R. Di Battista Investments Inc. v. Cangap Lending Corp., 2017 ONSC 5802

COURT FILE NO.: Court File No. CV-16-556766

MOTION HEARD: 20170517

REASONS RELEASED: 20171003

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

R. DI BATTISTA INVESTMENTS INC.,

Plaintiff

• and-

CANGAP LENDING CORP. and EMLYN DAVID

Defendants

BEFORE: MASTER D. E. SHORT

COUNSEL: Rocco A. Ruso Fax: 866-751-5134

-for the Plaintiff

Morris Cooper Fax: 416-961-4000

-for the Defendant/Responding Party,

Emlyn David

REASONS RELEASED: October 3, 2017

Reasons for Decision

Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, s. 2.

I. Overview

[1] The Plaintiff, R. Di Battsta Investments Inc. ("Di Battista"), seeks an Order that leave be granted to amend its Statement of Claimin accordance with a draft Amended Statement of Claim. Specifically, Di Battista seeks to add as defendants, Skyvest Corp., Skyvest Corporation, and Skyvest Capital Corp., as well as to include allegations of fraudulent conveyances made between the defendants Emlyn David, Skyvest Corp., Skyvest Corporation, and Skyvest Capital Corp.

II. Background

[2] This action arises from the alleged breaches of a debenture agreement dated March 1, 2008 by Cangap Lending Corp.'s ("Cangap") and for payment of additional loans provided by Di Battista to Cangap in November 2008. When demand for payment was made by Di Battista under same, and Cangap refused and/or failed to provide payment; demand was made upon the Defendant, Emlyn David ("Mr. David"), under a personal guarantee in favor of Di Battista in respect of the debenture agreement and additional loans provided to Cangap.

[3] Specifically on or about February 28, 2008, Di Battista agreed to advance to Cangap the amount of $2,000,000.00. Di Battista and Cangap entered into a debenture agreement (the "Debenture") in which Cangap acknowledged itself indebted to Di Battista in the amount of $2,000,000.00, and agreed that it would pay an interest rate of 12% per annum calculated and compounded monthly on the principal amount outstanding.

[4] Subsequent to the initial advance Di Battista provided Cangap an additional loan in the amount of $500,000.00 comprised of two payments: advanced in November of 2008 ( collectively the "Additional Loans").

The Personal Guarantee

[5] The plaintiff asserts that on or about October 30, 2009, Mr. David provided an unconditional, irrevocable and continuing personal guarantee in favour of Di Battista (the "Guarantee"), wherein he personally guaranteed the payment of all monies owed to Di Battista in respect of the indebtedness by Cangap pursuant to the Debenture and Additional Loans.

[6] The Guarantee executed by Mr. David states that the Guarantor guarantees to Di Battista the due and punctual payment in full of the Debenture and Additional Loans in accordance with their terms, and agrees to be liable as a primary obligor for the Debenture and Additional Loans, and not merely as a surety. Mr. David further guaranteed to pay the Debenture and Additional Loans free and clear and without deduction for any present and future taxes, charges or withholdings immediately on demand by Di Battista.

[7] The Guarantee provided:

“The Guarantee is an unconditional, irrevocable and continuing guarantee and the obligations of Mr. David hereunder (“the Obligations”) are unlimited. This Guarantee is effective irrespective of the genuineness, validity or enforceability of the Liabilities. No circumstance, act or omission shall limit or lessen, or release the Guarantor from the Obligations”

[8] Moreover the document provided that Mr. David “shall pay to. Di Battista on demand” for all costs and expenses incurred by Di Battista in enforcing Mr. David's obligations under the Guarantee, and that Mr. David would also pay interest on the amount of each demand at the rate of 10% per annum, compounded and payable monthly, “before and after judgment and default, from the date of demand until payment in full.” (my emphasis)

[9] In addition, with respect to the enforcement of the Guarantee, the terms of the Guarantee provided, inter alia, that Di Battista was not bound to seek or exhaust its recourse against Cangap or any other person nor to enforce or value any security which it may now or hereafter hold for or in respect of the Debenture and/or the Additional Loans before being entitled to payment under the Guarantee.

