Ontario court upholds lender’s interest rights

The Ontario Court of Appeal ruled that commercial lenders may accelerate unaccrued future interest on defaulted loans, rejecting a borrower’s attempt to use protections under the province’s Mortgages Act.

The July 30, 2026 decision dismissed an appeal by an Ontario bus charter company and ordered the borrower to pay $25,000 in appeal costs to Canadian Equipment Finance & Leasing (CEFL).

Loan terms and default

In January 2024, CEFL loaned the company $559,250 to buy a bus. The five-year loan carried a 15.25% annual interest rate. Two directors personally guaranteed the debt, which was secured by a $25,000 deposit, a security interest in the bus, and a collateral mortgage on the directors’ home.

After default, CEFL sent notices on August 22, 2024, demanding $672,417.20—the full principal plus all unaccrued future interest under the loan’s acceleration clause. The borrower argued the contract did not permit acceleration of future interest and that Ontario’s Mortgages Act blocked the claim.

A director told the lender the search for the bus would be a “wild goose chase.” The bus was later found in Alberta, where the borrower had sold it for $500,000 without permission. Under pressure from the buyer, the borrower sent the sale proceeds in September 2024, covering the outstanding principal and accrued interest but not the future interest CEFL had already accelerated.

Court upholds lender’s position

A Superior Court judge ruled against the borrower in September 2025, ordering payment of the future interest, $32,701.96 in enforcement costs, and a $12,571.25 broker fee. The Court of Appeal, in a unanimous decision by Justice D.A. Wilson, affirmed the ruling.

Wilson determined the acceleration clause permitted CEFL to demand future interest. The loan agreement defined “indebtedness” as “any and all obligations, indebtedness and liability of the Borrower to the Lender (including interest thereon) present or future.” That language, she wrote, allowed no ambiguity.

The Mortgages Act argument faced closer scrutiny. The court agreed the Act covers both collateral and conventional mortgages but ruled that Section 17—allowing borrowers to pay out a mortgage with three months’ notice or interest—applies only to post-maturity defaults. It does not protect those who default mid-loan.

Wilson noted that applying Section 17 mid-term would let a borrower shorten the statutory five-year timeline in Section 18 by defaulting. The court also deferred to the lower court on enforcement costs, citing the difficulties the lender faced, and upheld the broker fee as a reasonable expense under the agreement.

The decision highlights the need for clear contract language. A broadly defined “indebtedness” clause can include future interest, and borrowers cannot use statutory redemption rights to avoid mid-loan defaults.

The borrower has not signaled plans to seek leave to appeal to the Supreme Court of Canada.