The Equitable Trust Company v. Marsig et al.

2062277 Ontario Inc. et al. v. The Equitable Trust Company et al. [Indexed as: Equitable Trust Co. v. Marsig]

109 O.R. (3d) 561

2012 ONCA 235

Court of Appeal for Ontario,

O'Connor A.C.J.O., Simmons J.A. and Perell J. (ad hoc)

April 13, 2012

Limitations -- Mortgages -- Guarantees -- Guarantees in mortgage instruments governed by ten-year limitation period in s. 43 of Real Property Limitations Act -- Real Property Limitations Act, R.S.O. 1990, c. L.15, s. 43.

The defendant signed a guarantee that was included within a registered mortgage document. The mortgage went into default and the mortgagee exercised its power of sale. There was a deficiency, and the mortgagee sued the defendant on the guarantee. The defendant moved for summary judgment dismissing the action on the basis that the action on the guarantee was statute-barred under s. 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. The motion was dismissed. The defendant appealed.

Held, the appeal should be dismissed.

The Limitations Act, 2002 did not apply as guarantees found in a mortgage instrument are governed by s. 43(1) of the Real Property Limitations Act.

APPEAL from the order of Ramsay J., [2011] O.J. No. 4037, 2011 ONSC 5294, 11 R.P.R. (5th) 144 (S.C.J.) dismissing a motion for summary judgment.

Cases referred to Bank of Nova Scotia v. Williamson (2009), 97 O.R. (3d) 561, [2009] O.J. No. 4507, 2009 ONCA 754, 63 B.L.R. (4th) 57, 256 O.A.C. 286, 313 D.L.R. (4th) 627; Martin v. Youngson (1924), 55 O.L.R. 658, [1924] O.J. No. 77 (C.A.); Montreal Trust Co. of Canada v. Vanness Estate, [2005] O.J. No. 594, 137 A.C.W.S. (3d) 424 (C.A.), affg unreported (August 19, 2004), Ottawa, Court File No. 02-CV-19501 (Ont. S.C.J.), consd Other cases referred to 394363 Ontario Ltd. v. Fuda (1986), 1986 CanLII 2764 (ON CA), 54 O.R. (2d) 443, [1986] O.J. No. 258, 20 C.C.L.I. 1, 9 C.P.C. (2d) 48, 38 A.C.W.S. (2d) 160 (H.C.J.), affg (1984), 1984 CanLII 1949 (ON SC), 49 O.R. (2d) 672, [1984] O.J. No. 3436, 48 C.P.C. 304, 29 A.C.W.S. (2d) 250 (H.C.J.) [Leave to appeal to S.C.C. refused (1986), 56 O.R. (2d) 608n, [1986] 2 S.C.R. vi, 56 O.R. (2d) 608n, 72 N.R. 79n, 18 O.A.C. 159n]; Canadian Financial Co. v. First Federal Construction Ltd. (1982), 1982 CanLII 2232 (ON CA), 34 O.R. (2d) 681, [1982] O.J. No. 3108, 131 D.L.R. (3d) 576, 16 B.L.R. 156, 22 R.P.R. 38, 12 A.C.W.S. (2d) 235 (C.A.) [Leave to appeal to S.C.C. refused (1982), 35 O.R. (2d) 224n, [1982] 1 S.C.R. viii, [1982] S.C.C.A. No. 393, 131 D.L.R. (3d) 576n, 41 N.R. 353n]; National Trust Co. v. Maxwell, [1989] O.J. No. 341, 34 C.P.C. (2d) 211, 3 R.P.R. (2d) 263, 14 A.C.W.S. (3d) 318 (H.C.J.); Scotia Mortgage Corp. v. Young, [2002] O.J. No. 2774, [2002] O.T.C. 467, 2 R.P.R. (4th) 57, 118 A.C.W.S. (3d) 136 (S.C.J.) Statutes referred to Limitations Act, R.S.O. 1990, c. L.15, Parts II [as am.], III [as am.], s. 45(1)(b), (k) Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 2(1)(a), 4, 5 [as am.], (3), (4) Real Property Limitations Act, R.S.O. 1990, c. L.15, s. 43 [as am.], (1) [as am.], (3) [as am.] Statute of Limitations, R.S.O. 1914, c. 75, s. 49(1)(b), (k) [page562]

Melvyn L. Solmon, for appellant. Howard W. Reininger, for respondent the Equitable Trust Company. Katrina Marciniak, for respondent Isle Griegl-Schott.

