Case Comment Volume 11:3

Attorney-General for Ontario v. Barfried Enterprises Limited, The

Table of Contents

The Attorney-General for Ontario v. Barfried

Enterprises Limited

Howard B. Shaffer*

I. Introduction

According to Section 91 sub-section 19 of the British North
America Act, the Parliament of Canada has exclusive legislative
authority in all matters coming within the field of Interest. Never-
theless, the legislatures of the Provinces of Ontario and Quebec, with
a view to protecting borrowers within their respective Provinces from
undue exploitation at the hands of lenders, have enacted measures
whereby the Courts may reduce, alter or annul obligations of debtors
to reimburse their creditors where, having regard to the risk and
circumstances, it is found that the “cost of the loan is excessive” and
the transaction is “harsh and unconscionable”.1 In view of Section
91 (19) of the B.N.A. Act, is the provincial legislation valid?

This problem came before the Supreme Court of Canada in the
recent case of Attorney-General for Ontario v. Barfried Enterprises
Limited 2 in respect of the validity of an Ontario statute, The Un-
conscionable Transactions Relief Act 3, the relevant provisions of
which are as follows:

1. In this Act,

(a)

(e)

‘cost of a loan’ means the whole cost to the debtor of money lent
and includes interest, discount, subscription, premium, dues, bonus,
commission, brokerage fees and charges…
‘money lent’ includes money advanced on account of any person
in any transaction that, what-ever its form may be, is substantially
one of money-lending or securing the repayment of money so advanced
and includes and has always included a mortgage within the meaning
of The Mortgages Act.

2. Where, in respect of money lent, the court finds that, having regard
to the risk and to all the circumstances, the cost of the loan is excessive
and that the transaction is harsh and unconscionable, the court may,

1 Ontario –

Of the Junior Board of Editors, McGill Law Journal; second year law student.
The Unconscionable Transactions Relief Act, R.S.O. 1960, c. 410.
Quebec – Bill 48 – An Act to protect borrowers against certain abuses and
lenders against certain privileges, 13 Elizabeth II, 1964.

2 [1963] S.C.R. 570.
3 Supra, note 1, ss. 1 and 2

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CASE AND COMMENT

(a) re-open the transaction and take an account between the creditor

and the debtor;

(b) notwithstanding any statement or settlement of account or any
agreement purporting to close previous dealings and create a new
obligation, re-open any account already taken and relieve the debtor
from payment of any sum in excess of the sum adjudged by the
court to be fairly due in respect of the principal and the cost of
the loan;

(c) order the creditor to repay any such excess if the same has been

paid or allowed on account by the debtor;

(d) set aside either wholly or in part or revise or alter any security
given or agreement made in respect of the money lent, and, if
the creditor has parted with the security, order him to indemnify
the debtor.

II. The Facts

In this case a mortgage was entered into between R. D. Sampson
as mortgagor and Barfried Enterprises Limited as mortgagee for a
face amount of $2,250 with interest at 7 percent annually. The sum
actually advanced by Barfried Enterprises to Sampson was $1,500
less a commission of $67.50. The difference between the $1,500 and
the face amount of $2,250 was made up of a bonus 4 and other charges.
Pursuant to an application under The Unconscionable Transactions
Relief Act, an Ontario County Court Judge set aside the mortgage in
part and revised it to provide for payment of a principal sum of
$1,500 with annual interest at 11 percent.

Barfried Enterprises appealed this ruling to the Ontario Court of
Appeal r where it raised the question of the constitutional validity of
the Ontario statute. The Court held unanimously that the Act was
ultra vires of the Legislature of the Province of Ontario on grounds
that it was legislation in relation to Interest, its essential purpose
being to afford a remedy to borrowers to have contracts of loan modi-
fied by having interest “in the broad sense of the term as compensation
for the loan”, reduced. It was therefore an infringement of the
exclusive authority given to Parliament in Section 91(19) of the
B.N.A. Act to legislate in relation to Interest. The Court also held
the Act ultra vires on the ground that it was in direct conflict with
Section 2 of the federal Interest Act 6 which provides that:

4 A bonus is an amount of money deducted from the principal sum before
it is advanced to the borrower who pays interest on the amount advanced plus
the bonus.

