A borrower defaulted seven months into a five-year loan and ended up owing more than it had borrowed. In Redback Tours Inc. v. Canadian Equipment Finance & Leasing Inc., 2026 ONCA 555, released July 30, 2026, the Court of Appeal held that the lender’s acceleration clause reached unaccrued future interest, and that s. 17 of the Mortgages Act offers no relief for a default during the term. The reasoning turns almost entirely on a definition, which makes it a case for the drafting desk.

The loan and the vanishing bus

On January 22, 2024, CEFL loaned Redback Tours $559,250 to finance the purchase of a bus, on a five-year term at 15.25% annual interest. Redback’s directors, Paul and Angela Ferris, personally guaranteed the loan, which was secured by a $25,000 security deposit, a security interest in the bus, and a collateral mortgage on the Ferrises’ residence. If the bus were sold, Redback had to notify CEFL and remit the proceeds within ten days.

Redback defaulted. On August 22, 2024, CEFL sent default notices and demanded $672,417.20 under the acceleration clause — every remaining payment, including interest that had not yet accrued. That was roughly $113,000 more than the original principal, seven months in.

Enforcement then went sideways. CEFL could not locate the bus. Asked at his home where it was, Mr. Ferris said the search would be a “wild goose chase” and that CEFL would never find it. A Canada-wide vehicle database search eventually revealed that Redback had quietly sold the bus to a third party in Alberta for $500,000, in breach of the agreement. Redback remitted the proceeds on September 17, 2024, after pressure from the purchaser. That covered principal and accrued interest, but not future interest, and the parties brought competing applications to determine what was owed.

“Indebtedness” carried the acceleration clause

Redback argued that, read as a whole, the acceleration clause permitted acceleration of principal only. Wilson J.A. disagreed, and did so on the text (para. 18). The clause allowed the lender to “declare all or any part of Indebtedness which is not by its terms payable on demand to be immediately due and payable” upon default. “Indebtedness” was a defined term meaning “any and all obligations, indebtedness and liability of the Borrower to the Lender (including interest thereon) present or future, direct or indirect, absolute or contingent, matured or not, extended or renewed, incurred under, this [agreement]”. In the court’s words, that language was “as clear as can be”: it captures principal, matured or not, and interest, present or future. Nothing elsewhere in the agreement contradicted it.

Section 17 does not rescue an in-term default

The second ground drew the most attention at the hearing, and it produced a split result. The appellants won a point of principle: the application judge had held that the Mortgages Act did not apply because a commercial loan secured by a collateral mortgage was not a “mortgage”. That was wrong. The Act applies to collateral and conventional mortgages alike, consistent with 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 699, at para. 36 (para. 21).

They nonetheless lost the ground. Section 17 permits a mortgagor who has defaulted in payment of principal to pay it out on three months’ notice, or three months’ interest in lieu, and thereafter owe no further interest. The court held that it applies only to default in payment of principal due at maturity (paras. 24, 30–33). Three strands support that reading. The text speaks of default “in the payment of any principal money”, in contrast with ss. 22–23, which refer to default in principal or interest. The provision codifies an equitable rule that arose only after the contractual maturity date. And s. 18, which grants a pre-maturity redemption right after five years, would be meaningless if a borrower could reach the same result by defaulting (para. 32).

One paragraph deserves a flag. At para. 34, the court expressly limited the decision to s. 17 and expressed no opinion on whether any other common law, equitable or statutory right might reduce an obligation to pay future interest. That argument was not made, and remains available.

Enforcement costs and a broker fee

The third ground failed briefly. Enforcement costs of $32,701.96 were upheld as a deference-owed assessment, “particularly in light of the ‘wild goose chase’” the lender had been sent on (para. 37). A “WiseCap Broker Fee” of $12,571.25 — paid by CEFL to the broker who facilitated the loan — fell within s. 12(g) of the loan agreement, which allowed recovery of “all costs, charges and expenses reasonably incurred … whether directly or for services rendered … in operating the Borrower’s accounts [and] in preparing, administering or enforcing” the agreement (para. 38). The appeal was dismissed with $25,000 in costs.

Drafting takeaways

• For lenders, the result traces to a single definition. If the intention is to capture unaccrued interest on acceleration, make the definition of the accelerated obligation say so, and check that no operative clause narrows it.
• For borrowers, negotiate the definition rather than the acceleration clause. Carve unaccrued interest out of the accelerated amount, secure an open prepayment right, or cap post-default interest at a stated number of months.
• Understand what the collateral mortgage secures. Here the family residence stood behind a five-year interest stream, not merely the principal outstanding at default.
• Broad expense-recovery language works. A clause covering costs “for services rendered” in “preparing, administering or enforcing” the agreement captured a fee the lender paid a third party to originate the loan. Borrower’s counsel should enumerate or cap recoverable costs.
• Client conduct shapes the discretionary edges. Concealing and selling the collateral did not change the contractual analysis, but it framed the assessment of reasonable costs.

The short version

Acceleration clauses are read for what they say. Where “Indebtedness” is defined to include future interest, acceleration means the whole interest stream, and a borrower in default during the term cannot look to s. 17 to cap the damage. The place to fix that is the definitions section, before the loan closes.