporation v. Broad
In MCAN Home Mortgage Corporation v. Broad (Ont CA, 2026) the Ontario Court of Appeal allowed an appeal, here brought against an order that "the court had no jurisdiction to order a discharge of a CPL" in the circumstances of the case:[1] Where in litigation “an interest in land is in question”, s. 103 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) permits the court to issue a certificate of pending litigation (a “CPL”) that may be registered against title. The court may discharge the CPL on a variety of specific grounds and, under s. 103(6)(c), “on any other ground that is considered just”. This appeal concerns the scope of the discretion under this provision.
[2] The appellant, a mortgagee[1] whose loan was in default, wished to sell the mortgaged property under its private power of sale. After giving notice, it entered into an agreement of purchase and sale promising to deliver clear title to the purchaser. There was a CPL registered on title, giving notice of an action brought by the respondent against the mortgagor, her former common law spouse, claiming an interest in the mortgaged property. The appellant was not a party to that action and no claim for priority over its mortgage was made in it.
[3] The appellant sought an order discharging the CPL to allow its sale to close. The application judge held that the court had no jurisdiction to order a discharge of a CPL in such circumstances. In her view, the appellant’s remedy lay solely in s. 35 of the Mortgages Act, R.S.O. 1990, c. M.40, which sets out what evidence proves a mortgagee’s compliance with the prerequisites to exercise a power of sale, sufficient to give the purchaser “good title”.
[4] In my respectful view, the application judge erred. The Mortgages Act, in combination with the Land Titles Act, R.S.O. 1990, c. L.5 (“LTA”) to which it is subject, confirm the ability of a mortgagee who has complied with the statutory requirements for exercising a private power of sale to convey title clear of subordinately ranking interests. This is a matter of substantive law. However, a practical gap remains because the Mortgages Act does not mandate the actual deletion of a CPL from the parcel registry, and although provisions of the LTA authorize the deletion of instruments from the register to accord with the purchaser’s “good title”, it is not the practice of the Land Titles office to do so for a CPL without consent of the person who obtained the CPL or a court order.
[5] The scope of the discretionary jurisdiction under s. 103(6)(d) of the CJA is broad enough to fill this practical gap. It permits the court to direct the discharge of a CPL at the request of a mortgagee who is not a party to the lawsuit in which it was obtained, where the mortgagee has priority over the interests claimed in the lawsuit and the discharge is necessary to allow the mortgagee’s otherwise proper sale to close. Such a discretion is complementary to, rather than inconsistent with, the provisions of the Mortgages Act and the LTA.
[6] Although the appellant asks us to set aside the application judge’s order and confirm the existence of a discretion to discharge the CPL, it does not ask us to replace the decision below with an order discharging the CPL. The parties acknowledge that circumstances have changed since the matter was before the application judge. The appellant’s prospective sale has aborted. The respondent won her lawsuit against the mortgagor, resulting in her now being the beneficial owner of the mortgaged property. There is a pending application in the Superior Court concerning the respondent’s ability to redeem the mortgage. The appellant recognizes that whether the discretion to discharge the CPL should be exercised must be considered afresh, in the Superior Court.
[7] I would therefore set aside the order of the application judge and refer the matter back to the Superior Court for further proceedings consistent with these reasons.
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Discussion
[28] In my view, the application judge erred in holding that “[t]here is no power in the court to discharge a validly registered CPL at the instance of a mortgagee in the process of completing a mortgage power of sale proceeding”. I reach that conclusion for a number of reasons.
[29] A CPL may only be issued and registered with permission of the court where an interest in land is in question in an action. The court maintains jurisdiction to ensure that the CPL’s continued presence on title does not work an injustice. Section 103(6) of the CJA describes a range of specific grounds on which a CPL may be discharged by the court, including where the party who obtained it does not have a reasonable claim to the interest in the land claimed, or where their interests could be protected by another form of security. Section 106(6)(c) permits discharge of a CPL on “any other ground that is considered just”. The court has the power to impose terms when ordering the discharge of a CPL.
