It is provided in Ontario by rule 410 that under an order of reference the master may take the account with rests or otherwise (w).

Taking an account with rests means either that the accounting party is charged with compound interest on the amount with which he is chargeable or that the surplus of the amount with which he is chargeable remaining after satisfaction of the interest due to him is applied in reduction of the principal. The amalgamation of principal and interest, or the application of money with which the accounting party is chargeable to reduction of principal, as the case may be, may take place yearly or at any periods more or less frequent, and these periods are called "rests."

(s) Marshall v. Cave, 1825, 3 L.J. Ch. 57; Moore v. Painter, 1842, 6 Jur. 903.

(t) Hanson v. Derby, 1700, 2 Vera. 392, 9 R.C. 508; Taylor v. Mostyn, 1886, 33 Ch.D. 226.

(u) Brethour v. Brooke, 1893, 23 O.R. 658, 21 O.A.R. 144; Millett v. Davey, 1862, 31 Beav. 470.

(v) Chisholm v. Sheldon, 1850, 1 Gr. 318.

(w) As to the proceedings on a reference to take accounts, see chapter 27, Accounting between Mortgagor and Mortgagee, Sec. 292. As to rule 410, see Sec. 293.

The usual practice is not to take an account with rests as against a mortgagee in possession if there was interest in ar-rear when he took possession (x), or if it was necessary in the particular circumstances for him to take possession for his own protection (y). In neither case does the taking of possession show an intention on the mortgagee's part to accept payment of his principal "by driblets," and he is not obliged to accept payment in that way, whereas if he takes possession when no interest is in arrear and no special circumstances exist which make it necessary for him to protect himself by taking possession, he manifests an intention to accept payments on account of principal.

If a mortgagee goes into possession when there is interest in arrear, so that he is not liable to account with rests, he does not become so liable when the arrears of interest are paid off or till after the whole of the mortgage debt has been satisfied, but from the time when it is ascertained that the mortgage debt has been satisfied the accounts will be taken with rests (z).

Where the account is taken with rests the rule is that, in the absence of any express appropriation of payments to principal money, the interest is to be computed upon the principal money down to the time of payment, which payment is to be applied first in satisfaction of overdue interest, costs, charges and expenses, then in payment of overdue principal, and then in payment of the principal which has not yet fallen due, then a rest is made and from that time forth interest is to be charged upon the principal so reduced as aforesaid. The court may in its discretion direct the rest to be made immediately upon the receipt of the payment, or it may direct it to be made annually, semi-annually or otherwise. The former course might be adopted where the payments are few in number and large in amount, and the latter course where the payments are numerous but individually small in amount (a). More usually the account is directed to be taken with yearly or half-yearly rests (b).

(x) Nelson v. Booth, 1857, 3 DeG. & J. 119, at p. 122.

(y) Gordon v. Eakins, 1869, 16 Gr. 363, at p. 366.

(z) Wilson v. Cluer, 1840, 3 Beav. 136, at p. 140; Coldwell v. Hall, 1862, 9 Gr. 110, 7 U.C.L.J.O.S. 42, 8 U.C.L.J.O.S. 93; Crippen v. Ogilvie, 1869, 15 Gr. 568; Ashworth v. Lord, 1887, 36 Ch.D. 545. In Wilson v. Cluer it is suggested, however, that if after the mortgagee has been in possession there is a settled account by which it appears either that no interest remains overdue or that any interest which was due was satisfied as interest by being turned into principal, and the mortgagee continues in receipt of rents more than sufficient to satisfy the interest on the amalgamated principal and interest, the accounts must then be taken with rests.

The usual method of taking a mortgagee's account without rests is thus described by Jessel, M.R. (c):

"In taking the account you take all the mortgagee's receipts and place them on one side of the account: that is to say, you take all his receipts, whether they arise from the rents, or whether they arise from accidental payments, so to speak, such as fines or heriots; whatever the mortgagee has received from the mortgaged property is charged against him. Then, on the other side of the account you give him credit for his principal and all his. interest. The result is that if the rents are more than the interest he keeps the rents without paying interest on the excess; if less, the mortgagor does not pay interest on the unpaid balance of interest. It is an accident in whose favour the account so taken may happen to be, but this is the mode of taking the account. Therefore it is not true to say that the rents are appropriated for the interest, for all the rents and receipts go in reduction of the principal and interest."

(a) Birmington v. Harwood, 1825, Turn. & R. 477.

(b) Cf. 21 Halsbury, Laws of England, p. 220, note (s). As to the form of judgment directing accounts to be taken with rests, see Cotham v. West, 1839, 1 Beav. 380; Ash worth v. Lord, 1887, 36 Ch.D. 545, at p. 552. As to the mode of calculating interest where payments are made from time to time on account, see chapter 29, Interest, Sec. 315.

(c) Union Bank of London v. Ingram, 1880, 16 Ch.D. 53, at p. 56,

If a mortgagee in possession sells a part of the mortgaged property and the judgment directs an ordinary account, the ordinary course of practice is as follows: The account of what is owing to the mortgagee is treated as separate from the account of rents and profits. Money received from the exercise of the power of sale is credited to the mortgagor under the former account, but unless rests have been directed in the judgment the account of rents and profits goes on without rests, that is to say, the account of rents and profits runs on from beginning to end without reference to the question whether the mortgagee has at any particular time in his hands more than sufficient to pay the interest or not (d).

(d) Ainsworth v. Wilding, [1905] 1 Ch. 435, following Wrigley v. Gill, [1905] 1 Ch. 241, affirmed, [1906] 1 Ch. 165, and explaining Thompson v. Hudson, 1870, L.R. 10 Eq. 497.