5 [1962] O.R. 1103.
6 Interest Act, R.S.C. 1952, c. 156.

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2. Except as otherwise provided by this or by any other Act of the
Parliament of Canada, any person may stipulate for, allow and exact,
on any contract or agreement whatsoever, any rate of
interest or
discount that is agreed upon.

On appeal before the Supreme Court of Canada, the Attorney-
General for Ontario, supported by the Attorney-General of Quebec
as Intervenant, contended that the Act was within provincial com-
petence on grounds that, first, it was legislation in relation to a
matter coming within the head of Property and Civil Rights in the
Province (s. 92(13) of the B.N.A. Act), the subject matter being
rescission and reformation of a contract of loan under the conditions
defined by the Act. Secondly, the Appellant argued that the Act of
the provincial legislature affected only incidentally, if at all, any
matter coming within the classes of subjects assigned to the exclusive
legislative authority of the Parliament of Canada; and that con-
sequently there was no conflict or repugnancy between the provisions
of the Act and any validly enacted federal legislation.

III. The Issue

The legal problem before the Supreme Court was well stated by

Mr. Justice Judson at page 577 of his judgment :

The issue in this appeal is to determine the true nature and character

of the Act in question and, in particular of s. 2 above quoted.

IV. The Judgment

The Supreme Court of Canada, with two dissenting opinions,
maintained the appeal and upheld the validity of the Ontario Un-
conscionable Transactions Relief Act. Mr. Justice Judson, with whom
Taschereau C.J., Fauteux and Hall J.J. concurred, accepted the conten-
tions of the Attorney-General for Ontario. The learned Judge stated
that in his opinion it was essential to Interest that it accrue de die
in diem, and since a bonus lacked this characteristic, it could not be
called Interest. His Lordship further stated :

In my opinion, it is not legislation in relation to interest but legislation
relating to annulment or reformation of contract on the grounds set out
in the Act…

Under the Ontario statute an exercise of judicial power necessarily
involves the nullity or setting aside of the contract and the substitution
of a new contractual obligation based upon what the Court deems
it
reasonable to write within the statutory limitations. Legislation such as
this should not be characterized as legislation in relation to interest. I
would hold that it was validly enacted, that no question of conflict arises. 7

7 [1963] S.C.R. 570 at 577 and 578.

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CASE AND COMMENT

Mr. Justice Cartwright, who agreed with the result reached by
Judson J., held the Ontario legislation intra vires of the Province
on grounds that it related to property and civil rights in the province
(s. 92(13) B.N.A. Act) and to the administration of justice in the
province (s. 92(14) B.N.A. Act). The learned Judge stated :

Its primary purpose and effect are to enlarge the equitable jurisdiction
to give relief against harsh and unconscionable bargains which the courts
have long exercised; it affects, but only incidentally, the subject matter of
Interest specified in head 19 of s. 91 of the British North America Act. s
In a dissenting judgment, Mr. Justice Martland, speaking for
himself and Mr. Justice Ritchie, held the Ontario Act to be beyond
the legislative competence of the Provincial Legislature. He pointed
out that :

Whether or not this contention (i.e. that the Act related to property
and civil rights in the province) could be maintained successfully, in the
absence of legislation by the Parliament of Canada
the same field,
it is unnecessary for me to consider, since I have reached the conclusion
that the provisions of the Act under consideration come
into conflict
directly with the provisions of s. 2 of the Interest Act, R.S.C. 1952, c.
156,
Martland J. concluded, according to jurisprudential authority,
that in a case of conflict between the enactments of the Canadian
Parliament and the legislature of one of the provinces, the Dominion
legislation, validly enacted, must prevail.

… 9

in

V. Jurisprudence

The general procedure adopted by the courts in resolving questions
concerning the distribution of legislative authority between the
Dominion and Provincial Legislatures under ss. 91 and 92 of the
B.N.A. Act, was enunciated by the Privy Council in Citizens In-
surance Company v. Parsons 10 and in Russell v. The Queen.” Lord
Haldane stated it succinctly in Toronto Electric Commissioners v.
Snider: 12

When there is a question as to which legislative authority has the power
to pass an Act, the first question must therefore be whether the subject
falls within s. 92. Even if it does, the further question must be answered,
whether it falls also under an enumerated head in s. 91. If so, the Dominion
has the paramount power of legislating in relation to it.
The classes of subjects distributed under the enumerated heads
of ss. 91 and 92 of the B.N.A. Act are not mutually exclusive.

