A stipulation in a mortgage that the rate of interest shall be increased if interest at the normal rate is not punctually paid is regarded as a penalty against which equity will grant relief, but a stipulation for interest at a given rate with a provision that a lower rate than the rate reserved will be accepted if paid punctually is good, and the higher rate is recoverable after default (k).

In Ontario in the case of mortgages made prior to the first day of July, 1880, a stipulation for an increased rate of interest after default in payment of principal, has been held to be enforceable. Thus, where a mortgage stipulated that up to a certain day the interest should be eight per centum, and that if the principal were not then paid twelve per centum should be charged thereafter, it was held that the stipulation for payment of twelve per centum was not by way of penalty, but an agreement to pay that rate from the day named (I). Where a mortgage to secure the repayment of money with interest at ten per centum provided that should default be made in payment of the principal money or interest, or any part thereof respectively, then the amount so overdue and unpaid should bear interest at the rate of twenty per cent, per annum until paid, it was held that the proviso was not invalid or to be relieved against (w).

(j) R.S.O. 1914, c. 126, s. 31.

(k) Nicholls v. Maynard, 1747, 3 Atk. 519, 18 R.C. 141; Walling-ford v. Mutual Society, 1880, 5 App. Cas. 685, at p. 702; Union Bank of London v. Ingram, 1880, 16 Ch.D. 53; Cockburn v. Edwards, 1881, 18 Ch.D. 449; In re Moss, Levy v. Sewell, 1885, 31 Ch.D. 90; Bright v. Campbell, 1889, 41 Ch.D. 388; Salt v. Marquess of Northampton, [1892] A.C. 1, at p. 19. See also an article by A. C. Meredith in 32 L.Q.R. 420 (October, 1916).

(l) Waddell v. McColl, 1868, 14 Gr. 211.

In the case of mortgages created after the 1st day of July, 1880, it is now provided by the Interest Act, R.S.C. 1906, c. 120, s. 8, as follows:

8. No fine or penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage of real estate, which has the effect of increasing the charge on any such arrears beyond the rate of interest payable on principal money not in arrear; provided that nothing in this section contained shall have the effect of prohibiting a contract for the payment of interest on arrears of interest or principal at any rate not greater than the rate payable on principal money not in arrear (n).

It is also provided in Ontario by the Mortgages Act, R.S.O. 1914, c. 112, s. 18, as follows (o):

18.- (1) Where in a mortgage falling due after the 20th day of April, 1907, provision is made that if interest is paid promptly it will be accepted at a lower rate than that provided in such mortgage, and interest at such lower rate has been paid according to such condition up to the time when all the principal money has become payable, any person liable to pay or entitled to redeem shall be entitled to pay the principal money and interest on the same at such lower rate at any time after the time for payment of the principal money on giving three months' notice of his intention to make such payment or on paying three months' interest at such lower rate in lieu of notice.

(2) If the mortgagor, or person entitled to make such payment, fails to make the same at the time mentioned in such notice, he shall thereafter be entitled to make such payment only on paying the principal and interest at the lower rate to the date of payment, together with three months' interest in advance.

(m) Downey v. Parnell, 1882, 2 O.R. 82.

(n) As to-recovery back of excess interest paid, see s. 9 of the same statute, quoted supra in Sec. 312.

(o) As to the power of a provincial legislature to legislate on this subject, see Sec. 318, infra.

A new bargain may, however, be made that an increased rate of interest shall be payable in consideration of forebear-ance or the like (p). A bargain for extra interest made between a derivative mortgagee and the original mortgagor inures to the benefit of the original mortgagee (q). In one case a written promise by a mortgagor made after default to allow more than 6%, the rate reserved by the mortgage, was held binding, although there did not appear by the writing to have been any consideration of forebearance or otherwise for the promise (r). But a parol agreement to add 2% to the rate of interest reserved by a mortgage in consideration of an extension of the time for payment was held to be insufficient to charge the extra interest upon the land as against a subsequent purchaser of the equity of redemption (s). A parol agreement to pay a higher rate of interest than that reserved in the mortgage is ineffectual to charge the lands as against a devisee or heir of the mortgagor (t).