[30] Nothing in the wording of s. 103(6)(c) of the CJA, read in light of its context and purpose, precludes it being invoked by a mortgagee who is not a party to the lawsuit in which the CPL was obtained, but is nonetheless affected by it. A mortgagee whose mortgage ranks prior to the interest in land that is in question in the action, and against whom no claim for priority is made, is affected by a CPL if it prevents the mortgagee from completing a sale it would otherwise be entitled to make. Where no reasonable claim about the mortgagee’s interest in land is being made, this effect of a CPL goes beyond its purpose. In such circumstances, the mortgagee has the right to request that the court exercise its discretion to discharge the CPL on the basis that it would be just to do so.
[31] The existence of a power under s. 103(6)(c) of the CJA to discharge a CPL at the request of a mortgagee, where it is just to do so, is consistent with the relevant provisions of the Mortgages Act and the LTA.
[32] Section 35 of the Mortgages Act specifies the documentation that evidences compliance by a mortgagee with the relevant parts of the Act concerning the exercise of a power of sale and that is thus “sufficient to give a good title to the purchaser”. Nothing in that section conflicts with the court’s jurisdiction under s. 103(6)(c) to discharge the CPL at the request of a mortgagee where it is necessary to give practical effect to the purchaser’s “good title”.
[33] As the LTA makes clear, there can be a difference between what, in law, constitutes the transfer of good title, and what must be done to ensure that the parcel register reflects that good title, unaffected by the presence on the register of any other instruments that may suggest the existence of an adverse claim.
[34] Sections 99(1) and (1.1) of the LTA allow the Director of Titles to specify the evidence necessary to show compliance with the Mortgages Act, contemplate the registration of such evidence, and stipulate that such evidence and the registration of a transfer by the mortgagee to the purchaser is “sufficient to give good title to the purchaser”. But s. 99(2) goes on to provide that upon the transfer being registered and satisfactory evidence being produced the land registrar may “delete from the register the entry of an instrument or writ appearing to rank subsequent to the charge under which the land is sold, and thereupon the interest of every person claiming under such subsequent instrument or writ ceases to affect the land.”
[35] In other words, notwithstanding that in law the purchaser receives “good title”, the state of the register is still critical. The parcel register in the Land Titles system is a “perfect mirror of the state of title”: Lawrence v. Wright, 2007 ONCA 74, 84 O.R. (3d) 94, at para. 30. This “mirror principle” is central to the land titles system, which guarantees the indefeasibility of title. The land registrar’s power to delete subsequent instruments under s. 99(2) of the LTA, regardless of the fact that compliance with Part II of the Mortgages Act grants good title, is a reflection of the importance of the register. Where an instrument ranks subsequent to the mortgage under which the property is being sold, it may be discharged so that the interest of any person claiming under such instrument ceases to affect the land.
[36] Section 99(2) applies to a CPL where the litigation in question relates to an interest in land that ranks subsequent to the mortgage under which a sale is being made. However, as the case was put to us, the land registrar will not exercise the power to delete such a CPL from the register without consent of the person who obtained it, or a court order: Electronic Registration Procedures Guide, p. 72.
[37] Granting a discharge of a CPL that ranks subsequent to the interest of a mortgagee selling under power of sale under s. 103(6)(c) of the CJA is appropriate where it would give effect to the purchaser’s good title as otherwise established under s. 99(1) and (1.2) of the LTA. To do so would facilitate the removal from the register of an instrument that does not affect that purchaser’s title and negate any concern that a person claiming under the CPL continues to have an interest that affects the land.
Conclusion
[38] A discretion exists under s. 103(6)(c) of the CJA to discharge a CPL on the application of a mortgagee exercising its power of sale under a mortgage, where the mortgage ranks in priority to the interest in the land in issue in the action in which the CPL was obtained. This discretion may be exercised where the mortgagee provides evidence of compliance with the Mortgages Act, as stipulated in s. 99 of the LTA, that is, where, in law, good title is being conveyed to the purchaser, and it is necessary for the court to grant a discharge so that the register reflects that title.
[39] The court may always consider appropriate terms, such as making it clear that the discharge takes effect only on registration of the transfer to the purchaser referred to in s. 99(1.1) of the LTA, and requiring payment into court of any surplus realized on the sale. Whether the discretion should be exercised, and any terms that may be appropriate to impose, will depend on the facts of each case.
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