Jason Bryk 

Phone: 204.956.3510

Fax: 204.957.0227

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All Obligations Mortgages

January 2014


ALL OBLIGATIONS MORTGAGES


  1. What is an "All Obligations" mortgage?  It is a mortgage of real estate (or a real estate interest) which, by its terms, secures all of the from time to time existing obligations owed by the mortgagor (or mortgagors) to the mortgagee, up to, from time to time and at any time, the maximum stated principal or face amount of the mortgage. 
  2. Nomenclature.  All obligations mortgages are sometimes also called "all purpose", "multi-purpose", "general liabilities" and "collateral mortgages".
  3. Broad scope of an all obligations mortgage's coverage.  An all obligations mortgage, if properly worded, will provide "automatic" security for:

(a)          all existing direct borrowing obligations owed by the mortgagor(s) to the mortgagee;

(b)          all existing obligations owed by the mortgagor(s), other than "direct borrowing" obligations, including guarantee and indemnification obligations, and for that matter, all other legally enforceable monetary obligations owed to the mortgagee; and

(c)          all future, and for that matter, not yet even conceived of, obligations arising out of future dealings between the mortgagor(s) and the mortgagee.

  1. Need for the mortgagee to ensure that each obligation to be secured is properly "documented".  Because an all obligations mortgage secures, or is capable of securing, multiple presently existing and future arising obligations, it would be difficult, and with respect to future yet to be dreamed of obligations, it would be impossible, for the mortgage to contain particulars of each obligation (each loan, line of credit, guarantee, indemnification or other obligation).  Thus it becomes particularly important for the parties to set out, outside of the four corners of the mortgage document itself, precisely what are the agreed to terms of each obligation.  Contrast this situation with the more "ordinary" form of real property mortgage which secures one loan only (or perhaps one guarantee only) which will typically spell out all of the agreed upon (eg, the amount of the credit made available, the terms of repayment thereof, the applicable interest rate, and the terms of payment/repayment/prepayment and the agreed to prepayment rights of the mortgagor(s), if any).
  2. Typical all obligations mortgage wording.  Please see the attached Schedule "A" which contains extracts from an all obligations mortgage, in particular, dealing with the definition of the "Obligations Secured" and the specification of the interest rate (and the method of calculation/compounding thereof) typically found in an all obligations mortgage.  Note also the provisions under the heading "NATURE OF MONETARY OBLIGATIONS" (which emphasizes that it is indeed all, types of, obligations which are to be secured), and the provisions under the headings "INTERMEDIATE REPAYMENTS OR SATISFACTIONS NOT TO EXHAUST SECURITY" and "CHANGES IN THE NATURE OF THE MONETARY OBLIGATIONS NOT TO ADVERSELY AFFECT SECURITY" (which attempt to make it clear that notwithstanding certain changes to the underlying obligations or amendments to the underlying documentation evidencing or providing for the obligations - such as complete or whole debt repayments and the advancement of new credit - the mortgage security continues to secure all obligations, no matter how changed or restated).  
  3. Is it necessary for an all obligations mortgage to contain a stated maximum principal or face amount?  Some lawyers believe that it is permissible to create an all obligations mortgage which has no stated maximum principal or face amount.  Where this may be legally permissible, it would certainly be a "plus" for the parties (the mortgagee in particular) in that it would further increase the flexibility of the use of an all obligations mortgage.  Unfortunately, it is this writer's opinion that based on the current state of the law applicable in Manitoba, it is necessary to have a stated maximum principal or face amount contained in a mortgage.  This is essentially due to two reasons:

(a)          Section 17 of The Manitoba Mortgage Act - the opening (and for this purpose, the relevant) wording of Section 17 is: "To remove doubts, every mortgage duly registered against the lands comprised therein is, and subject to section 31 of The Builders' Liens Act, shall be deemed to be, as against the mortgagor, his heirs, executors, administrators, and every other person claiming by, through or under him, a security upon the lands to the extent of the moneys or money's worth actually advanced or supplied to the mortgagor under the mortgage (not exceeding the amount for which the mortgage is expressed to be a security)…" (the underlining here is the writer's for emphasis purposes).  The underlined words pretty much dictate the need to have a stated maximum principal or face amount for a real property mortgage.  Given the broad definition of the word "mortgage" in The Manitoba Mortgage Act, it is the writer's view that the need for a stated maximum principal or face amount applies not only to "ordinary" mortgages in the form prescribed for registration under The Manitoba Real Property Act, but also to any other type of real property mortgage, including mortgages of real estate interests other than freehold ownership (whether or not titled).

