Jan 01, 1984

Royal Trust Company Mortgage Renewal Agreement #47


By Gerry Neely
B.A. LL.B.

Another case has decided whether or not a mortgagor with a low interest five year mortgage which was renewed during the period of high interest rates had the right to prepay it in spite of the terms of the renewal agreement. In this case, the mortgagors, on June 13th, 1977, had given a mortgage to the Royal Trust Company which matured on July 15th, 1982. As a result of the decisions referred to in Columns 38 and 39, the mortgagors would have had the right to pay off this mortgage at any time after June 13th, 1982. However, on June 29th, 1982, they executed an extension agreement which changed the maturity date of the mortgage from July 15th, 1982, until July 15th, 1987. Paragraph 2 of the extension agreement set the amount of the monthly payment, while Paragraph 3 gave the mortgagor the right to pay annually an additional ten per cent. Paragraph 5 contains the provisions which the mortgagee hoped would prevent the mortgagor from successfully using the provisions of Section 10 of the Canada Interest Act:

"5. Repayment of this loan and interest may only be made in the manner stipulated in Paragraphs 2 and 3 above with no further right of prepayment prior to the maturity Date of Mortgage Loan Renewal. You expressly waive any right of prepayment you now have or hereafter may have pursuant of Section 10 the the Interest Act (Canada) and/or any similar federal or provincial legislation permitting prepayment prior to the Maturity Date of Mortgage Loan Renewal. The Original Mortgage is deemed to be dated as of the Maturity Date of Existing Loan above captioned."

Paragraph 7 contained the usual provision that all terms and conditions contained in the original mortgage were to remain in full force and effect, except as amended by the extension agreement dated June 29th, 1982.

The mortgagor argued that Paragraph 5 was an attempt by the mortgagee to force the mortgagor to contract out of the benefits available to the mortgagor under Section 10 of the Interest Act. The general rule is that no one can contract out of a statute which is intended to lay down a rule of public policy. The reasoning behind this rule is that where parties to a contract possessed unequal bargaining powers, which is generally the case as between lenders and borrowers of money, then a statute passed to protect the borrower cannot be waived by him. If it were otherwise, then the statute would have no force and effect since each lender could compel a borrower to contract out of the statute and therefore defeat the intent of Parliament.

The argument of the mortgagee rested essentially upon the last sentence in Paragraph 5. By that sentence, the parties agreed that the original mortgage would be updated to July 15th, 1982. The Judge decided that the agreement of June 29th, 1982, was one in which the mortgagor and the mortgagee contracted to continue with their relationship as mortgagor and mortgagee on certain terms. One of those terms was that the mortgage relationship was to commence on July 15th, 1982, and to end on July 15th, 1987. That interval of time was not more than five years after the date of July 15th, 1982. Therefore, the agreement between the mortgagor and the mortgagee did not trigger the provisions of Section 10 and the mortgagor had no right to prepay the mortgage prior to the expiration date on July 15th, 1987.

The result: Royal Trust Company 1 - mortgagor 0. Perhaps that will not be the final score, because the decision is being appealed.

 1. Kaltenbach v. The Royal Trust Company, S.C.B.C. 48 B.C.L.R. 350.

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