[10] Perhaps significantly the parties agreed in Article 4.3 that:

“No failure on the part of the Creditor to exercise, and no delay in exercising, any right under the Guarantee shall operate as a waiver of such right. No single or partial exercise of any such right shall preclude any other or further exercise of such right or the exercise of any other right.”

[11] I say “perhaps significantly” having seen the recent decision of the Court of Appeal in 407 ETR Concession Company Limited v. Day, 2016 ONCA 709; 133 OR (3d) 762; 2016 ONCA 458, 403 DLR (4th) 485; (leave denied SCC 2017 CanLII 23871) which addresses the possible ability of businesses to contract out of the normal provisions of the Limitations Act, 2002.

[12] There the Court of Appeal held that under section 22(5) of the Limitations Act, 2002, a limitation period is allowed to be varied or excluded if it is a “business agreement.” The term “vary” includes extending, shortening or suspending the limitation period. A key takeaway from this case is to be wary of terms excluding, suspending or shortening limitation periods in the context of Ontario business agreements as these will be enforceable against the parties.

[13] Laskin J.A. writing for a panel including MacFarland and Roberts JJ.A. addressed the application of Section 22 of the Limitations Act, 2002:

[58] Section 22 provides that by agreement parties can suspend, extend, or in some circumstances even shorten the basic two-year limitation period provided for in s. 4 of the Act. Section 22 provides:

22. (1) A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6).

(2) A limitation period under this Act may be varied or excluded by an agreement made before January 1, 2004.

(3) A limitation period under this Act, other than one established by section 15, may be suspended or extended by an agreement made on or after October 19, 2006.

(4) A limitation period established by section 15 may be suspended or extended by an agreement made on or after October 19, 2006, but only if the relevant claim has been discovered.

(5) The following exceptions apply only in respect of business agreements:

1. A limitation period under this Act, other than one established by section 15, may be varied or excluded by an agreement made on or after October 19, 2006.

2. A limitation period established by section 15 may be varied by an agreement made on or after October 19, 2006, except that it may be suspended or extended only in accordance with subsection (4).

Definitions

(6) In this section,

“business agreement” means an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002; …

“vary” includes extend, shorten and suspend.

[14] His Honour observes in part:

[61] I agree that the transponder lease agreement is not a business agreement. But, respectfully, in my opinion the motion judge erred in his interpretation of s. 22. He focused on ss. 22(5) and 22(6) but he did not take account of s. 22(3). Under s. 22(3), parties can agree to contract out of the two-year limitation period even if one of the parties is a “consumer” and their agreement is therefore not a business agreement. There is, however, a crucial distinction between an agreement made under s. 22(3), which applies when one or both of the parties is a “consumer”, and a business agreement under s. 22(5), which applies only when none of the parties is a “consumer”.

[62] Under s. 22(3), parties can only suspend or extend the two-year limitation period. Under s.22(5), parties may vary or exclude altogether the two-year period. Importantly, in s. 22(6) “vary” is defined to include “extend, shorten and suspend”. Thus, parties to an agreement under s. 22(3), such as the transponder lease agreement, in which one party is a consumer, can suspend or extend the two-year limitation period. They cannot, however, shorten it....”

[15] I did not feel it was necessary to provide counsel with an opportunity to comment on the possible applicability of these provisions to the agreements involved in this case as I was satisfied without this possible additional argument that the plaintiff was entitled to the Order sought.

III. Rule 26

[16] The Rules of Civil Procedure set out the items to consider on a motion seeking leave of the court to add a party or amend a Statement of Claim in Rule 26 (with my emphasis added):

26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[17] The case law has established that leave ought not to be granted if the amendment sought are clearly untenable and doomed to failure.