The judgment of the court was delivered by

PERELL J. (ad hoc): -- A. Introduction

[1] The appellant, Ernest Marsig, signed a guarantee that was included within a registered mortgage document. The mortgage went into default, and the mortgagee, the Equitable Trust Company, exercised its power of sale. There was a deficiency, and Equitable Trust sued Mr. Marsig (and his co-guarantor) on the guarantee. Mr. Marsig moved for summary judgment dismissing the action, and he submitted that the action on his guarantee was statute-barred under s. 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. His principal argument was that the guarantee was a demand obligation and that all demand obligations are subject to the two-year limitation period prescribed by the Act.

[2] Justice Ramsay dismissed the motion. He held that the guarantee was not a demand obligation and that the applicable limitation period was the ten-year period provided for under s. 43 of the Real Property Limitations Act, R.S.O. 1990, c. L.15.

[3] Mr. Marsig appeals on the basis that the judgment below was in error. I disagree and I would dismiss the appeal. B. Factual Background

[4] By a mortgage commitment letter dated December 20, 2004, First National Financial Corporation agreed to lend $1,347,281 to a corporation to be formed. Under the commitment, Ernest Marsig and Isle Griegl-Schott agreed to guarantee the mortgage loan. It was a term of the commitment that the loan would include mortgage insurance from the Canadian Mortgage Housing Corporation ("CMHC"). Before the advance of funds, First National assigned the commitment to Equitable Trust.

[5] On February 9, 2005, a charge from 2062277 Ontario Inc. encumbering a property municipally known as 190 Thames Street, Chatham, Ontario was registered in favour of Equitable Trust. Mr. Marsig and Ms. Griegl-Schott signed the mortgage on [page563] behalf of the numbered corporation. They also signed in their personal capacity as "guarantors".

[6] 2062277 Ontario Inc. defaulted on payment of the loan, and on December 7, 2007, Equitable Trust issued a notice of sale under mortgage. The notice was served on Mr. Marsig.

[7] On June 28, 2010, the property was sold under the power of sale, but there was a deficiency. Thus, on September 17, 2010, Equitable Trust commenced an action against 2062277 Ontario Inc., Mr. Marsig and others for payment of the deficiency.

[8] It should be noted that the December 2007 notice of sale under mortgage was a demand. A notice of sale is a demand for payment on the mortgagor and, if served on a guarantor, is a demand for payment from the guarantor: National Trust Co. v. Maxwell, [1989] O.J. No. 341, 34 C.P.C. (2d) 211 (H.C.J.), at p. 218 C.P.C. It should also be noted that the action on the guarantee for deficiency was not commenced until September 2010.

[9] Mr. Marsig defended the action, pleading that the action against him was statute-barred under the Limitations Act, 2002. Thus, he submitted that his guarantee was a demand obligation subject to a two-year limitation period under the Act. He moved for summary judgment dismissing the action as statute-barred.

[10] The motion judge dismissed the motion. Notwithstanding the argument of Mr. Marsig, the motion judge concluded that the guarantee was not a demand obligation under the Limitations Act, 2002, and held that the action on the guarantee was governed by the Real Property Limitations Act. C. Discussion

[11] At the outset of the discussion, it is helpful to note that Parts II and III of the former Limitations Act, R.S.O. 1990, c. L.15 have been repealed. However, the definitions and Part I, which dealt exclusively with real property limitations, were renamed the Real Property Limitations Act. A new Act, the Limitations Act, 2002, was enacted to deal with limitation periods other than those affecting real property. The new act, the Limitations Act, 2002, replaced Parts II and III of the former Limitations Act.

[12] For the purposes of this appeal, the relevant provisions of the Limitations Act, 2002 and the Real Property Limitations Act are set out below:

Limitations Act, 2002, S.O. 2002, c. 24, Sch. B

Application

2(1) This Act applies to claims pursued in court proceedings other than, (a) proceedings to which the Real Property Limitations Act applies; [page564] . . . . .

Basic limitation period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery

5(1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

Demand obligations

(3) For the purposes of subclause (1)(a)(i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made.

Same

(4) Subsection (3) applies in respect of every demand obligation created on or after January 1, 2004. . . . . .

Real Property Limitations Act, R.S.O. 1990, c. L.15

43(1) No action upon a covenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of, (a) the expiry of 10 years after the day on which the cause of action arose; and (b) the expiry of 10 years after the day on which the interest of the person liable on the covenant in the mortgaged lands was conveyed or transferred. [page565]

Equity of redemption

(2) No action by a mortgagee against a grantee of the equity of redemption under section 20 of the Mortgages Act shall be commenced after the expiry of 10 years after the day on which the cause of action arose.

Same

(3) Subsections (1) and (2) do not extend the time for bringing an action if the time for bringing it is limited by any other Act.