(b)          An Ontario case (Re Lambton Farmers Ltd. (1978) 91 D.L.R. 3(d) 290, Ontario High Court) - in this case, the Court considered this matter in relation to virtually identical language to Section 17 of The Manitoba Mortgage Act, found in the Ontario Registry Act.  The Court held that the section "deals with the priority of advances made under a mortgage subsequent to its registration as against the interests of subsequent registrants…it does not purport to set out rights as between the mortgagor and the mortgagee as parties to (the) mortgage…".  Thus, as between a mortgagor and a mortgagee, but not as between a mortgagee and third party claimants claiming against the mortgaged realty, the absence of a maximum principal or face amount in a realty mortgage does not invalidate a mortgage.  Where third party claimants are concerned, the mortgagee may lose priority for its advances to the subsequent claimants where there is no stated maximum principal or face amount.  Presumably, the rationale behind this is to encourage the inclusion of stated maximum principal or face amounts in mortgages so that subsequent potential encumbrancers are able to see what is or could be the maximum prior principal exposure that they may be subject to if they acquire an interest in the lands.

  1. A common scenario where an all obligations mortgage could and should be used.  Imagine a situation where a business borrower obtains certain credit facilities from a financial institution (the "Lender").  Those facilities may comprise, for example, two term loans, a line of credit and in addition, the customer may also have provided the Lender with a guarantee of the obligations owed to the Lender by a person or business related to the customer.  In the aggregate, the Lender's monetary exposure is, say, $10,000,000.00.  In this situation, my advice to the Lender - and as well to the customer - is to use an all obligations mortgage and to specify therein a maximum principal or face amount far in excess of the aforementioned $10,000,000.00.  This is to provide future flexibility to the parties, should they agree upon the provision of additional credit by the Lender to the customer.  Although I may suggest this, I have (on a number of occasions) been met with the following objections:

(a)          To have a higher maximum principal or face amount in the mortgage would increase the registration and legal costs to be incurred by the customer.  In fact, the Manitoba Land Titles system has not charged registration costs for mortgages based on the maximum principal or face amount since 1986, yet some people (including people in the lending business) continue to think that this is the case.  As for increased legal costs, while there may in some instances be an increase in the legal costs by reason of the fact that the security being drafted is for a greater amount, thus potentially exposing the lawyer involved to a greater risk if something goes wrong, it is this writer's experience that in most cases, most lawyers will not increase their legal fees solely for this reason, if for no reason other than the existence of competitively priced legal services.

(b)          Customers will sometimes complain that while they have no objection to the public record (the Land Titles Office) showing a maximum principal or face amount (in my hypothetical scenario) of $10,000,000.00, if a higher amount - say $20,000,000.00 - was stated, then third parties searching the register might conclude that the customer was "into the Lender" for far more than the customer is (or will likely be) indebted to the Lender.  Of course this is a fallacious argument because all mortgages state a maximum principal or face amount, but at any given point, especially as time moves on, the actual principal balance outstanding under a mortgage may very well - and often does - decrease without there being any corresponding downward adjustment of the principal or face amount of the mortgage in the records at the Land Titles Office.

(c)          Some customers will take the position that if, in this example, the mortgage states a maximum principal or face amount of $20,000,000.00, that will then somehow obligate the customer to borrow more money from the Lender, up to the maximum of $20,000,000.00.  This too is a fallacious argument because, as we know, in order for the customer to increase its debt (in my example, beyond the maximum aggregate $10,000,000.00 amount), it would be necessary for the customer and the Lender to enter into new and further loan or credit agreements (or guarantees), and the customer always has the choice of not so proceeding,

Assume that the customer refuses to use an obligations mortgage with an (initially) much higher maximum face or principal amount, and further assume that one year later, with the customer's business doing very well and the customer needing further loan monies from the Lender, (and with the Lender more than willing to provide further credit), the parties now decide to increase the aggregate potential exposure of the Lender to, say, $20,000,000.00.  Unfortunately, with the maximum principal or stated amount of the mortgage being only $10,000,000.00, any debt incurred above $10,000,000.00 will not be secured by the mortgage, unless either a new mortgage is provided to the Lender or (more likely) the parties enter into a mortgage amending agreement to increase the maximum principal or face amount from $10,000,000.00 to $20,000,000.00.  This will involve additional legal costs which could have been avoided if my original suggestion (in this scenario) was accepted and, at the outset, the maximum principal or face amount stated in the all obligations mortgage was pegged at $20,000,000.00, not just $10,000,000.00.