[18] In the factum filed in opposition to this motion counsel notes:

“17. This Court has jurisdiction to refuse to allow amendments which are not tenable in law. Where an amendment would result in a motion to strike it out as disclosing no reasonable cause of action or lacks legal foundation, the amendment should be refused. On a motion to amend a Statement of Claim, the Court will consider the "tenability" of a proposed Claim by applying the principles developed under Rule 20.01 (1 (b) analysis.

Reference: Kingsgate Developments Inc. v. Drake, 1994 CanLII 416 (ON CA), [1994] 17 O.R. (3d) 841 (Ont. C.A.)

Hamlan v. Sernesky, 1996 CanLII 1762 (ON CA), [1996] 3 C.P.C. 4th 201 (Ont. C.A.)

18. The proposed amendments, when seen properly, amount to a new cause of action, and not merely pleading alternative claims for relief arising out of the same facts previously pleaded. The onus of proving prejudice is on the party alleging it, unless a limitation period has expired. In that case, the onus shifts, and the party seeking the amendment must lead evidence to explain the delay, and to displace the presumption of prejudice.

Reference: Daniele v. Johnson, 1999 CanLII 19921 (ON SCDC), [1999] 45 O.R. 3^rd 498, (Ont. Div. Ct.)

Marks v. Ottawa, [2011] ONCA 248 (Ont. C.A.)

19. Rule 26.01 does not contemplate the addition of statute-barred claims by way of amendment of an existing Statement of Claim. Conceptually, this ought to be treated no differently than the issuance of a new and separate Statement of Claim that advances the statute-barred Claim.

Reference: Frohlick v. Pinkerton Canada Ltd., [2008] ONCA 3 (Ont. C.A)

20. Evidence is appropriate and necessary on a pleading amendment motion, or a motion to add a party. The Court must look at the evidentiary record to determine if there is a basis for the claim that a limitation period has not expired.

Reference: Dee Ferraro Ltd. v. Pellizzari, [2012] ONCA 55 (Ont. C.A.)

[19] While I accept that the question of tenability is appropriate in a case such as this, certainty is not required.

[20] As will be set out further, in these reasons, my present inclination is that in fact none of the claims now asserted in this action are statute barred. For present purposes I only need determine that there is a possibly tenable argument in order to permit the amendments so as to allow the trial judge to assess the correct determination against a full evidentiary background.

[21] Another ground relied upon by Mr. David in opposing the amendments sought related to the status of the originally named defendant corporation, Cangap.

IV. Dissolution of Cangap Lending Corp.

[22] The plaintiff’s evidence is thatOn or about June 10, 2016, Di Battista discovered that Cangap was cancelled as of December 23, 2013. The plaintiffs assert that at no time did Di Battista receive notice from either Cangap and/or Mr. David that Cangap had in fact been cancelled and that both Cangap and Mr. David had subsisting obligations to Di Battista.

[23] Specifically, it was a term of the Guarantee that upon any voluntary or involuntary liquidation, dissolution or winding-up of Cangap, Di Battista may include in its claim the amount of all sums paid to Cangap, and Mr. David, as Guarantor, assigns to Di Battista all rights to prove and rank for such sums and to receive dividends in respect thereof.

[24] The moving party’s factum asserts :

16. Immediately upon discovering the cancellation, on June 15, 2016, Di Battista, for the first time, demanded from Cangap and Mr. David payment of the monies owing to Di Battista pursuant to the Debenture and Additional Loans, and Guarantee (collectively the "Contract Documents"). At no time prior to this demand had Di Battista demanded payment.

[25] Based upon discoverability I am satisfied that the action in these circumstances was commenced on a timely basis.

[26] Moreover based on my reading of the Business Corporations Act the rights of this plaintiff survive a dissolution.

V. Proceedings after Dissolution

[27] Counsel for Mr David asserts that while this motion is being opposed by the Defendant, Emlyn David, the other original Defendant named in the Notice of Action of July 15, 2016, is Cangap Lending Corporation, whose charter was cancelled in December, 2013.

