The assignor of a mortgage is liable to the assignee on a covenant that the mortgage is a valid and subsisting security, if before the assignment the lands have been sold for taxes (s). A covenant by the assignor that the mortgage is a good and valid security means, not that the mortgage is a sufficient security for the debt, but only that it is a mortgage valid in law (t). Upon a similar covenant it has been held that the assignor is not liable to the assignee for the costs of an unsuccessful action to enforce the security (u).

(q) Stoddart v. Union Trust Limited, [1912] 1 K.B. 181, at pp. 189, 190, 193. This was a case of an assignment of a chose in action arising out of contract. The defendants failed as against the assignee because they did not ask to have the contract set aside, but on the contrary, they had affirmed it and were seeking to set-off against the assignee's claim the damages for fraud which they were entitled to as against the assignor.

(r) Patterson v. McLean, 1891, 21 O.R. 221.

(s) Real Estate Investment Co. v. Metropolitan Building Society, 1883, 3 O.R. 476.

(t) Agricultural Savings and Loan Co. v. Webb, 1907, 15 O.L.R. 213.

(u) Sturgess v. Bitner, 1861, 11 U.C.C.P. 102.

If the assignor covenants with the assignee to pay the mortgage moneys in the event of default being made by the mortgagor, the assignor becomes a surety and he will be discharged from his liability on the covenant if the assignee, without reserving his rights against the assignor or without his consent, materially alters the terms of the mortgagor's liability, as, for example, by releasing part of the lands on payment of part of the debt (v) or by making a binding agreement to give time to the mortgagor; and it has been held that if an agreement for extension, made without the assignor's consent, is a material alteration of the original contract, as for example, if it contains a stipulation for an increased rate of interest, the surety is discharged notwithstanding the reservation of his rights (w).

But if the assignee takes a new mortgage for the same debt on the same land from a purchaser thereof from the mortgagor, with an extended time for payment, the assignee refusing at the same time to discharge the old mortgage, the assignor will not be discharged (x).

Where a mortgagee assigned the mortgage, covenanting for the payment of the mortgage money, and subject to an agreement between the mortgagee and the assignee that the former might have a re-assignment of the mortgage on payment of the principal and interest due thereon, and the mortgagee afterwards made payments under his covenant, it was held that he was entitled to a lien therefor as against the mortgagor (y).

An assignment of a mortgage by way of mortgage, called a sub-mortgage or a derivative mortgage, may be made by a formal assignment of the mortgage subject to redemption, or by a deposit of the mortgage and other title deeds in which case it will be an equitable sub-mortgage (z). Under a submortgage nothing can be recovered from the original mortgagor in excess of the amount due on the mortgage, and on payment of that amount the sub-mortgagee must deliver up the mortgage to the original mortgagor (a).

(v) Farmers' Loan and Savings Co. v. Patchett, 1904, 6 O.L.R. 255, affirmed 8 O.L.R. 569.

(w) Bristol & West of England Land Co. v. Taylor, 1893, 24 O.R. 286; Trusts Corporation of Ontario v: Hood, 1896, 23 O.A.R. 589.

(x) Trusts Corporation of Ontario v. Hood, supra.

(y) Fleming v. Palmer, 1866, 12 Gr. 226.

Where a derivative mortgagee, by representing himself to be the owner of the mortgage, obtained a release of the equity of redemption which he afterwards sold for more than was due him from his assignor, it was held that he was bound to account to the assignor for the profit (b).

If a sub-mortgage contains no covenant for payment an action cannot be maintained by the assignee against the assignor unless there is evidence of a loan. Thus where a mortgagee in consideration of $5.30, acknowledged to be paid, assigned to the plaintiff a mortgage for $360 with a proviso that the assignment should be void on payment of the $530 and interest, but the assignor did not covenant to pay, it was held that no action could be maintained for the mortgage debt (c).