Mortgagee Entitled to Six Month’s Interest in Lieu of Notice #99

By Gerry Neely
B.A. LL.B.

Mary borrowed $100,000.00 from Joe in August, 1983, which she agreed to pay with interest at 11% in monthly installments over a period of one year. This amount was secured by a mortgage and, when Mary's payments fell into arrears, Joe commenced a foreclosure action. The action was settled by Joe's agreement to add the arrears to the principal and by Mary's agreement to pay slightly higher monthly payments, including interest at 11% over a period of approximately six months, with the whole amount becoming due and payable at the end of that time.

Joe agreed to a further extension of the time for payment of the principal, but Mary again fell into arrears and failed to make any payments for five months.

Joe's lawyer then demanded payment of the monthly installments in arrears, plus compounded interest. In addition, he advised Mary that if she wanted to pay off the mortgage, she should give six months' notice to do so or pay six months' interest in lieu of notice. He did not demand payment of the principal sum which, because of the default, he was entitled to do.

Mary's lawyer tendered a cheque for principal and the interest accrued to the date of payment. This tender was rejected and Mary's lawyer sued to force Joe to accept the amount tendered.

The only issue was whether or not Joe was entitled to six months' interest in lieu of notice. Joe's argument was that Mary had treated him badly in spite of his efforts to accommodate her, having made only sixteen of thirty-six required monthly payments on time. In addition, interest rates had fallen below the 11% Mary agreed to pay, and Joe would not be able to earn the same rate of interest as Mary had agreed to pay for a few months more. Joe further said that he was entitled to plan his affairs on a businesslike basis and to have proper notice as to when the principal was to be paid. Joe's lawyer referred the judge to an English rule of law which said that it was equitable that a mortgagor who was in default should give the mortgagee either six months' notice of intention to pay off the mortgage, or pay six months' interest in lieu of notice. This rule only applied where the mortgagee had neither demanded nor taken any steps to compel payment of the amount of principal in default. The judge decided that this rule of English law still applied in British Columbia. Since Joe had only demanded payment of the arrears of monthly payments rather than of the principal, the judge held that Joe was entitled to six months' interest in lieu of notice.

The judge added that a court could fix a lesser period of notice and therefore a lesser amount of interest in appropriate circumstances. Here, however, Mary's conduct did not justify a reduction in the amount of interest in lieu of notice to be paid to Joe. It must be emphasized this decision does not mean that in every instance of default a court would conclude that the mortgagee was entitled to six months' interest in lieu of notice.

Notice of appeal of this decision was filed, but the parties settled before the appeal was heard. The decision is one, therefore, that may be followed in other cases where, as a result of the mortgagor's default and conduct, it would be inequitable to force the mortgagee to accept interest only to the date payment was made.¹

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"Garconniere" (pronounced gars-en-'ye(a)r): a bachelor apartment.

Now that's a word that would add a touch of class and distinction to an advertisement for the sale of a bachelor apartment and would certainly draw enquiries, if only to find out what was included in the sale price.

CORRECTION: Two words were omitted from the third last sentence of Paragraph 5 in Column No. 99. That sentence will read as follows with the addition of the words "of principal".

1.

Mikulic v. Calvillo and CalvilloB.C.S.C. (1986) 6 W.W.R. p. 516.

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