It is provided by the Mortgages Act, R.S.O. 1914, c. 112, s. 6, as follows:

6.- (1) All money payable to a mortgagor on an insurance of the mortgaged property, including effects, whether affixed to the freehold or not, being or forming part thereof, shall, if the mortgagee so requires, be applied by the mortgagor in making good the loss or damage in respect of which the money is received.

(q) North British and Mercantile Insurance Co. v. London, Liverpool and Globe Insurance Co., 1877, 5 Ch.D. 569 at pp. 583, 584, Mellish, L.J.

(2) Without prejudice to any obligation to the contrary imposed by law or by special contract a mortgagee may require that all money received on an insurance of the mortgaged property be applied in or towards the discharge of the money due under his mortgage.

This section was originally passed in 1886 (r), and was based on the English Conveyancing Act, 1881 (s).

Sub-s. 1 is practically declaratory of the mortgagee's right under the English statute, 14 Gr. 3, c. 78, now cited as the Fires Prevention (Metropolis) Act, 1774 (t), s. 83, formerly in force in Ontario (u). It gives the mortgagee the right, where insurance is effected by the mortgagor, even where there is no covenant on the part of the mortgagor to insure, or a covenant to insure merely but not to assign the policy, to require the money to be applied in making good the loss or damage (v).

Sub-s. 2 confers on the mortgagee a new right, namely, the right to "require that all money received on an insurance of the mortgaged property be applied in or towards the discharge of the money due under his mortgage." The words " without prejudice to any obligation to the contrary imposed by law" have probably lost their significance since the statute 14 G. 3, c 78, s. 83, ceased to be in force. The words "special contract" mean a special contract relating to the insurance (w). The sub-section presumably refers to insurance money received by the mortgagor, for no statutory provision was needed as to money received by the mortgagee (x).

(r) 49 V. c. 20.

(s) 44 & 45 Vict., c. 41. The clause in the English statute is found in connection with various special provisions as to the mortgagee's power to insure, which were substituted for Lord Cran-worth's Act (1860), 23 & 24 V. c. 145. See Sec. 372, supra.

(t) See In re Quicke's Trusts, Poltimore v. Quicke, [1908] 1 Ch. 887; Sinnott v. Bowden, [1912] 2 Ch. 414.

(u) This statute, commonly referred to as the Metropolitan Building Act, was held to be in force in Ontario. Stinson v. Pen-nock, 1868, 14 Gr. 604; Carr v. Fire Assurance Association, 1887, 14 O.R. 487. By the Ontario Insurance Act, 1887, 50 V. c. 26, s. 154, it was provided that the statute should not "be deemed to be in force with regard to property in this Province."

(v) Edmonds v. Hamilton Provident and Loan Society, 1891, 18-O.A.R. 347, at pp. 354-355.

The mortgagee is not at liberty without the consent of the mortgagor to accelerate the times of payment under the mortgage by applying the insurance money in payment of instalments of principal or interest not yet due, but he may apply it in payment of overdue instalments (y). On the other hand, subject to a provision in the mortgage to the contrary, he still has the right, which he had before the passing of the statute, to hold the money as he held the policy, as collateral or additional security for the mortgage debt, and he is not bound to apply it towards payment of either principal or interest overdue (z).

"Now the Act does not profess to interfere with any right the mortgagee had theretofore possessed to deal with, the proceeds of the policy when the mortgage money was overdue. He was not compelled to apply it at all, or if he did apply it he might apply it in such a way as to preserve the full benefit of his contract. The new right or option which is given to him must, I think, be considered as one controlling any right which the mortgagor might otherwise have had to direct the disposition of the insurance received by or paid into the hands of the mortgagee before the mortgage debt becomes due. In effect the option given by the section is either to have the money applied in rebuilding or to have it at once applied in reducing the debt secured by the mortgage. If the latter option is not exercised the money remains in the mortgagee's hands (in those cases in which he has had, apart from the statute, the right to receive it) as it would have done before the

(w) 18 O.A.R. at p. 355.