[13] For reasons that will become clearer below, it is necessary also to refer to s. 45(1)(b) and (k) of the former Limitations Act, which were formerly s. 49(1)(b) and (k) of the Statute of Limitations, R.S.O. 1914, c. 75.

[14] Section 45(1)(b) and (k) of the Limitations Act stated:

Limitations Act, R.S.O. 1990, c. L.15

Limitation of time for commencing particular actions

45(1) The following actions shall be commenced within and not after the times respectively hereinafter mentioned, . . . . . (b) an action upon a bond, or other specialty, except upon a covenant contained in an indenture of mortgage made on or after the 1st day of July, 1894 . . .

within twenty years after the cause of action arose, . . . . . (k) an action upon a covenant contained in an indenture of mortgage or any other instrument made on or after the 1st day of July, 1894, to repay the whole or part of any money secured by a mortgage, within ten years after the cause of action arose or within ten years after the date upon which the person liable on the covenant conveyed or transferred the person's interest in the mortgaged lands, whichever is later in point of time[.]

[15] Much of the argument before the motion judge, and some of the argument on this appeal, concerned whether the guarantee signed by Mr. Marsig was or was not a demand obligation. This was an important point for Mr. Marsig because, relying on Bank of Nova Scotia v. Williamson (2009), 97 O.R. (3d) 561, [2009] O.J. No. 4507, 2009 ONCA 754, he submitted that all demand obligations, including guarantees within a mortgage document, are governed by the Limitations Act, 2002.

[16] For the purposes of deciding this appeal, I am prepared to assume, without deciding, that guarantee signed by Mr. Marsig was a demand obligation. With that assumption, it does not [page566] follow, however, that all demand obligations are governed by the Limitations Act, 2002.

[17] In Williamson, Feldman J.A. examined s. 5(3) and (4) of the Limitations Act, 2002. These subsections were added to the Act in 2008 to deal specifically with the commencement of limitation periods for demand obligations. At para. 19, Justice Feldman stated:

This amendment demonstrates the intent of the legislature that for all demand obligations, a demand is a condition precedent for the commencement of the limitation period. The legislature may be taken to have recognized that this puts the creditor in the position to extend the limitation period by failing to make a prompt demand. However, it creates more certainty in establishing the commencement date for the limitation period. Although this new section does not affect this case, it affirms the law regarding third party demand guarantees.

[18] Mr. Marsig concludes from this paragraph in Williamson that the court ruled, for the purposes of the application of limitation periods, that all demand obligations are governed exclusively by the Limitations Act, 2002. In other words, he submits that the Court of Appeal decided that demand obligation guarantees are never governed by the limitation periods in the Real Property Limitations Act.

[19] As noted by the motion judge, the problem with Mr. Marsig's interpretation of Williamson is that the case did not concern the applicability or inapplicability of the Real Property Limitations Act. On the facts of that case, the loan being guaranteed was not connected to real property or to mortgage security. Thus, the Court of Appeal did not address the issue as to when, if at all, the Real Property Limitations Act applies to a demand obligation associated with a mortgage of land or real property.

[20] In the case at bar, the motion judge did his own analysis of the Limitations Act, 2002 and the Real Property Limitations Act. Relying, among other things, on the unreported decision of Métivier J. in Montreal Trust Co. of Canada v. Vanness Estate, unreported (August 19, 2004), Ottawa, 02-CV- 19501 (Ont. S.C.J.), affd [2005] O.J. No. 594, 137 A.C.W.S. (3d) 424 (C.A.), the motion judge concluded that guarantees found in a mortgage instrument are governed by what is now s. 43(1) of the Real Property Limitations Act and what was formerly s. 45(1)(k) of the Limitations Act and, before that, s. 49(1)(k) of the Statute of Limitations.

[21] I agree with the motion judge's analysis, which is consistent with this court's decision in Martin v. Youngson (1924), 55 O.L.R. 658, [1924] O.J. No. 77 (C.A.). In that case, this court held, at p. 663 O.L.R., that s. 49(1)(k) of the Statute of Limitations, now [page567] s. 43(1) of the Real Property Limitations Act, governed an action on a covenant contained in a mortgage. Thus, the court concluded that the ten-year limitation period applied.

[22] In Martin, Mr. Youngson (much like Mr. Marsig in the case at bar) signed an indenture of mortgage that contained clauses whereby he guaranteed the payment of the mortgage moneys. Thirteen years after signing the guarantee, he was sued, and he successfully relied on the limitation period in s. 49(1)(k) of the Statute of Limitations Act (now s. 43(1)(k) of the Real Property Limitations Act), which imposed a limitation period of ten years for an "an action upon a covenant contained in an indenture of mortgage".