  1. Utilization of all obligations mortgages in personal/consumer financing and a potential problem regarding both consumer and business borrowers.  One particular segment of the financing business has massively adopted the use of all obligations mortgages (with relatively high stated maximum principal or face amounts) to achieve future flexibility and (usually) to decrease borrowing costs.  This is the personal or consumer loan market where a person (the "Homeowner") mortgages his/her/their residential property to a Lender to secure not only a conventional residential property mortgage loan, but also to secure present and future debt obligations owed to the Lender arising out of personal lines of credit, credit card arrangements, automobile financing, etc.  For a Homeowner whose home is worth, say, $500,000.00, and whose conventional mortgage debt is, say, at a level of $100,000.00, the use of an all obligations mortgage is attractive to both the Lender and the Homeowner.  It allows the Homeowner to "tap" into the unencumbered equity value of the Homeowner's property, and because all debt thereby secured is covered by real property mortgage security, the Homeowner is usually able to access credit for other loans (including in particular, personal lines of credit) at interest rates less than what the Lender would charge for provision of such credit facilities where they were not covered by real estate security.  This is attractive to the Lender because the Lender is now secured by a particularly valuable asset (ie, the Homeowner's property equity) and the Lender will usually ensure that the Lender's maximum potential exposure is limited to, in the aggregate, say (in my example) $300,000.00, thereby leaving a reasonably large "equity cushion" in case the property falls in value.  There is however a potential problem in this sort of arrangement which could arise with both business borrowers and personal/consumer borrowers.  Where, notwithstanding the existence of an all obligations mortgage with a relatively high or maximum stated principal or face amount, the Lender, for whatever reason or reasons, chooses not to provide further credit to the borrower, the borrower may be "stuck".  The borrower still has plenty of equity in the borrower's realty but is unable to induce the Lender/mortgagee to advance further credit.  But what if the borrower finds one or more other potential credit grantors ("New Lender") who would be quite willing to provide credit to the borrower on the security of the borrower's equity in the borrower's property, and to do so, notwithstanding that any such New Lender would hold a second mortgage behind the (original) Lender?  The borrower and the New Lender might approach the original Lender/mortgagee and request that the (original) Lender/mortgagee enter into an intercreditor agreement with the New Lender which would provide, in effect, that the original Lender/mortgagee's realty security would secure up to a maximum principal amount of, say, $10,000,000.00 only (with interest and costs in the usual manner), notwithstanding that the original Lender/mortgagee's mortgage has a stated maximum principal or face amount of $20,000,000.00.  This way, the New Lender could take a (second) mortgage against the remaining equity in the property and be adequately secured.  Bear in mind that this problem is usually only a potential problem; it becomes a real problem where the original Lender/mortgagee refuses (for whatever reason) to enter into an intercreditor agreement along the lines of what the writer has just suggested.  While the writer has no statistics to back up this hunch, it is the writer's strong suspicion that where a business borrower is involved, the original Lender/mortgagee will be more likely to enter into an intercreditor agreement with a new subordinate mortgage holder, than would be the case where the borrower is a personal/consumer borrower.
  2. What happens when the realty subject to an all obligations mortgage is transferred to a new owner?  Section 77 of The Manitoba Real Property Act provides, in effect, that when titled land is transferred, then, "unless otherwise expressed", among other things, the transferee(s) are deemed to covenant to the existing mortgagee of the land that he/her/it/they (ie, the transferee(s)) will pay the obligations secured by the mortgage "at the rate and the time specified in the instrument creating (the mortgage), and, that the transferee(s) will be bound by all covenants, terms and conditions contained in the mortgage.  Where - in a typical all obligations mortgage situation - the original owner has undertaken several different obligations to the Lender/mortgagee and secured same with an all obligations mortgage, what does this mean for the transferee(s)?  Does it mean that the transferee(s) are, in effect, in the same position as if they had co-obligated themselves to the Lender/mortgagee with the original owner for all of the original owner's obligations?  For example, assume that the original owner has entered into three different loan/credit facility agreements with the Lender/mortgagee for, say, two term loans and one line of credit, and that the original owner has also guaranteed payment to the Lender/mortgagee of the obligations from time to time owed to the Lender/mortgagee by a business entity related to the original owner.  Is the result of Section 77 to put the transferee(s) in the same position they would be if they had, upon acquisition of mortgaged realty, "co-signed" in favour of the Lender/mortgagee the original owner's three loan/credit facility agreements and the original owner's guarantee?  Given the language of Section 77, it is the writer's strong suspicion that the Legislature intended this Section to apply to a more traditional or "ordinary" mortgage which secures one only loan, and not one that secures multiple obligations.  Further, assume that in this example, the Lender/mortgagee (coincidentally) enters into a provision of financial services arrangement with the transferee(s), thereby providing the transferee(s) with, say, two (new) term loan agreements and two (new) operating lines of credit.  Is the legal result that the transferee(s) are somehow deemed to "step into the shoes" of the original owner/mortgagor with respect to all of the original owner's obligations, and, with the all obligations mortgage then and thereafter providing security to the Lender/mortgagee additionally for all of the transferee(s)' (new) obligations owed (or to be owed) to the Lender/mortgagee?  Frankly, the writer doubts that a Court would hold this to be the legal result.  However, a Court might so hold (and probably would so hold) if the transferee(s) entered into some sort of an agreement with the Lender/mortgagee to the effect that all obligations of the transferee(s) from that time forward (and for that matter, some or all of the original owner's obligation(s)) were to be secured by the mortgage.
