Background
Canadian Equipment Finance & Leasing Inc. lent Redback Tours Inc. $559,250 in January 2024 to buy a bus. The five-year commercial loan carried 15.25% annual interest and was secured by a deposit, a security interest in the bus, a collateral mortgage on the directors’ home, and personal guarantees from Paul and Angela Ferris.
After Redback defaulted, the lender invoked an acceleration clause and demanded the remaining scheduled payments, including unaccrued interest. Redback had secretly sold the bus in Alberta for $500,000 contrary to the agreement. It later remitted the sale proceeds, satisfying principal and accrued interest to September 17, 2024, but disputed liability for future interest, enforcement costs, and a broker fee.
The Court’s Holding
The Court of Appeal dismissed the appeal. The loan agreement expressly defined “Indebtedness” to include present and future interest, whether matured or not. Its acceleration clause therefore plainly entitled the lender, following default, to demand future interest as well as principal.
The court held that s. 17 of Ontario’s Mortgages Act applies to collateral mortgages as well as conventional mortgages, correcting the application judge on that point. But s. 17 only permits redemption after a post-maturity default in payment of principal; it does not apply to missed payments and other defaults during the loan term. The court also upheld $32,701.96 in reasonable enforcement costs and the $12,571.25 WiseCap broker fee under the agreement’s cost-recovery provision.
Key Takeaways
- A clearly drafted acceleration clause can make unaccrued future interest immediately payable after a commercial-loan default.
- Section 17 of Ontario’s Mortgages Act applies to collateral mortgages, but only where principal due at contractual maturity has not been paid.
- Borrowers cannot use an in-term default to obtain the early-redemption consequences of s. 17.
Why It Matters
The decision clarifies the limited role of s. 17 in Ontario mortgage disputes and distinguishes it from statutory rights of early redemption and provisions allowing a borrower to cure a default. It prevents an in-term defaulter from using s. 17 to avoid contractual future-interest obligations after acceleration.
For commercial lenders and borrowers, the case underscores the importance of defined terms and cost clauses: the agreement’s express inclusion of future interest and broadly framed recovery of reasonable costs determined the result.