8 [1963] S.C.R. 570 at 579.
9 [1963] S.C.R. 570 at 582.
10 (1881) 7 A.C. 96.
11 (1882) 7 A.C. 829.
12 [1925] A.C. 396 at 406.

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Some overlapping is inevitable, for example, the subject “marriage
and divorce” (s. 91(26) ) is among the exclusive heads of federal
power, yet “solemnization of marriage in the province” (s. 92 (12) )
is listed and recognized to be among the exclusive heads of provincial
legislative jurisdiction. In the case under consideration the over-
lapping, if any, appears to be between s. 91 (19), which gives the
Dominion Parliament exclusive authority to legislate in relation to
Interest, and s. 92(13), which gives the provincial legislatures exclu-
sive jurisdiction over property and civil rights in the province –
including, it would seem, the power to legislate as to the conditions
of annulment, alteration, or reformation of contracts of loan.

In such cases established authorities direct the court to examine
the legislation in question and to reach a conclusion as to what head
of either s. 91 or s. 92 it really falls under in “pith and substance”.1 3
As Viscount Caldecote L. C. stated in Lethbridge Northern Irrigation
District v. Independent Order of Foresters : 14

… an inquiry must first be made as to the ‘true nature and character
of the enactments in question’ (Citizens Insurance Co. v. Parsons (15)), or
to use Lord Watson’s words in delivering the judgment of the Judicial
Committee in Union Colliery v. Bryden (16), as to their ‘pith and substance’.
The problem then is to determine the true nature, character,
pith and substance of The Unconscionable Transactions Relief Act
and whether it deals primarily with Interest or with property and
civil rights in the province.

The majority opinion in the Supreme Court in the Barfried Case
was that the Act neither related to nor incidentally affected the
field of Interest. This conclusion was based on the view that the
bonus provided for in the mortgage was not to be considered as
interest. The majority therefore adopted a restrictive interpretation
of the word “Interest” in s. 91 (19) of the B.N.A. Act rather than
its ordinary meaning. There is considerable authority to the contrary.
In the Saskatchewan Farm Securities Act Reference, Mr. Justice
Rand of the Supreme Court of Canada defined Interest as :

in general terms, the return or consideration or compensation for
the use or retention by one person of a sum of money belonging to, in a
colloquial sense, or owed to another. 17

13 The pith and substance test has been applied in determining the validity
of provincial legislation in Day v. Victoria [1938] 4 D.L.R. 345, A.-G. Alta. V.
A.-G. Can. [1939] A.C. 117, Ladore v. Bennett [1939] A.C. 468, and A.-G. Can.
V. A.-G. Que. [1947J A.C. 33.
14 [1940] A.C. 513 at 529.
15 Supra, note 10.
16 [1899] A.C. 580.
17 [1947] S.C.R. 394 at 411.

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CASE AND COMMENT

This is the type of general definition of Interest given by most
standard dictionaries; it is this kind of definition which Rand J.
felt was adequate for legal purposes. It is evident that such a defini-
tion is broad enough to encompass what the Ontario statute calls
“the cost of the loan”, and that consequently all the items listed in
s. 1 (a) of the Ontario Act that relate directly to the cost of a loan,
including “bonus”, would be considered interest under this definition.
Viscount Caldecote L. C. in the Lethbridge Case noted that

Their Lordships are of opinion that, so far from supporting the argument
for a restricted interpretation of head 19 of s. 91 in order to confine it to
usurious interest, the history of the usury laws in Canada destroys it.
Their Lordships do not find it necessary to attempt any exhaustive definition
of ‘interest’. The word itself is in common use and is well understood. 18
It was held in the Ontario Court of Appeal in Singer v. Goldhar 19

that :

… the difference between the principal stated in the mortgage and
the amount advanced, usually called a bonus, is interest within the meaning
of the Interest Act, R.S.C. 1906, c. 120.
Mr. Justice Judson, speaking for the majority in the Barfried
Case, considered that Singer v. Goldhard had been overruled in London
Loan and Savings Company of Canada v. Meagher 20, and that :

