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Supreme Court of Canada

Mechanics’ liens—Advances under mortgage without notice in writing of claim for lien and prior to registration of such claim—Rights of mortgagee to priority for interest as well as to priority for principal—The Mechanics’ Lien Act, R.S.O. 1960, c. 233, s. 13(1).

In a mechanics’ lien action, the trial judge held that the respondent trust company, as trustee for bondholders under a first mortgage trust deed, was entitled to priority over lien holders for the sum of $896,620.61 with interest at 6¾ per cent per annum from November 15, 1962. The trustee made its advances under the mortgage from time to time without notice in writing of any claim for lien and prior to the registration of the claim for lien. Interest at 6¾ per cent per annum was paid on these advances up to November 15, 1962. No claim for lien was registered in the Registry Office until November 20, 1962, when the appellant company registered its claim.

The trial judgment was affirmed by the Court of Appeal. On appeal to this Court, the appellant lienholder admitted that the trust company had priority for the principal sum of $896,620.61 representing advances validly made under s. 13(1) of The Mechanics’ Lien Act, R.S.O. 1960, c. 233. However, the appellant contended that the trust company was not entitled to priority for the interest.

Held: The appeal should be dismissed.

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Principal and interest were equally secured under the mortgage. The right to interest was an essential, inseparable, constituent part of the advance made on account of the mortgage. The registration of a claim for lien or notice in writing of such a claim could not stop the running of interest or affect the mortgagee’s priority for continuing interest on advances made under s. 13(1) of The Mechanics’ Lien Act.

APPEAL from a judgment of the Court of Appeal for Ontario dismissing an appeal from a judgment of Honeywell J. Appeal dismissed.

R.F. Wilson, Q.C., and D.H. Sandler, for the plaintiff, appellant.

John J. Robinette, Q.C., for the defendants, respondents.

The judgment of the Court was delivered by

JUDSON J.—The contest in this appeal is one for priority between Guaranty Trust Company of Canada, as trustee for bondholders under a first mortgage trust deed, and M. Sullivan & Son Limited, a lienholder. In mechanics’ lien proceedings the judge held that the trust company was entitled to priority over lienholders for the sum of $896,620.61 with interest at 6¾ per cent per annum from November 15, 1962. This judgment was affirmed by the Court of Appeal and the sole issue in this appeal is the matter of interest. The appellant lienholder’s submission is that the trust company is not entitled to priority for the interest.

The appellant lienholder admits that the trust company has priority for the principal sum of $896,620.61 representing advances validly made under s. 13(1) of The Mechanics’ Lien Act, R.S.O. 1960, c. 233; that the case must be decided under s. 13(1) and that s. 7(3) of the Act has no application. Section 7(3) deals with the problem of a prior mortgage in existence before any lien arises. In such a case the priority of the mortgage is limited to the actual value of

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the land and premises at the time when the first lien arose.

Section 13(1) of the Act reads:

13. (1) The lien has priority over all judgments, executions, assignments, attachments, garnishments, and receiving orders recovered, issued or made after the lien arises, and over all payments or advances made on account of any conveyance or mortgage after notice in writing of the lien has been given at the address endorsed on such conveyance or mortgage pursuant to section 45 of The Registry Act to the person making such payments or after registration of a claim for the hen as hereinafter provided, and in the absence of such notice in writing or the registration of a claim for lien all such payments or advances have priority over any such lien.

The trustee made its advances under the mortgage from time to time without notice in writing of any claim for lien and prior to the registration of the claim for hen. Interest at 6¾ per cent per annum was paid on these advances up to November 15, 1962. No claim for lien was registered in the Registry Office until November 20, 1962, when the appellant, M. Sullivan & Son Limited, registered its claim.

This legislation has been in force for a long time. Until the issue was raised in these proceedings, there was no case which drew any distinction between the rights of the mortgagee to priority for principal and his rights to priority for interest.

Both the trial judge and the Court of Appeal, in this case have rejected any such distinction and I agree with them. Principal and interest are equally secured under the mortgage. The right to interest is an essential, inseparable, constituent part of the advance made on account of the mortgage. Without such a right no building loans would ever be made in a commercial way. The registration of a claim for hen or notice in writing of such a claim cannot stop the running of interest or affect the mortgagee’s priority for continuing interest on advances validly made under s. 13(1) of The Mechanics’ Lien Act.

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I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the plaintiff, appellant: Mulvihill & Greene, Arnprior.

Solicitors for the defendant, respondent, Guaranty Trust Company of Canada: McCarthy & McCarthy, Toronto.

Solicitors for the defendant, respondent, National Trust Company Limited: Arnup, Foulds, Weir, Boeckh, Morris & Robinson, Toronto.

 

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