[28] However the Ontario Legislature enacted in 2002 legislation with the ponderous title of

“An Act to improve access to justice by amending the Solicitors Act to permit contingency fees in certain circumstances, to modernize and reform the law as it relates to limitation periods by enacting a new Limitations Act and making related amendments to other statutes, and to make changes with respect to the governance of the public accounting profession by amending the Public Accountancy Act” ( the “Justice Statute Law Amendment Act, 2002”.

[29] Schedule B to that Act had two provisions of relevance to the Defendant’s position. The first which I will set out later in these reasons addressed the renaming of the then existing Limitations Act to the Real Property Limitations Act .

[30] Of relevance to the present dissolution issue are the next section of the Justice Statute Law Amendment Act:

27. (1) Subsection 131.2 of the Business Corporations Act is repealed and the following substituted:

Limitation of liability

(2) A director is liable under subsection (1) only if,

(a) the corporation is sued in the action against the director and execution against the. Corporation is returned unsatisfied in whole or in part; or

(b) before or after the action is commenced, the corporation goes into liquidation, is ordered to be wound up or makes an authorized assignment under the Bankruptcy and Insolvency Act (Canada), or a receiving order under that Act is made against it, and, in any such case, the claim for the debt has been proved.

(2) Subsection 243 (1) of the Act is amended by striking out “within five years. after the date of the dissolution of the corporation” at the end.

[31] Section 241 of the Business Corporations Act, R.S.O. 1990, c. B.16 deals with the ability of the province make an order dissolving a Corporation, which is in default of complying with any of a number of provincial statutes.

[32] Under subsection 241 (9) where a corporation is dissolved the Director may, in his or her discretion, on the application of any interested person, revive the corporation and upon revival, the corporation shall be deemed for all purposes never to have been dissolved, subject to,

(a) subsection (10) or (11), as the case may be;

(b) any terms and conditions the Director sees fit to impose in respect of the revival; and

(c) the rights, if any, acquired by any person during the period of dissolution.

[33] Of particular relevance in this case are the provisions of the next section of the OBCA dealing with proceedings after dissolution, I

Proceedings after dissolution

242 (1) Despite the dissolution of a corporation under this Act,

(a) a civil,… action or proceeding commenced by or against the corporation before its dissolution may be continued as if it had not been dissolved;

(b) a civil, … action or proceeding may be brought against the corporation as if it had not been dissolved;

(c) property that would have been available to satisfy a judgment, order or decision if the corporation had not been dissolved remains available for that purpose, subject to subsections (1.1) and (1.2); and

(d) land belonging to the corporation immediately before the dissolution remains available to be sold in power

Service after dissolution

(2) For the purposes of this section, the service of any process on a corporation after its dissolution shall be deemed to be sufficiently made if it is made upon any person last shown on the records of the Ministry as being a director or officer of the corporation before the dissolution.

Notice of proceeding

(3) A person who commences an action, suit or other proceeding against a corporation after its dissolution shall,

(a) serve the writ or other document by which the action, suit or other proceeding was commenced on the Minister responsible for the administration of the Forfeited Corporate Property Act, 2015 and the Public Guardian and Trustee in accordance with the rules that apply generally to service on a party to an action, suit or other proceeding; and

(b) deliver to the Minister responsible for the administration of the Forfeited Corporate Property Act, 2015 and the Public Guardian and Trustee, along with the document served under clause (a), a notice that,

(i) sets out the name of the dissolved corporation,

(ii) explains why the action, suit or other proceeding is being commenced against the dissolved corporation, and

(iii) identifies any property that is referred to in the proceeding and was owned by the corporation at the time of its dissolution.

Exception, proceeding in respect of land

(4) A person who commences any of the following proceedings is not required to serve the writ or other document described in clause (3) (a) on or deliver the notice described in clause (3) (b) to the Public Guardian and Trustee:

1. A proceeding for power of sale or foreclosure of land that is forfeited corporate real property.

2. An application under the Land Titles Act in respect of land that is forfeited corporate real property or land that is adjacent to forfeited corporate real property.