S.. considering s. 6 of the Interest Act, a bonus is not interest. 21
Section 6 of the Interest Act deals with certain formalities, such
as express stipulation of the rate of interest, which must be observed
in order that interest be recoverable upon principal sums secured
by mortgages of real estate. It appears that the Meagher Case only
restricts the generality of, but does not overrule, the proposition in
Singer v. Goldhar that a bonus is to be considered as interest. This
was recognized by Mr. Justice Kellock in Asconi Building Corporation
V. Vocisano, where he stated :

In Meagher’s case the court was not called upon to decide a case such
as was involved in Singer’s case, . .
I think therefore that the statement
in the judgment (i.e. in Meagher’s case) with respect to the mortgage
in Singer’s case must be regarded as obiter. 22
In his decision in the Barfried Case Judson J. cited no authority
to support the proposition that the Act in question related to prop-
erty and civil rights in the province, as he held it did. The learned
Judge did, however, distinguish two important decisions in the Leth-

‘SSupra, note 14 at 531.
19 [1924] 2 D.L.R. 141.
20 [1930) S.C.R. 378.
21 [1963] S.C.R. 570 at 576.
22 [19471 S.C.R. 358 at 376.

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bridge Northern Irrigation Case 2- and the Saskatchewan Farm
Security Case 24 holding that provincial legislation in relation to
Interest was ultra vires. Judson J. dismissed these decisions as of
no application because, as he reasoned :

This legislation was concerned with interest in its simplest sense and

nothing more… 25
The learned Judge apparently meant to point out, in distinguish-
ing the above decisions, that the case in point concerned a bonus and
therefore was not dealing with “interest in its simplest sense”. It
has been seen, however, that there is strong authority for maintain-
ing a general definition of the word “Interest” as it appears in
s. 91(19) of the B.N.A. Act, one which includes a bonus within its
purview.

The two cases distinguished by Judson J., it is submitted, are
good authorities against the majority opinion. The Lethbridge Case
held invalid provincial legislation reducing interest rates on prov-
incial or provincially-guaranteed debentures. The Saskatchewan Case
held ultra vires a provincial enactment providing that in case of
crop failure, the principal payable by a mortgagor or farm purchaser
would be reduced by 4 percent in that year, but that interest would
be payable as if the principal had not been reduced. The latter
decision reveals to what extent the Court will look to the true nature
and “pith and substance” of legislation. Here was a case where inter-
est was clearly involved, even though no one would dispute that the
principal of a loan or mortgage is not interest. This case, similar
in principle to the present case, illustrates also one instance where
the Court has refused to allow colourable legislation of one level of
jurisdiction as defined in the B.N.A. Act to encroach upon the other
level of jurisdiction. Lord Atkin’s dictum in Ladore v. Bennett 20,
applies equally, it is submitted, to both the Saskatchewan case and
the present case :

It is unnecessary to repeat what has been said many times by the
Courts in Canada and by the Board that the Courts will be careful to
detect and invalidate any actual violation of constitutional restrictions
under pretence of keeping within the statutory field. A colourable device
will not avail.
Judson J. referred to Day v. Victoria 27 and Ladore v. Bennett -‘
in support of the majority view in the Barfried Case. These decisions

23 Supra, note 14.
2 4 Supra, note 22.
25 [1963] S.C.R. 570 at 576.
2
27 Supra, note 13.
2 s Supra, note 13.

3 Supra, note 13, at 482.

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CASE AND COMMENT

held valid provincial legislation altering interest rates of municipal
debentures. It is submitted that these cases should have been distin-
guished from the present case because, in the first place, the legis-
lation dealt with reconstitution of the entire debt structure of a
municipality in one case, and with amalgamation of four municipal-
ities in the other; hence it was held valid as relating to municipal
institutions in the province (s. 92(8) of the B.N.A. Act) despite
the fact that the Court recognized that it had an incidental effect
upon interest.29 Secondly, there was no question in these cases, as in
the present case, of a conflict between the provincial statutes and
a federal statute such as the Interest Act.