  3. Acceleration and realization of security where not all of the debts secured are in default.  It would not be unusual for an all obligations mortgage to secure, at any particular time, say, two term loans, both repayable by way of installments of principal with interest.  Because there is only one mortgage involved as security for both loans, it is essential for the mortgagee that if one loan goes into default, the mortgagee must be able to treat the other loan as also being in default - whether or not it actually is in default.  This allows the mortgagee to realize its security primarily to recoup the debt which is in default.  Clearly, it would not be possible for the mortgagee to realize its security (typically, sell the mortgaged realty) to recoup the debt in default and still somehow preserve the mortgage as ongoing security for the loan which is not in default.  The mortgage security must be utilized to try to recoup both loans at the same time.  Thus for a single mortgage to stand as security for multiple obligations, it is necessary that the debtor agrees that default under any one or more of the secured debts is deemed to be default under all of them, with the result that the mortgagee can accelerate and demand repayment of all of them, and then realize its security to get back all of its money.  However, enabling the mortgagee to take this course of action seems to fly in the face of several rules which, in effect, permit a borrower/mortgagor to reinstate a loan which is in default.  Section 39 of the Manitoba Queen's Bench Act and Section 14 of the Manitoba Mortgage Act both, in effect, permit a mortgagor in default to cure the default and reinstate the term of a mortgage secured loan.  Assume that a mortgage secures two loans, each for $100,000.00 and each repayable by way of periodic payments of principal and interest over time; assume further that one of the two loans is in default and the mortgagee wishes to accelerate and realize its security to get back the defaulted loan; if the mortgagee takes this course of action, it will no longer have any mortgage security to secure payment of the other (not yet in default) loan, which is obviously not an acceptable situation for the mortgagee.  Thus it becomes necessary for the mortgagee to treat both loans as being in default, accelerate repayment in full of both of the loans and then realize its security to recoup what is owed to it with respect to both of the loans.  If the mortgagor exercises its aforementioned reinstatement rights, it is clear that it would have to pay the monies in default, typically, the installments of principal and interest actually in arrears (with costs) with respect to the loan which was in default.  But how does the mortgagor reinstate the other loan which itself was never in default?  The answer appears to be that the mortgagor must pay off in full the loan which was not actually in default.  Arguably, this is not fair to the mortgagor.
  4. High title insurance premiums for all obligations mortgages.  This problem arises because all obligations mortgages are designed to secure - currently and in the future - multiple loans, and because (at least in Manitoba) the Land Titles system charges relatively nominal fees for registering mortgages no matter how high the maximum principal or face amount of the mortgage.  It is typical for borrowers and lenders to create all obligations mortgages with very high maximum principal or face amounts.  A borrower's all obligations mortgage may have a face amount of, say, $1,000,000.00, but at any given point in time, it is unlikely that the aggregate debt secured by the mortgage will be anywhere near to $1,000,000.00.  For example, at a particular point in time, the borrower's aggregate debt may be, say $200,000.00, with the maximum principal or face amount of the mortgage being, $1,000,000.00.  However, title insurance companies usually charge premiums based on the maximum principal or face amount of the mortgage.  This results in exceedingly high title insurance premiums for mortgage secured debt where such debt is considerably less than the amount on which the title insurer has calculated its premium.  I say "usually" here, because it is my understanding that at least one title insurance company doing business in Canada is considering altering its practice so that the premium paid will be based on the currently contemplated debt to be secured by the mortgage.  In this situation, where future obligations increase the actual amount of the secured debt, then, (presumably), upon the borrower (or the lender) reporting the increased debt, the insurer will increase the policy limit and charge an additional premium.
  5. What about Section 38 of The Manitoba Law of Property Act?  Attached hereto and marked as Schedule "B" is an extract from The Manitoba Law of Property Act containing Section 38 thereof.  This attachment forms part of this paper because it is the writer's experience that most people (including most lawyers) are not really aware of the existence of Section 38.  As you can see, this Section mandates that a mortgagee under a mortgage securing two or more debts must, when in receipt of value under or by virtue of the mortgage, apply (such value) "immediately to the debts secured by the mortgage".  Note also that this obligation is "subject to any direction a mortgagor has given in the exercise of a right under the mortgage respecting the application of (the value thereby obtained)".  In any event, the mortgagee must, upon making its application, "notify the mortgagor of the debts to which the (value) has been applied".  Note also that subsection (3) prohibits "contracting out" of the mortgagee's obligations under this section.  In practice, most reputable financial institutions will, as a matter of course, notify the mortgagor upon application of value received under or by virtue of the lender's security.  Clearly an all obligations mortgage should contain an authorization by the mortgagor to the effect that application (and reapplication) of value received by the mortgagee may be made to such of the debts secured and at such times and in such manners as the mortgagee in its sole discretion determines.
  6. Some "interest" problems with the use of all obligations mortgages.  Consider the following:

