Ferland v. Sun Life Assurance Co. of Canada, [1975] 1 SCR 266

Supreme Court of Canada

Ferland v. Sun Life Assurance Co. of Canada, [1975] 1 S.C.R. 266

Date: 1974-04-29

Pothier Ferland (Defendant) Appellant;

and

Sun Life Assurance Company of Canada (Plaintiff) Respondent.

1974: March 14; 1974: April 29.

Present: Laskin C.J. and Judson, Pigeon, Beetz and de Grandpré JJ.

ON APPEAL FROM THE COURT OF QUEEN’S BENCH, APPEAL SIDE, PROVINCE OF QUEBEC

Mortgages—Specified rate of interest—Monthly application at the discretion of the lender—Compensation for proceedings disallowed—Interest Act, R.S.C. 1970, c. I-18, ss. 6, 7, 8.

Appellant undertook to repay respondent a loan of $28,300 with interest at seven per cent, by monthly instalments of $247 beginning November 1, 1963 and continuing until October 1, 1983, at which date any balance still outstanding will be payable. The deed whereby a hypothec was granted to guarantee the debt provides that the lender may, at its discretion, apply the instalments towards payment of interest, towards payment of advances it may have made or towards payment of the principal amount. It was also provided that the lender might advance funds for the payment of taxes, and if the latter exceeded $348 per annum the borrower would repay the excess as required by the lender. Appellant defaulted on his obligations, and a judgment of the Superior Court, affirmed by the Court of Appeal, condemned him to pay the sum of $26,916.59, with interest from the date of service of the writ at seven per cent on $25,634.85 and at five per cent on $1,281.74, and declared an immovable, owned by appellant, to be hypothecated to respondent. Appellant appealed to this Court.

Held: The appeal should be dismissed save as to $1,281.74.

Per Laskin C.J. and Pigeon and Beetz JJ.: The amount claimed was arrived at on the basis of the amount actually payable as proven by the record. The moneys received were applied to payment of interest and taxes before reducing the principal amount, and interest was computed in accordance with the agreement. Principal and interest were not blended, because the rate of interest was clearly stipulated. However, under s. 8 of the Interest Act, respondent was not entitled to the sum of $1,281.74 as compen-

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sation payable when proceedings were brought as the result of the borrower failing to meet his obligations.

Per Judson and de Grandpré JJ.: The detailed account filed by respondent is in accordance with the agreement of the parties and s. 6 of the Interest Act does not apply here. With respect to s. 8 of that Act, were it not for the decision in the Fournier case, the appeal should not be disposed of in the manner proposed by Mr. Justice Pigeon on this point.

Kilgoran Hotels Limited v. Samek, [1968] S.C.R. 3; Canadian Mortgage Investment Co. v. Cameron [1917], 55 S.C.R. 409; Standard Reliance Mortgage Corp. v. Stubbs (1917), 55 S.C.R. 422; Immeubles Fournier Inc. et al. v. Construction St. Hilaire Limitée, supra, referred to.

APPEAL from a judgment of the Court of Queen’s Bench, Appeal Side, Province of Quebec, affirming a judgment of the Superior Court. Appeal dismissed in part, with costs, save as to indemnity of $1,281.74 which was disallowed.

Pothier Ferland, defendant in person.

W.D. Thomas, Q.C., for the plaintiff, respondent.