3. A proceeding claiming an interest in land that is forfeited corporate real property, if the proceeding relates solely to claiming the interest in land.

[34] I have set these provisions out in some detail as it seems to me that the profession may not be fully aware of the consequences and the necessary steps to be taken when commencing an action against a corporation that has been dissolved. Of more importance to the plaintiff in this case, and perhaps the defendant is a statutory obligation set out in section 243 of the OBCA.

Liability of shareholders to creditors

243 (1) Despite the dissolution of a corporation, each shareholder to whom any of its property has been distributed is liable to any person claiming under section 242 to the extent of the amount received by that shareholder upon the distribution, and an action to enforce such liability may be brought.

[35] What I conclude from these sections is that the plaintiff in this case clearly has various rights which may flow from these sections against the dissolved Corporation and its shareholder, Mr. David.

VI. Real Property Limitations Act and the amended Limitations Act, 2002

[36] The position advanced by Mr. David counsel in the factum before me clearly asserts:

5. The Plaintiff's claims are statute-barred under the Limitations Act, arising out of a debt under an undisclosed Term Sheet and Subscription Document which is allegedly supported by a Debenture, dated March 1, 2008, and referencing a February 28, 2008 payment by the Plaintiff to the Defendant Cangap Lending Corp.

6. The Plaintiff states in his proposed Amended Statement of Claim that demand pursuant to the "Contract Documents" was made for the first time on June 15, 2016. The Term Sheet and "Contract Documents" do not appear in the Motion Record.

7. As a consequence, this motion to amend and add parties under Rule 26 clearly falls within the exception of permissible amendments to pleadings where a limitation period has intervened.

[37] However, I am not convinced that a limitation period has intervened. Before turning to the provisions in the Limitations Act 2002, it is important to note that, to the extent real property is an issue in this action, it is at least arguable that the Real Property Limitations Act applies to these disputes.

[38] Thus, it is of particular importance to the position taken by counsel in the defendants’ factum, is the statutory amendment which was also contained in Schedule B to Justice Statute Law Amendment Act, 2002 and dealt with the renaming of the then existing Limitations Act to the Real Property Limitations Act and enacted within that legislation under the heading “Mortgage covenant” the following (with my emphasis):

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.

(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 thecause of action arose.

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

[39] Turning to the Limitations Act, 2002 provisions. I am satisfied that the intent of the legislature in amending the act as originally passed was to specifically address the limitation period relating to demand loans which had caused serious distress amongst Ontario’s real estate practitioners.

[40] For the purposes of this argument, I note first the possibly relevant provisions of the Limitations Act, 2002 with my emphasis added:

Application

2.(1) This Act applies to claims pursued in court proceedings other than,

(a) proceedings to which the Real Property Limitations Act applies;

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.

[41] Specifically the amended Act then addresses the starting point for claims based upon 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.

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

[42] The obligations raised in this action relates to a loan made in 2008.

[43] As noted earlier, the plaintiff discovered the cancellation of Cangap’s corporate status, on June 15, 2016. The evidence before me is that at that point in time Di Battista, for the first time, demanded from Cangap and Mr. David payment of the monies owing to Di Battista.

[44] Di Battista issued a Notice of Action on July 15, 2016 on August 12, 2016, Di Battista filed a Statement of Claim in respect of its Action. The Statement of Claim included the additional defendants, Skyvest Corp. and Skyvest Corporation to the action.

