Does a mortgagee have an equitable mortgage?

The motion judge rejected this argument. In reaching this conclusion, the motion judge relied on the decision of this court in Tessis v. Scherer (1982), 32 O.R. (2d) 149, leave to appeal to S.C.C. refused, [1982] 2 S.C.R. xi. In that case, a mortgagee sought to enforce a mortgage that had been made in violation of the Planning Act; the mortgagor owned abutting parcels of land at the time of the mortgage. This court concluded that the mortgage conveyed no interest as a result of this breach. It does not appear that an argument was made about whether the loan agreement between the parties created an equitable mortgage.

That issue was raised specifically in the related matter before Sutherland J. in Scherer v. Price Waterhouse, [1985] O.J. No. 881 (H.C.J.). In his decision, Sutherland J. carefully reviewed the law on equitable mortgages and concluded that an equitable mortgage had not arisen on the facts of that case. At para. 22, he wrote: The highest interest in the land that can have been conferred on Tessis by the loan agreement is the right to an equitable mortgage after the required planning consent had been obtained. In no true sense of the term can Tessis be said to have had an equitable mortgage before that consent was obtained. This is not a case of a want of formalities in the mortgage document or a case of the refusal by the borrower to execute a mortgage. Although there undoubtedly was a mistake the usual equitable remedies are not available if to purport to make them available would be to contravene the statute. No equitable mortgage arises upon the entry into the loan agreement. To put the matter another way, in the absence of the required consent the loan agreement does not create an equitable mortgage any more than a legal mortgage document, correct in all its documentary formalities, creates a legal mortgage. At the material times, Tessis was not an equitable mortgagee.