The judgment of Laskin C.J. and Pigeon and Beetz JJ. was delivered by

PIGEON J.—Appellant is appealing against a decision of the Quebec Court of Appeal which affirmed a judgment rendered by the Superior Court on November 24, 1970. That judgment condemned defendant, the appellant in this Court, to pay the sum of $26,916.59, with interest from the date of the service of the writ at 7 per cent on $25,634.85 and at 5 per cent on $1,281.74. It futher declared an immovable located in Outremont to be hypothecated to plaintiff, the respondent in this Court. The hypothec was granted by a deed of obligation in which the borrower undertook to repay a loan of $28,300, with interest at 7 per cent calculated half-yearly. The clause reads as follows:

2(a) The Borrower undertakes that the said principal sum of TWENTY-EIGHT THOUSAND THREE HUNDRED Dollars ($28,300) shall bear interest at the rate of Seven per centum (7%) per annum calculated half-yearly, not in advance and obliges him-

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self to pay the said principal sum and interest thereon at the said rate, reckoned on the amounts from time to time advanced from the respective dates of such advances as follows:

Interest shall accrue from the date of advances hereunder and shall be due and payable on the first of the month following the date of the first advance and on the first of each month thereafter, to and including the first day of the month next preceding the date provided below for the first instalment of principal and interest. At the option of the Lender, interest so due and payable may be deducted from such advances.

Thereafter partly by consecutive monthly instalments of TWO HUNDRED AND FORTY‑SEVEN Dollars ($247) each (to cover the payment of principal and interest), commencing on the First day of November nineteen hundred and sixty-three and thus to continue monthly on the First day of each month, to and including the First day of October nineteen hundred and eighty-three, and the balance, if any, of the said principal sum and interest thereon as herein provided, on the date last mentioned.

All payments required hereunder to be made, if not made when due, shall bear compound interest thereafter, which interest shall be payable from day to day, at the aforesaid rate, calculated half-yearly and not in advance from the date of any such default.

It is agreed that the above mentioned monthly instalments shall be applied by the Lender at its discretion towards the payment of interest, including compound interest, on the present loan, the repayment of any advances which may have been made by it as provided herein, or to reduce the principal sum.

THE PARTIES HERETO AGREE THAT THE FOLLOWING PARAGRAPH APPLIES ONLY if the aforesaid instalments are to cover the payment of taxes on a monthly basis as well as principal and interest:

The Lender may advance sufficient funds under the terms of this loan to meet the annual taxes and assessments due or to become due, so long as there be no default hereunder, but the Lender shall not however be obligated to apply said advances towards payment of any such taxes and assessments more frequently than once yearly and any such advance shall form part of the principal sum hereby secured, bearing interest as aforesaid. In the event that the said annual taxes or assessments exceed the sum of

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THREE HUNDRED AND FORTY-EIGHT Dollars ($348) in any calendar year the Borrower undertakes to pay to the Lender the amount of such excess at such time or times as the Lender may require. The Borrower shall furnish to the Lender as soon as available to him, all tax bills and notices, except in respect of water tax.

Within ten days after any taxes shall have become exigible (save in the case where they shall have been payable by the Lender under this deed) the Borrower shall himself pay the same and present the original receipt therefor to the Lender.

Despite the awkward wording of this document, a fact not denied by counsel for the respondent, its meaning is quite clear. The borrower must pay back his debt, in principal and in interest at 7 per cent, by monthly instalments of $247 each beginning November 1, 1963 and continuing until October 1, 1983, at which date any balance still outstanding will be payable. The deed does not indicate what portion of the monthly instalment will be applied to interest and what portion to principal. On the contrary, it provides that the lender may, at its discretion, apply the instalments towards payment of interest, towards payment of advances it may have made, or towards payment of the principal amount. There follow provisions which apply only if the monthly instalments must provide for the payment of property taxes, as well as principal and interest. This is the case here as, in the clause giving the lender the option of advancing funds for the payment of taxes, it is provided that if the latter exceed $348 per annum the borrower will repay the excess as required by the lender.