VII. Discovery of Transfer of Properties

[45] As noted above Cangap’s charter was cancelled in December, 2013. The affidavit evidence before me, indicates that on or about August 9, 2016, Di Battista discovered through a parcel register search that, Unit 103 owned by Mr. David in an apartment building on Spadina Road, Toronto (the "Spadina 103 Premises"), was transferred by Mr. David to "Skyvest Corp." on June 4, 2015. It is clear that the consideration paid for Spadina 103 Transfer was nominal, being $2.00. Thereafter, on or about August 18, 2016, Di Battista discovered through an asset investigation report that Mr. David had two additional properties in Toronto, identified as the “Spadina 401 Premises” and the “Bellair Premises”, which he transferred to “Skyvest Corp.” on June 4, 2015. The consideration paid for both the Spadina 401 Premises and the Bellair Premises was nominal, being $2.00. The plaintiffs factum further asserts:

24. When provincial and federal corporate searches were conducted for “Skyvest Corp.”, no such corporation was found to exist. Rather, the corporate names of "Skyvest Corporation" and "Skyvest Capital Corp." appear as the closest corporate names to "Skyvest Corp." Mr. David is the sole officer and director of Skyvest Capital Corp. (my emphasis)

[46] Against these assertions I must consider the assertion in the Defendant’s factum:

13. The proposed Amended Statement of Claim pleads no connection between the Defendant, Emlyn David and Skyvest Corporation which, according to the corporate searches and investigations attached to the Affidavit of Mr. Battista, bears no relation or connection with any of the Defendants, or the cause of action.

[47] I find this position somewhat disingenuous as there is no denial of a transfer being made for nominal consideration to similarly named transferees.

[48] The amendments to the statement of claim sought on this motion seek to rely upon the provisions of the Fraudulent Conveyances Act, R.S.O. 1990, c.F.29. Section 5 of that act reads:

When fraudulent conveyances declared void as against purchasers

5. Every conveyance of real property heretofore or hereafter made with intent to defraud and deceive the purchaser shall be deemed to be void only as against that person and the person’s assigns and all persons lawfully claiming under that person or the person’s assigns who have purchased or hereafter purchase for money or other good consideration the same real property or a part thereof.

[49] It is unnecessary for me to determine whether the interaction of the real property limitations act and the fraudulent conveyances act might well lead to the conclusion that there is a 10 year limitation involved, which would mean that there is no possible limitation defence available to the defendants in this case. I however do note that issues of this nature were addressed in detail in a helpful decision of the Court of Appeal delivered in 2012.

VIII. Equitable Trust Co. v. Marsig

[50] The Ontario Court of Appeal considered similar issues in Equitable Trust Co. v. Marsig, . 2012 ONCA 235; 16 R.P.R. (5th) 173; 289 O.A.C. 345; 109 O.R. (3d) 561; 348 D.L.R. (4th) 733; 214 A.C.W.S. (3d) 266; 2012 CarswellOnt 4233. There a panel made up of D.R. O'Connor A.C.J.O., J.M. Simmons J.A., and P.M. Perell J. (ad hoc) provided important guidance on the interaction of the Limitations Act, 2002 and the Real Property Limitations Act.

[51] I acknowledge that neither counsel raised this case before me, but I am satisfied that it raises enough issues that can be resolved at a later stage, such that it would be more efficient for me to simply set out some of the extracts that, while not directly relied upon, nor necessary to reach my conclusions, did help to inform my decision.

[52] Writing for the court, Justice Perell set out the relevant background in dismissing the appeal before the appellate panel:

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.

[53] In that case, the mortgage was placed in 2005, which went into default in 2007. Equitable Trust issued a notice of sale, and in June 2010, the property was sold under the power of sale with the resulting deficiency. The court notes:

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), 34 C.P.C. (2d) 211(Ont. H.C.J.), at p. 218. 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.

[54] To put matters in context, it is helpful to recall that while Parts II and III of the former Limitations Act, R.S.O. 1990, c. L.15, have been repealed;. the definitions and Part I, which dealt exclusively with real property limitations, were renamed the Real Property Limitations Act.

[55] 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.

[56] In the present case before me the debenture which appears to been guaranteed by Mr. David specifically provides:

Section 4 Grant of Security - Fixed Charge.