(a)          Difficulty in complying with the disclosure requirements of Section 6 of the Canada Interest Act where one or more of the loans to be secured by the mortgage haven't yet even been considered or finalized.  Section 6 of the Canada Interest Act provides that where a real estate secured loan is repayable by way of blended installments of principal and interest, then unless the mortgage specifies the principal amount of the loan and the rate of interest applicable to it, calculated yearly or half-yearly, not in advance, the mortgagee is not legally entitled to collect interest.  Alternatively, if the mortgage contains a Section 6 type statement of principal and interest which is inconsistent with other provisions in the mortgage as to the repayment of principal and interest, then the mortgagee is only entitled to collect interest at the lower of the rates specified.  The problem with an all obligations mortgage is that it is intended to secure loans and credit facilities which may or may not exist in the future, and whose terms have not yet even been considered by the mortgagor and the mortgagee at the time when the all obligations mortgage is executed and registered.  Thus it is impossible for a mortgagee to comply with respect to Section 6 - at least for those future loans to which Section 6 would apply.  However, consider the following:

                                  (i)          based on the case law to date, very few mortgages which secure loans repayable with equal periodic payments of principal and interest are really "blended" payment mortgages subject to Section 6;

                                 (ii)          the opening words of Section 6 are "whenever any principal money or interest secured by mortgage on real estate or hypothec on immoveables, is, by the mortgage or hypothec made payable on…any plan under which the payments of principal and interest are blended…" (the underlining is the writer's for emphasis purposes).  Arguably, the terms of payment/repayment of any particular loan secured by an all obligations mortgage are not contained within the four corners of the mortgage document itself.  Usually, the terms of payment/repayment are found in one or more documents separate from the mortgage document (ie, in loan agreements, promissory notes and the like).  On that basis, one could argue that the repayment terms are not "made payable…by the (terms of the) mortgage".  On the other hand, because most all obligations mortgages directly or indirectly incorporate all of the from time to time existing promissory notes, loan agreements, etc. between the parties, it may be difficult to successfully propound this position;

                                (iii)          the primary purpose of Section 6 is to mandate disclosure of the cost of borrowing (interest) to borrowers/mortgagors.  Surely this can be effected by incorporating into each all obligations mortgage, a readily available "chart" of equivalent interest rates.