Provided that the Ontario statute in the present case could be
shown to conflict with the federal Interest Act, the question whether
the former legislation was or was not within provincial competence
would be precluded, for as Mr. Justice Martland pointed out in his
dissenting opinion, whenever there is a conflict, validly enacted
Dominion legislation prevails over a provincial enactment. This
principle was enunciated by Lord Tomlin in Attorney-General for
Canada v. Attorney-General for British Coliumbia :

There can be a domain in which provincial and Dominion legislation
may overlap, in which case neither legislation will be ultra vires if the
field is clear, but if the field is not clear and the two legislations meet
the Dominion legislation must prevail. 30

VI. Critique of the Judgment

A majority of the Supreme Court in the Barfried Case upheld
the validity of the Ontario Unconscionable Transactions Relief Act.
This view does not seem to accord with jurisprudential authority as
regards the question of legislation in relation to Interest. On the
contrary, it appears to contradict the principle of several previous
decisions; and it can be-argued that Judson J., for the majority,
wrongly distinguished two cases on the point while relying upon
two other cases that are clearly distinguishable (see supra).

To accept the distinction between “bonus” and “interest” put
forward in the majority decision, would be, it is submitted, to unduly

29 Another reason for doubting the authority of these cases is that while the
so-called “ancillary doctrine” has been invoked to justify federal legislation
falling prima facie within an exclusively provincial head, on grounds that it
is necessary to effective legislation under a Dominion head, there are doubts
as to the validity of the application of this reasoning in favour of provincial
legislation. Cf. Laskin, Canadian Constitutional Law, 2 ed., pp. 92-95.

30 [1930] A.C. 111 at 118. See also G.T.R. v. A.-G. Can. [1907] A.C. 65.

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restrict the meaning of the term “interest” as employed in s. 91 of
the B.N.A. Act, in s. 2 of the Interest Act, and in ordinary usage.
Moreover, the majority view would in large part negate the very
purpose of the Ontario statute because, by setting up a distinction
between interest and bonus, it constitutes an admission that interest
as distinct from bonus is under federal authority and thereby is
removed from provincial power to control. 31

As regards the first ground of appeal that the Act in question
was legislation in relation to property and civil rights in the province,
neither Judson nor Cartwright JJ. cited any directly relevant author-
ity for their agreement with this contention. However, Judson J.
reached the conclusion that the true nature of the Act was not to
be found in its concern with interest, but with :

…- whether the transaction as a whole is one which it would be proper

to maintain as having been freely consented to by the debtor. 32
The learned Judge pointed out that in his opinion such legislation
related to annulment or reformation of contract in cases where in
the circumstances the debtor could not be said to have given a free
and valid consent. He considered that from the viewpoint of the
English law the Act “might be classified as an extension of the
doctrine of undue influence;” from the Civil law viewpoint “as an
extension of the doctrine of lesion dealt with in Articles 1001 to
1012 of the Civil Code”. It is difficult, in the first place, to understand
why the Judge took the trouble earlier to distinguish between bonus
and interest (supra, and see Note 31)
if he believed that the Act
clearly related to property and civil rights in the province. As has
been seen, the “raison d’6tre” of this distinction seems to be tb show
that whereas interest may be federal, a bonus is not.

Furthermore, the opinion of the majority, plausible as it seems,
is actually an unnecessary extension of the words of the Act based
upon an interpretation of the motives of the Ontario Legislature in
enacting it. Nowhere in the relevant provisions of the Act (cited
supra, section I) is mention made of undue influence or of consent
not freely and validly given. The Act speaks only of what action a

31 Having distinguished between interest and bonus, it can be presumed that
Judson J., for the majority, had in mind that interest as he would define it, fell
under federal jurisdiction; for if he did not hold this view, he would not have
troubled to make the distinction. Not once, however, did the majority indicate
that it considered the possibility of severability in regard to the word “interest”
in s. 1 (a) of the Ontario Act. Surely, since interest is under the exclusive
legislative power of Parliament, the word “interest”, if no other word in s.
1 (a), can have no place in the provincial statute.

32 [1963] S.C.R. 570 at 577.

