Sec. 201. Merger at law and in equity, p. 338.

Sec. 202. Intention expressly declared, p. 341.

Sec. 203. Intention gathered from circumstances of transaction, p. 342. Sec. 204. Intention presumed from consideration of benefit, p. 343. Sec. 205. Purchase with notice of subsequent charges, p. 346.

Sec. 201. Merger at law and in equity

If a mortgage on land and the ownership of the land subject to the mortgage became united in the same person, the mortgage was at law merged in the ownership and the mortgage was extinguished, either by analogy to the merger of a less estate in a greater or because a man cannot be his own debtor. In equity, however, merger did not necessarily follow upon the union of the two interests, and the equitable rule now prevails by reason of the provision of the Judicature Act that in case of conflict or variance between the rules of equity and the rules of law the rules of equity shall prevail (a).

It is also specifically provided in Ontario by the Conveyancing and Law of Property Act, R.S.O. 1914, c. 109, s. 36, as follows (b):

(a) Cf. 21 Halsbury, Laws of England, 318; R.S.O. 1914, c. 56, s. 22 (as to which, see chapter 4, Law and Equity in Upper Canada, Sec. 35).

(b) The provision in question was formerly contained in the Judicature Act, R.S.O. 1897, c. 51, s. 58 (3), re-enacting 44 V. c. 5, s. 17 (4), which in this respect was copied from the English Judicature Acts. The same equitable rule that merger is a question of intention applies both to the merger of estates and to the merger of charges. Cf. 13 Halsbury, Laws of England, 146; Capital and counties Bank v. Rhodes, [1903] 1 Ch. 631.

36. There shall not be any merger by operation of law only of any estate, the beneficial interest in which, prior to The Ontario Judicature Act, 1881, would not have been deemed merged or extinguished in equity.

If the owner of land pays off a charge which he is personally liable to pay, he is not permitted, even by express declaration, to keep the charge alive so as to set it up against subsequent encumbrancers to whom he is liable (c), but, with this exception, merger in equity is a question of intention on the part of the person in whom the two interests unite (d).

In Forbes v. Moffatt (e) Grant, M.R., said:

"It is very clear, that a person, becoming entitled to an estate, subject to a charge for his own benefit, may, if he chooses, at once take the estate, and keep up the charge. Upon this subject a Court of Equity is not guided by the rules of law. It will sometimes hold a charge extinguished, where it would subsist at law; and sometimes preserve it, where at law it would be merged. The question is upon the intention, actual or presumed, of the person, in whom the interests are united. In most instances it is, with reference to the party himself, of no sort of use to have a charge on his own estate; and, where that is the case, it will be held to sink, unless something shall have been done by him to keep it on foot."

In North of Scotland Mortgage Co. v. Udell (f) Hagarty, C.J. said:

(c) 21 Halsbury, Laws of England, 324, 318; 13 Halsbury, op. cit., 146-148; Otter v. Lord Vaux, 1856, 6 DeG. M. & G. 638, at p. 642; Platt v. Mendel, 1884, 27 Ch.D. 246, at p. 251; Blake v. Beaty, 1855, 5 Gr. 359. For a discussion of the rule stated in the text, for which Otter v. Lord Vaux is the chief authority, see Manks v. White-ley, [1912] 1 Ch. 735, at pp. 755, 758, 759; s.c. reversed, on other grounds, sub nam. Whiteley v. Delaney, [1914] A.C. 132.

(d) Thorne v. Cann, [1895] A. C. 11, at pp. 18, 19, 18 R.C. 552, at p. 559; Donisthorpe v. Porter, 1762, 2 Eden 162.

(e) 1811, 18 Ves. 384, at p. 390, 17 R.C. 380, at p. 384. In this case the actual intention not being established from the declaration or acts of the party, the intention against merger was inferred from the consideration that it would be for the benefit of the owner of the charge that merger should not take place. See Sec. 204.

(f) 1882, 46 U.C.R. 511. See also North of Scotland Mortgage Co. v. German, 1880, 31 U.C.C.P. 349; British and Canadian Loan and Investment Co. v. Williams, 1888, 15 O.R. 366.

"From all the authorities I gather that in the simple case of the mortgagee taking a conveyance of the equity of redemption, the ordinary presumption is, that the charge, as against the mortgagor, is merged or incapable of being enforced, at least so as to call for evidence to show a contrary intent or result.

Romilly, M.R. in Tyrwhitt v. Tyrwhitt (g) said:

"The rule is this: prima facie the charge merges in the inheritance, but the presumption may be rebutted if it be shown that the intention of the owner of the charge was that it should not merge. Three tests are usually applied for the purpose of ascertaining whether the owner of the charge intended that it should merge in the inheritance at the time when he became entitled to the absolute interest of the charge. First, any actual expression of that intention; secondly, when the form and character of the acts done are only consistent with the keeping the charge on foot; and thirdly, such an intention may be presumed, when though a total silence in all other respects pervades the matter, it appears that it is for the interest of the owner of the charge that it should not merge in the inheritance."

The presumption in favour of merger does not arise unless the absolute interest in the charge and in the estate subject to the charge unite in the same person during his life . Thus, no presumption arises where the estate in fee of the person entitled to the charge is subject to limitations which only become capable of taking effect by his death, or where the owner of the estate charged has during his life merely a reversionary interest in the charge (h).

If a stranger pays off a mortgage on an estate there is no presumption of merger. Presumably he does not intend to discharge the mortgage but intends to keep it alive for his own benefit (i). "Where a third party, at the request of a mortgagor, pays off a first mortgage, with a view of himself becoming a first mortgagee of the property, he becomes, in default of evidence of intention to the contrary, entitled in equity to stand, as against the property, in the shoes of the first mortgagee" (j).

(g) 1863, 32 Beav. 244, at p. 249; cf. Thome v. Cann, [1895] A. C. 11, at pp. 18, 19; 18 R.C. 552, at p. 559.

(h) Wyndham v. Lord Egremont, 1775, Ambl. 753; Wilkes v. Collin, 1869, L.R. 8 Eq. 338. As to the presumption against merger in the case of the payment of a mortgage by the tenant for life, see Sec. 204.

(i) Butler v. Rice, [1910] 2 Ch. 277, at p. 282; Chetwynd v. Allen, [1899] 1 Ch. 356.