(b)          Possible difficulty in complying with Section 8 of The Canada Interest Act.  In consumer/individual persons' financing where an all obligations mortgage on the borrower's residential property is utilized, the mortgage will, by virtue of the broad description of what it secures, cover the borrower's obligations from time to time owed to the Lender under the borrower's credit card or cards.  This can raise a problem for the mortgagee by virtue of the application of Section 8 of The Canada Interest Act.  The problem results from the following:

                                  (i)          Most credit card arrangements specify that on and following default by the card holder, the interest rate applicable to the debt will increase, sometimes by as much as 5% or 6% per annum; and

                                 (ii)          Section 8 of the Interest Act (Canada) (the "Act") provides, in effect, that a creditor whose debtor's indebtedness is secured by a mortgage on real property is not to charge the debtor interest (or other amounts) which has the effect of increasing the rate of interest to anything higher than the rate which was applicable prior to default.  It appears that if this rule is breached, then the mortgagee is not legally entitled to collect any interest after default.

As long as the card holder's debt is not secured by real estate, Section 8 of the Act is not engaged.  But by the card holder's mortgage stipulating that it secures all debt of the card holder from time to time existing, this - arguably - means (at the very least) that the mortgage cannot legally secure the card holder's obligation to pay interest in excess of the pre-default rate of interest.

Would it be possible for a lender to minimize this problem by having the mortgage (and probably also, the cardholder agreement) specify that when and to the extent that the mortgage secures credit card debt, then the mortgage will only secure post-default interest (referable to the credit card debt) at the credit card agreement pre-default rate?  The answer is probably "yes", provided that the language providing for such "severance" (especially in the mortgage) is clear and unequivocal and provided that a Court called upon to consider the matter is willing to effect severance.  But even if the Section 8 Interest Act problem is eliminated in this manner, the credit card issuer will be somewhat frustrated in its original intention to provide a lower interest rate in exchange for real property mortgage security on the credit card debt.


 

(c)          Increased threat of devaluation of a homestead.  Consider the following scenario:

                                  (i)          a person (could be male or female, but for this example we will assume that the person is a male) buys a house and lives in it with title in his name;

                                 (ii)          at some point in time, say, a couple of years after acquisition, the owner marries and thereupon commences to live in the house with his new wife;

                                (iii)          prior to marrying, and in fact, concurrently with the acquisition of title to the property, the (male) owner provided a financial institution with an "all obligations" mortgage with a maximum principal or face amount high enough to cover the initial financing obtained by the owner to assist in purchasing the property, and with additional "room" to borrow one or more additional loans from the mortgagee/lender (assume that the maximum principal/face amount is $500,000.00);

                                (iv)          the original (property acquisition) financing was for $100,000.00; and

                                 (v)          after a couple of years of concurrent ownership and marriage, the property owner obtains a further loan from the mortgagee/lender for, say, $100,000.00.

Because the Homesteads Act (Manitoba) only requires an off-title spouse to consent to the creation of a mortgage (which the writer understands to include an amendment of a mortgage), and, no new mortgage and no amendment to the terms of the mortgage (including the maximum principal or face amount thereof) is required, the mortgagee/lender can advance the additional $100,000.00, thereby resulting in the mortgage debt against the property increasing to $200,000.00.  The significance of this from the perspective of the off-title spouse is that the off-title spouse's homestead rights/interests in the property have been devalued - and may be at greater risk of loss in a mortgage realization proceeding - without the off-title spouse's consent having to be obtained.  This is not a problem for the property owner or for the mortgagee/lender but it is a problem for the off-title spouse.