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CASE AND COMMENT

court may take if in the circumstances it finds the cost of a loan
excessive. From a Civil law standpoint, it should be noted that defects
of consent in contracts due to error, fraud, violence or fear are dealt
with in Articles 992 to 1000 of the Quebec Civil Code. Moreover the
doctrine of lesion in the Civil law holds that persons of the age
of majority are not entitled to relief from their contracts for cause
of lesion only (1012 C.C.). It is submitted that mere inference as to
the motives underlying the Ontario Act would not be sufficient, in
view of the express terms of Article 1012 C.C., to justify extending
the benefit of lesion in the manner suggested by the learned Judge. 33
Cartwright J., who agreed with the majority position, took the
view that the “primary purpose and effect” of the Act were to enlarge
jurisdiction to give relief against unconscionable
the equitable
bargains which had been long exercised by the courts. On this basis
the learned Judge was prepared to hold the Act intr vires in relation
to the administration of justice in the province. This reasoning, it is
submitted, confuses purpose and effect with motive. While one of
the motives of the Ontario Legislature in bringing forth the Act may
have been to enlarge the scope of equitable jurisdiction of Provincial
Courts with regard to contracts in general, the primary purpose and
effect of the legislation was undoubtedly to empower Provincial
Courts to alter interest payments, in the broad sense, in contracts
of loan under certain conditions. Even if the enlargement of equitable
jurisdiction of Provincial Courts can properly be called a “purpose”
or “effect”, it is secondary and not primary. This argument is suggest-
ed in the dissenting opinions of Martland and Ritchie JJ., where at
page 582 the former stated:

The power of the Court to act under this Act arises only if it has
found that the cost of the loan is excessive. It is true that it must also
find the transaction to be harsh and unconscionable, but it may happen,
as did in the present case, that the judge who hears the case decides
that the transaction is harsh and unconscionable because of the excessive
cost of the loan. The result is that the very Court to which a creditor must
resort in order to enforce payment of the interest or discount which the
Interest Act says he may exact is, by the Provincial legislation, empowered
to decide whether that interest or discount is in all circumstances excessive…
and thus is in a position to relieve him from the payment of an obligation
which the Parliament of Canada has stated the creditor is entitled to exact
from him.

In these circumstances there is a direct conflict between the two statutes
and, that being so, the legislation of the Canadian Parliament, validly
enacted, must prevail.

33 Re validity of Quebec legislation similar in principal to the Ontario Act,

see Section VII, infra.

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VII. Conclusions – The Case in Quebec

If Interest is given its ordinary interpretation and meaning, it is
difficult to avoid the conclusion that in pith and substance the Ontario
Unconscionable Transactions Relief Act, and especially s. 2 thereof,
is legislation in relation to interest, and consequently is ultra vires of
the Provincial Legislature. Furthermore, even if such an enactment by
a provincial legislature could be justified by reason of the “aspect” or
“ancillary” doctrines as being legislation in a provincial aspect or
valid provincial legislation only incidentally affecting the Dominion
interest field, it would have to give way in cases of conflict to the
paramountcy of validly enacted federal legislation occupying the
same field.

The field of Interest has been occupied by the Dominion Parlia-
ment. The Interest Act, s. 2 of which conflicts with s. 2 of the Ontario
statute, provides for a standard interest rate of 5 percent annually
where no rate is otherwise specified (s. 3) and obliges express stipula-
tion of yearly or bi-annual rates of interest in contracts of loan (s. 4)
where the rate exceeds 5 percent per annum, and in all mortgages
(ss. 6-9). The Small Loans Act 34 provides similar protection for
borrowers of sums not exceeding $1,500.

In February, 1964, the Quebec Legislative Assembly amended the
Civil Code by adding Articles 1040a to 1040e to Article 1040. Article
1040c provides:

1040c. The monetary obligations under a loan of money may be reduced
or annulled by a court so far as it finds that, having regard to the risk
and to all the circumstances, they make the cost of the loan excessive and
the operation harsh and unconscionable.

For such purpose, the court must consider all the obligations resulting
lender

from the loan in relation to the sum actually advanced by the
notwith-standing any settlement of account, novation or transaction.