[23] In Martin, the Ontario Supreme Court -- Appellate Division upheld the lower court judgment, with Masten J.A. holding, at p. 663 O.L.R.:

. . . I think that this is "an action upon a covenant contained in an indenture of mortgage," and therefore comes within sec. 49, subsec 1 (k), of the Limitations Act. The whole document, exhibit 1, is an indenture of mortgage. I express no opinion as to what would be the proper conclusion if the guaranty were contained in a separate collateral document. That point can be decided when it arises. But, so far as this action is concerned, it seems to me that it falls precisely within the words of the statute, and therefore that the period of limitation is 10 years, and not 20.

[24] In Martin, the choice of which limitation period to apply was a choice between the ten-year limitation period of s. 49(1)(k) for "a covenant contained in a mortgage" or the 20- year limitation period of s. 49(1)(b) of the Statute of Limitations for "a bond or other specialty". A "covenant" just means a promise, and Masten J.A. had no difficulty in concluding that a guarantee contained in a mortgage was a covenant contained in the mortgage.

[25] In the case at bar, largely because of Feldman J.A.'s comment in Williamson, which, as noted above, must be considered in context, Mr. Marsig argued that the only relevant period is the two-year limitation period for demand obligations found in the Limitations Act, 2002.

[26] I disagree. In my opinion, the Limitations Act, 2002 does not apply precisely because s. 43 of the Real Property Limitations Act applies. This follows because s. 2(1)(a) of the Limitation Act, 2002 states that the Act "applies to claims pursued in court proceedings other than . . . proceedings to which the Real Property Limitations Act applies".

[27] Mr. Marsig, however, submits that Real Property Limitations Act does not apply because s. 43(3) provides that s. 43(1) does "not extend the time for [page568] bringing an action if the time for bringing it is limited by any other Act". Again, I disagree with this submission, because the effect of s. 2(1)(a) of the Limitations Act, 2002 is to preclude the limitation periods of that Act from applying when the Real Property Limitations Act applies. Put simply, the Limitations Act, 2002 was enacted to deal with limitation periods other than those affecting real property.

[28] A guarantee given in conjunction with a mortgage transaction affects real property law rights. Guarantors, if they have made payments toward the mortgage debt, need to be served in mortgage enforcement proceedings because they have an equity of redemption and an interest in the mortgaged property: Canadian Financial Co. v. First Federal Construction Ltd. (1982), 1982 CanLII 2232 (ON CA), 34 O.R. (2d) 681, [1982] O.J. No. 3108 (C.A.), leave to appeal to S.C.C. refused (1982), 35 O.R. (2d) 224n, [1982] S.C.C.A. No. 393; 394363 Ontario Ltd. v. Fuda (1984), 1984 CanLII 1949 (ON SC), 49 O.R. (2d) 672, [1984] O.J. No. 3436 (H.C.J.), affd (1986), 1986 CanLII 2479 (ON SC), 54 O.R. (2d) 443, [1986] O.J. No. 258 (H.C.J.), leave to appeal to S.C.C. refused (1986), 56 O.R. (2d) 608n, [1986] 2 S.C.R. vi; Scotia Mortgage Corp. v. Young, [2002] O.J. No. 2774, 2 R.P.R. (4th) 57 (S.C.J.).

[29] Mr. Marsig argues that, having regard to the law's typically protective approach to guarantors and in light of the policy perspective of fostering certainty and clear laws, this court's decision in Williamson should be read as indicating that a two-year limitation period applies to all guarantees.

[30] It is true that it may not always be easy to determine whether a particular guarantee, like the guarantee in Bank of Nova Scotia v. Williamson, is subject to the Limitations Act, 2002 or, like the guarantee in the case at bar, is subject to the Real Property Limitations Act. However, it does not follow that all guarantees should be treated the same way. It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims. Moreover, as already noted, it is my view that the legislature intended that all limitation periods affecting land be governed by the Real Property Limitations Act.

[31] The mortgage enforcement practice, as demonstrated in the case at bar, is to give guarantors notice of power of sale proceedings. In my view, it would cause much more confusion and uncertainty in the law if the limitation period for enforcing the mortgage debt was different from the limitation period for enforcing guarantees of that debt.

[32] I note that if Mr. Marsig's argument were accepted, it would do no favour to persons who have guaranteed a mortgage debt. Confronted with a shorter limitation period for the guarantee than for the mortgage debt, mortgagees would undoubtedly [page569] sue and attempt to collect on the whole debt outstanding, rather than proceeding, as Equitable Trust did in the case at bar, to realize on the security in the real property and then suing only for any deficiency. D. Conclusion

[33] For the above reasons, I would dismiss the appeal with costs on a partial indemnity basis of $6,000, inclusive of disbursements and applicable taxes.

Appeal dismissed.