In its defence appellant first relied on theoretical computations of the amount that would have been owing when the action was brought, assuming either that the monthly instalments of $247 would apply entirely to principal and interest, or that the sum of $217.71 would so apply. The Court of Appeal and the Superior Court correctly rejected these theoretical computations. The amount claimed was arrived at not on the basis of the estimated amount of property taxes on the property, but on the basis

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of the amount actually payable proven by the bills and receipts filed into the record. The application of the payments, the amount of which was not disputed, was effected in the manner in which respondent was entitled to effect it in the absence of any special provision, namely, by applying the moneys received to payment of interest and taxes before reducing the principal amount. The interest was computed in accordance with the agreement, that is to say half-yearly. There is thus absolutely nothing to object to in the detailed account filed in the record, which indicates that appellant in fact owes the amount claimed.

Secondly, appellant maintained that he did not owe interest, and relied on s. 6 of the Interest Act, R.S.C. 1952, c. 156, now 1970, c. I-18, which reads as follows:

6. Whenever any principal money or interest secured by mortgage of real estate is, by the mortgage, made payable on the sinking fund plan, or on any plan under which the payments of principal money and interest are blended, or on any plan that involves an allowance of interest on stipulated repayments, no interest whatever shall be chargeable, payable or recoverable, on any part of the principal money advanced, unless the mortgage contains a statement showing the amount of such principal money and the rate of interest chargeable thereon, calculated yearly of half-yearly, not in advance.

This provision has been dealt with in several decisions of this Court, the most recent of which is Kilgoran Hotels Limited v. Samek[1]. In that case as in the case at bar, the deed, after stipulating an annual rate of interest, provided that the debtor would pay off the principal and interest in quarterly instalments of a specified amount, applicable first to interest and then to principal. The Court held unanimously that this was not a plan under which the payments of principal money and interest are blended within the meaning of the provision above quoted, because the rate of interest was clearly stipulated, and only a simple arithmetic calculation was

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necessary to determine the portions of each payment which were applicable to interest and principal respectively. In short, the Court held that principal and interest are blended only if the deed does not disclose the true rate of interest payable. Two decisions to this effect were rendered as early as in 1917: Canadian Mortgage Investment Co. v. Cameron[2] and Standard Reliance Mortgage Corp. v. Stubbs[3].

It should however be noted that under s. 8 of the Interest Act respondent is not entitled to recover the sum of $1,281.74 which it was awarded, by the judgment rendered in the present case, as compensation payable in various circumstances, among others when proceedings are brought as the result of the borrower failing to meet his obligations. The interpretation of s. 8 and its application to a comparable clause in a mortgage deed are dealt with in the decision being rendered following a rehearing before the full Court in Immeubles Fournier Inc. et al. v. Construction St. Hilaire Limitée. Since this ground was not raised by appellant at the hearing but by the Court and, moreover, appellant has failed on all the grounds which he put forward, the elimination of the 5 per cent compensation payable as penalty within the meaning of s. 8 of the Interest Act should have no effect on the award of costs in this Court.

For these reasons I would dismiss the appeal with costs against appellant, except that the judgment of the Superior Court, upheld by the Court of Appeal, will be varied by removing therefrom the sum of $1,281.74, thereby reducing the amount of the condemnation to $25,634.85, with interest from the service of the action at 7 per cent per annum.

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The judgment of Judson and de Grandpré JJ. was delivered by

DE GRANDPRÉ J.—I concur without hesitation in Mr. Justice Pigeon’s view that the detailed account filed by respondent is in accordance with the agreement of the parties, and that s. 6 of the Interest Act does not apply here.

With respect to s. 8 of that Act, were it not for the decision rendered today by the full Court in Immeubles Fournier Inc. et al. v. Construction St. Hilaire Limitée, I would have concluded that the section is not a bar to recovery by respondent of compensation in the amount of $1,281.74. However, in view of the Fournier case I feel I must concur in the conclusion of Mr. Justice Pigeon on this point.

On the whole, I would dispose of this appeal in the manner proposed by Mr. Justice Pigeon.

Appeal dismissed with costs, save as to an indemnity of $1,281.74.

Solicitors for the plaintiff, respondent: McDougall, Hemens, Harris, Thomas, Mason & Schweitzer, Montreal.