 

 


 

SCHEDULE "A"

  1. "Obligations Secured" means:

(a)          all liabilities and indebtedness (other than liabilities and indebtedness of the types described in sub-clauses (b) and (d) hereinbelow) now and hereafter owing and all such liabilities and indebtedness now and hereafter accruing due (and whether the same or any of the same are owing or accruing due directly or indirectly or contingently or otherwise) by the Mortgagor to the Mortgagee up to, for the purpose of this security, the maximum principal or face amount set forth elsewhere in this Mortgage ("Principal");

(b)          the Mortgagor's liabilities and indebtedness to the Mortgagee for all amounts which, pursuant to the provisions of paragraph 28(c) of this Schedule the Mortgagee is entitled to require the Mortgagor to pay to the Mortgagee ("Mortgagee's Expenses");

(c)          the Mortgagor's liability or indebtedness to the Mortgagee for interest on so much of the Principal and so much of the Mortgagee's Expenses as shall from time to time remain unpaid to the Mortgagee, at the rate (or, as the case may be, rates) stipulated or provided for in this Mortgage; and

(d)          all other obligations arising under or by virtue of this Mortgage;


            provided that:

(i)            whenever and so often, pursuant to paragraph 28 of this Schedule, as any of the Mortgagee's Expenses are added to Principal or whenever any interest owed but unpaid by the Mortgagor to the Mortgagee is added or compounded into Principal hereunder, then the same shall thereupon be and be deemed to be and shall be treated as part of the Principal; and

(ii)           whenever and so often as the aggregate amount of Principal exceeds the aforementioned maximum principal or face amount of this Mortgage (and whether this has occurred by reason of the addition to or compounding into Principal of any of the amounts described to in sub-clauses (B) and/or (C) above or otherwise), and, by applicable law, the excess of Principal over the maximum principal or face amount of this Mortgage is not secured by the security hereof, or is not secured with the same priority as this Mortgage secures that portion of the Principal equal to the said maximum principal or face amount of this Mortgage, then the Mortgagee shall be entitled to conclusively determine which portion or portions of the Principal shall be so secured and which portion or portions of the Principal shall be deemed to be not so secured;

  1. Mortgagor's Monetary Obligations" means the Mortgagor's from time to time outstanding and unpaid money obligations described in sub-paragraphs 1(a), 1(b) and 1(c) above;
  2. CALCULATION AND PAYMENT OF INTEREST

(a)          The Mortgagor shall pay interest to the Mortgagee on the from time to time outstanding and unpaid Principal at the rate (or as the case may be, rates) and calculated and payable as hereinafter set forth.

(b)          For the purposes hereof interest shall be calculated (but not compounded) and shall accrue daily and shall be payable monthly not in advance on the last day in each month (or on such other day in each month as may be advised by the Mortgagee to the Mortgagor in writing) both before and after demand, maturity, default and judgment and whenever and so often as interest is due and payable hereunder but is not duly paid at that time, then forthwith the amount of such then due and payable but not paid interest shall be added to Principal so that interest shall thereupon and thereby commence to be calculated on such unpaid interest then so added to Principal and the same shall be payable at the same times as above mentioned, the Mortgagor hereby acknowledging and agreeing that the intent of the foregoing is that the Mortgagor shall be responsible for and shall pay interest on overdue interest calculated, determined and payable as specified herein. Provided however that nothing in this Mortgage (including the foregoing provisions of this sub‑paragraph) shall obligate the Mortgagor to pay interest where the Mortgagor is in default hereunder at a rate of interest which is or which is in effect higher than the rate of interest which the Mortgagor is obligated to pay hereunder prior to such default.

(c)          Wherever herein reference is made to the interest hereunder being or to be calculated at the rate (or as the case may be, rates) stipulated or provided for in this Mortgage, the same shall mean:

(i)            interest at the particular rate (or as the case may be, rates) stipulated or provided for elsewhere in this Mortgage;

(ii)           if no such particular rate or rates is or are so stipulated or provided for in this Mortgage, then interest shall mean interest at the fixed or fluctuating rate (or as the case may be, rates) applicable to the Principal or any part or parts thereof from time to time agreed to by the Mortgagor and the Mortgagee;

(iii)          if no rate of interest has been so agreed upon with respect to any part or parts of the Principal, then interest shall mean interest at the highest rate of interest which has been so agreed to with respect to the other part or parts of the Principal; and

(iv)          where more than one rate of interest is stipulated or provided for in this Mortgage, or different rates of interest are applicable to different portions of the Principal as agreed to by the Mortgagor and the Mortgagee as aforesaid, then for the purposes of those provisions of this Mortgage whereby the Mortgagee is entitled to require the Mortgagor to pay interest on any of the Mortgagee's Expenses, interest shall mean interest at the from time to time highest of such rates of interest aforesaid.