Proof of the sum actually advanced may be made by testimony

in
opposition to the deed, except against a transferee in good faith, saving
recourse, in such case, against the lender. 35
This provision, enacted in the light of the decision of the Supreme
Court in the Barfried case, is more generally phrased than, but in
effect very similar to, its Ontario counterpart. This writer would
apply to the Quebec enactment the same considerations as have been
discussed with respect to the Ontario statute. As the Article stands, it
appears to conflict directly with s. 2 of the Interest Act, except insofar
as the term “monetary obligations” may be taken to mean obligations

4 R.S.C. 1952, c. 251, amended by 1956 Stat. Can., c. 46.
35 Supra, note 1.

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CASE AND COMMENT

other than those comprised in the payment of interest, in the ordinary
meaning of that word, by a debtor to his creditor.

The field of legislation concerning Interest is one in which an
underlying conflict between two necessities in our Canadian federal
system is brought to the fore. On the one hand, the provinces want
and need a policy of equitable court jurisdiction with respect to inter-
est rates in general in order to prevent abuses in this area. On the
other hand, all legislation in Canada must be able to pass the test of
constitutional validity, and we are faced with the fact that the B.N.A.
Act assigns Interest to the exclusive legislative domain of the Parlia-
ment of the Dominion. While it is given power over the subject of
Interest, the Parliament of Canada is not granted jurisdiction over
private law contracts, including money-lending contracts. On the
other side of the coin, the provincial legislatures have jurisdiction
over private law contracts insofar as they relate to civil rights in the
province, but do not possess authority to legislate on matters relating
to Interest.

There is clearly a need for legislation such as the Ontario Uncon-
scionable Transactions Relief Act. It is vital to the economy of the
country as a whole to assure adequate protection to the borrower and
mortgagor, and especially to the consumer-borrower, who has proved
particularly vulnerable to victimization by lenders. 3 The fact that
the B.N.A. Act distributes legislative competence between federal
and provincial legislatures in such a way as to make possible areas
of overlapping is not a bar to valid and effective laws allowing courts
to alter interest rates out of equity. If nothing else, the totality of
legislative competence conferred in the B.N.A. Act guarantees ample
scope for the achievement of this aim. Several solutions may be
suggested.

Provincial enactments such as the Ontario Act may be sanctioned
on grounds that such legislation does not relate to Interest but to
property and civil rights in the province. This is the view of the
majority of the Supreme Court in the Barfried case. This writer, on
the basis of the analysis presented above, concludes, with the minority
in the Supreme Court and the unanimous opinion in the Court of
Appeal for Ontario, that on the contrary, such enactments clearly

36 Measures to protect the consumer-borrower have appeared in the Common
law provinces in the form of Instalment Sales Acts and in Quebec by means
of Articles 1561a to 1561j of the Civil Code. These provisions, however, have
for the most part been restricted to small loans (sales) where the danger of
abuse is least. (Quaere: whether in view of the present discussion Article 1561d
of the Civil Code, which regulates within fixed limits the interest payable in
instalment sales, is intra eires of the Quebec Legislature ?)

McGILL LAW JOURNAL

[Vol. 11

fall within the exclusive power of the Parliament of Canada to legis-
late in relation to Interest; and would add that any effect upon
provincial civil rights of such Dominion legislation is “necessarily
incidental”. Another possible solution is to look upon interest rates
in contracts of money-lending as being subject to both federal and
provincial legislative power, the constitutional validity of a particular
enactment depending upon the “aspect” or purpose with which the
legislation is put forth.

Whatever view is taken, however, the desirability of closer co-
operation between the federal and provincial levels of government in
this area is evident. Without this co-operation conflicts are inevitable.
In the Supreme Court both dissenting judges reserved opinion upon
what jurisdiction was in fact competent to enact the Unconscionable
Transactions Relief Act and invalidated the provincial statute on the
ground of its obvious conflict with a validly enacted federal statute.
It is submitted that this reasoning, which was shared by the Court
of Appeal for Ontario, is, under the circumstances, irrefutable. The
Appeal Court held also that the Ontario legislation related primarily
to interest in the ordinary sense of that word, a view shared by this
writer. For these reasons the conclusion appears inevitable that the
majority decision of the Supreme Court in the Barfried case is in
error and that given the present state of our law, it would appear that
appropriate federal legislation is the only means to achieve a policy
of equitable jurisdiction of the courts with respect to interest rates
governing contracts of money-lending in a manner consistent with
the distribution of legislative powers between the federal and prov-
incial law-making bodies in our federal system.

Book Review(s) in this issue

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