(x) 18 O.A.R. at p. 368.

(y) Corham v. Kingston, 1889, 17 O.R. 432.

(z) Edmonds v. Hamilton Provident and Loan Society, 1891, 18 O.A.R. 347, reversing the judgment of the Queen's Bench Division on this point, 19 O.R. 677, and disapproving of Corham v. Kingston, 1889, 17 O.R. 432, in so far as it may be supposed to have decided that the mortgagee was bound to apply the insurance money on principal and interest as they matured.

Act, and subject to whatever rights or interests the parties by law respectively had therein, and inter alia to the right of the mortgagee to make such application of it as he might deem proper to the payment either of principal or of interest, or of both, overdue, or to make no application of it if he should, deem it more advisable for the security of his contract not to adopt that course, but to require the mortgagor to make his payments in accordance with his covenants." (a)

If the mortgagee receives the insurance money before the time appointed for payment of the money secured by the mortgage he is entitled, nevertheless, to the interest without abatement (b).

"He may keep the insurance money by him, and sue for arrears, or distrain for them, if he has that power, or he may at his option apply the whole or part of the insurance money to the arrears. It is part of his security, and whenever there is default he may resort to it, or he may resort to his personal or other remedies. Of course as soon as the debt is reduced to an equality with the insurance money in his hands he must apply the latter pro tanto from time to time to subsequently maturing payments. It hardly needs to be added that a mortgagee retaining insurance money in his hands as security for future payments is accountable for any profit he makes with it, and that he ought not to leave it lying idle, but ought, if possible, to concur with the mortgagor in some profitable way of laying it out." (c)

In view of the definition of '"mortgage" in the Mortgages Act as including "any charge on any property for securing money or money's worth" (d), it has been held that s. 6 of the statute is applicable to the case of insurance effected by a purchaser of land with loss, if any, payable to the vendors. Therefore, when the buildings on the land are destroyed by fire, the vendors are entitled to the security of the insurance money, just as before the fire they were entitled to the security of the buildings, but they are not entitled to apply the insurance money in payment of instalments of the purchase money not yet due (e).

(a) Edmonds v. Hamilton Provident and Loan Society, 1891, 18 O.A.R. 347, at p. 357, Osier, J.A.

(b) 18 O.A.R. at p. 356; Austin v. Story, 1863, 10 Gr. 306.

(c) 18 O.A.R. at p. 367, Maclennan, J.A.

(d) R.S.O. 1914, c. 112, s. 2. See chapter 1, Introductory, Sec. 4, note (p).

Mortgaged property was insured in the name of the mortgagor with loss payable firstly to the first mortgagee and secondly to the second mortgagee as their interests might appear. The first mortgagee having received insurance money applied it on the first mortgage and subsequently sold the property under power of sale. It was held that the insurance money was properly applied, the effect being to reduce the first mortgage for the benefit of execution creditors intermediate between the two mortgages, and that there was no case for marshalling of two funds as between the two mortgagees (f).

Under a contract with the owner of a mill and machinery which was subject to three mortgages (the second and third in favour of the same mortgagees), each containing a covenant to insure, the plaintiffs took out the machinery, replacing it with new machinery, reserving a lien thereon for the balance of the price, the lien agreement providing that the mill-owner should insure the machinery for the plaintiffs' benefit. Before any further insurance was effected the mill and machinery were destroyed by fire. It was held upon the evidence, that the second mortgagees had consented to the purchase of the new machinery upon the terms specified, and, as a result of that finding, that the plaintiffs were entitled, subject to the first mortgagee's claim, to payment of the insurance money on the machinery and to be subrogated to the first mortgagee's rights against the land to the extent to which that insurance money was exhausted by him (g).

(e) Scott v. Crinnian, 1918, 43 O.L.R. 430, 44 D.L.R. 20. (f) Midland Loan and Savings Co. v. Genitti, 1916, 36 O.L.R. 163, 30 D.L.R. 52.

(g) Goldie v. Bank of Hamilton, 1900, 27 O.A.R. 619.