(d)          The taking of a judgment or judgments by the Mortgagee with respect to any or all of the Obligations Secured (including, without limitation any or all of the Mortgagor's Monetary Obligations hereunder) shall not in any way operate as a merger of said Obligations Secured so reduced to judgment, and the Mortgagor shall pay interest as aforesaid to the Mortgagee both before and after any such judgment on those of the Mortgagor's Monetary Obligations as represented by the judgment until all of the same have been fully paid to the Mortgagee.

  1. NATURE OF MONETARY OBLIGATIONS

The Mortgagor's Monetary Obligations described or referred to in paragraph 2 hereof shall include, and this Mortgage shall be and constitute security to the Mortgagee as a general, continuing and additional security to the Mortgagee to secure the payment of all liabilities and indebtedness of all kinds whatsoever and wheresoever incurred, present and future and which at any time are owed, owing or accruing due (directly or indirectly or contingently or otherwise) by the Mortgagor to the Mortgagee or which remain unpaid by the Mortgagor to the Mortgagee, and whether any of such liabilities or indebtedness arise from dealings between the Mortgagee and the Mortgagor or from any other dealings or proceedings by which the Mortgagee may be or become, in any manner whatsoever, a creditor of the Mortgagor and whether the same or any of the same are incurred by the Mortgagor alone or with any other person or persons and whether so incurred by the Mortgagor as principal, guarantor, surety or otherwise.

  1. INTERMEDIATE REPAYMENTS OR SATISFACTIONS NOT TO EXHAUST SECURITY

This Mortgage shall not to any extent be or be deemed to be taken as satisfied, exhausted or discharged by any intermediate payment or satisfaction of the whole or part or parts of the Obligations Secured but shall constitute and be a continuing security to the Mortgagee for the payment, fulfillment and performance of all of the Obligations Secured from time to time unpaid or unfulfilled, and for the payment, fulfillment and performance of the last, final and ultimately outstanding of the Obligations Secured.

  1. CHANGES IN THE NATURE OF THE MONETARY OBLIGATIONS NOT TO ADVERSELY AFFECT SECURITY

The Mortgagor agrees that notwithstanding any change in the nature or form of any of the Mortgagor's Monetary Obligations or in the bills, notes, instruments or agreements from time to time evidencing or representing the same, or any change in the names of any of the parties to said bills, note, instruments or agreements or any change in the names, persons or identities of the persons responsible for the Mortgagor's Monetary Obligations or any of them (including any change in the person or persons comprising any firm, or any change in the name of any such firm), and notwithstanding the opening of any new account or accounts between the Mortgagee and the Mortgagor or the closing in of the Mortgagee's records of any other account or accounts, the security hereof shall continue in full force and effect in accordance with the terms hereof and the same shall not be derogated from or adversely affected in any way by the occurrence of the foregoing or any of the foregoing.



SCHEDULE "B"


Extract from The Manitoba Law of Property Act


Application of money to debts secured by mortgage

38(1)       Where a mortgage is held as security for one or more debts and money is paid by the mortgagor or is realized by the mortgagee under the terms of the mortgage, the money shall be applied immediately to the debts secured by the mortgage, subject to any direction the mortgagor has given in the exercise of a right under the mortgage respecting the application of such money, and the mortgagee shall immediately notify the mortgagor of the debts to which the money has been applied.


Application of money to debts secured by security agreement

38(2)       Where a security agreement, as defined in The Personal Property Security Act, is held as security for one or more debts and money is paid by the debtor or is realized by the secured party under the terms of the security agreement, the money shall be applied immediately to the debts secured by the security agreement, subject to any direction the debtor has given in the exercise of a right under the security agreement respecting the application of such money, and the secured party shall immediately notify the debtor of the debts to which the money has been applied.


Agreement contrary to section is void

38(3)       Any agreement, stipulation or covenant contrary to this section is void.

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