Executive Summary: Key Legal and Evidentiary Issues

• The appeal centred on whether an acceleration clause in a commercial loan agreement entitled the lender to demand payment of future, unaccrued interest following default.
   
• Section 17 of the Mortgages Act was examined to determine whether it limited the appellants' liability for interest once default occurred.
   
• Contractual interpretation was central to the dispute, particularly the meaning of the defined term "Indebtedness" in the loan agreement.
   
• Evidentiary issues arose from the borrower's concealment of the sale of the secured bus to a third party in Alberta.
   
• Enforcement costs and a broker fee charged by the respondent were separately challenged as unsupported by the agreement.
   
• Statutory interpretation of sections 17, 18, 22 and 23 of the Mortgages Act was required to resolve the scope of the borrower's redemption rights.
   

Facts of the case

On January 22, 2024, Canadian Equipment Finance & Leasing Inc. ("CEFL") loaned Redback Tours Inc. ("Redback") $559,250 to finance the purchase of a bus, on a five-year term at an annual interest rate of 15.25%. Paul and Angela Ferris, Redback's directors, personally guaranteed the loan, which was secured by a $25,000 security deposit, a security interest in the bus, and a collateral mortgage on Paul and Angela's residence. Redback was required to notify CEFL of any sale of the bus and to remit the sale proceeds within ten days. Redback defaulted on the loan, and on August 22, 2024, CEFL sent default notices demanding $672,417.20 pursuant to the agreement's acceleration clause, representing all remaining payments due, including unaccrued future interest. The appellants did not pay this amount. CEFL then attempted to take possession of the bus but could not locate it; when asked about its whereabouts, Paul Ferris told CEFL that the search would be a "wild goose chase." Following a Canada-wide vehicle database search, CEFL discovered that Redback had sold the bus to a third party in Alberta for $500,000, in violation of the loan agreement. Redback initially resisted turning over the sale proceeds but, after pressure from the third-party purchaser, paid them to CEFL on September 17, 2024. This payment covered the outstanding principal and accrued interest to that date but did not address future interest.

Policy and legislative provisions at issue

The agreement's acceleration clause permitted CEFL, in its sole discretion, to declare all or any part of the "Indebtedness" immediately due and payable upon an event of default. "Indebtedness" was defined in the agreement to include "any and all obligations, indebtedness and liability of the Borrower to the Lender (including interest thereon) present or future, direct or indirect, absolute or contingent, matured or not…". The appellants argued this provision capped their liability for future interest. Section 18 of the Act separately allows early redemption after five years upon payment of principal and three months' further interest, while sections 22 and 23 provide mechanisms for a borrower to restore a mortgage to good standing after default. Also at issue was section 12(g) of the loan agreement, entitling CEFL to recover "all costs, charges and expenses reasonably incurred… in preparing, administering or enforcing" the agreement, which the application judge relied on to justify the enforcement costs and the WiseCap Broker Fee awarded below.

Reasoning and analysis

Writing for the Court of Appeal, Wilson J.A. rejected the appellants' argument on contractual interpretation, finding that the definition of "Indebtedness" unambiguously encompassed both matured principal and present or future interest, and that nothing elsewhere in the agreement displaced this plain language. On the Mortgages Act ground, the Court agreed with the appellants that the statute's broad definition of "mortgage" extends to collateral mortgages, not only conventional ones, consistent with the Act's protective purpose as recognized in 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 699. However, the Court held that section 17 only operates upon default in the payment of principal after the contractual maturity date, tracing this limitation to the equitable redemption doctrine from which the provision derives, and to the structure of the Act as a whole. Because Redback's default occurred during the term of the loan rather than at maturity, section 17 did not apply, and this ground of appeal was dismissed. On the third ground, the Court found the application judge's finding that CEFL's enforcement costs of $32,701.96 were reasonable was owed deference, particularly given the "wild goose chase" CEFL was put through in trying to locate the bus. The Court also held that the WiseCap Broker Fee of $12,571.25 fell within the scope of section 12(g) of the agreement, providing a legal basis for its inclusion in the application judge's order.

Ruling and overall outcome

The Court of Appeal dismissed the appeal in its entirety, upholding the application judge's conclusions that the acceleration clause permitted CEFL to demand future interest and that section 17 of the Mortgages Act did not apply to the mid-term default at issue. The application judge's order requiring the appellants to pay the claimed future interest, the enforcement costs of $32,701.96, and the WiseCap Broker Fee of $12,571.25 was left undisturbed. CEFL, the successful party on appeal, was awarded costs of $25,000, all inclusive.