Subject to Section 7, as security for the due payment of principal amount, interest and other amounts owing under this Debenture, the Obliger grants, assigns, conveys, transfers, mortgages, pledges and charges, as and by way of a fixed and specific mortgage, charge and pledge, to and in favour of the Holder and otherwise grants to the Holder a security interest in all of the Obliger's right, title and interest in and to:

(a) all real and immoveable property, both freehold and leasehold. and other interests in such property wherever situate, now owned or hereafter acquired by the Obligor (collectively, the "Lands”), all rights, leases, licences, easements, rights-of-way, profits a prendre and interests in real property with respect to the Lands (and all renewals, extensions and amendments or substitutions thereof); all facilities relating to or required for use in connection with the Lands; and all buildings, erections, structures, improvements, underground facilities, power, fuel and water supply, storage, waste disposal, roads and other transportation facilities and fixed plant, machinery and equipment presently situated on or under the Lands or which may at any time hereafter be constructed or brought or placed on or under the Lands or used in connection with the Lands;”

[57] The headnote in Equitable Trust reads in part:

Even assuming that the guarantee was a demand obligation, it did not follow that all demand obligations were governed by the Limitations Act, 2002. The Limitations Act, 2002 did not apply because s. 43 of the Real Property Limitations Act applied. The effect of s. 2(1)(a) of the Limitations Act, 2002 was to preclude the limitation periods of that Act from applying when the Real Property Limitations Act applied.

[58] In this regard. Justice Perell specifically observed:

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 (19 August 2004), Ottawa, 02-CV-19501 (Ont. S.C.), aff'd, [2005] O.J. No. 594 (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 (C.A.). In that case, this court held, at p. 663, that s. 49(1)(k) of the Statute of Limitations, now 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:

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 twenty-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.

[59] In particular, I am guided by Justice Perell’s finding with respect to the nature of the guarantee in circumstances such as that in the present case:

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 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 (C.A.), leave to appeal to S.C.C. refused [1982] S.C.C.A. No. 393, (1982), 35 O.R. (2d) 224; 394363 Ontario Ltd. v. Fuda (1984), 1984 CanLII 1949 (ON SC), 49 O.R. (2d) 672 (H.C.J.), aff'd. (1986), 1986 CanLII 2764 (ON CA), 54 O.R. (2d) 443n, leave to appeal to S.C.C. refused (1986), 56 O.R. (2d) 608 Scotia Mortgage Corp. v. Young (2002), 2 R.P.R. (4th) 57 (Ont. S.C.).

[60] While Justice Perell was dealing with a somewhat different fact situation, I still feel it is appropriate to adopt his conclusion regarding the applicable limitation period.

[61] Ultimately I am convinced that there is at least sufficient uncertainty in the position advanced by counsel for Mr. David, such that it would be inappropriate to deny granting leave for the amendments sought by the plaintiff..

IX. Disposition

[62] Having considered all the evidence and arguments put before me and my review of potentially relevant statutory provisions. I am convinced that the plaintiff is entitled to the relief sought by it

[63] An Order will go granting leave to amend the Statement of Claim in the form attached as Schedule "A" to the Fresh as Amended Notice of Motion;

[64] I see no reason why costs should not follow the event. I am awarding plaintiff its costs against Mr. David on a partial indemnity basis payable within 45 days of the release of these reasons.

[65] If the parties cannot agree on an appropriate quantum in the circumstances, a costs outline, maximum three pages in length together with no more than 5 pages of schedules and appendices, shall be delivered by not later than November 30, 2017.

[66] Responding costs submissions, maximum five pages in length together with no more than 5 pages of schedules and appendices, shall be delivered within 15 days of receipt of the costs outline; and a Reply, if needed, maximum two pages in length inclusive of schedules and appendices, shall be delivered within 7 days of receipt of the responding submissions.

[67] The party seeking costs shall deliver all written costs submissions in one complete package within 30 days following the delivery of the responding costs submissions, directly to my Assistant Trial Coordinator in the Masters’ Office, 6th Floor, 393 University Avenue.

Released: October 3, 2017

Master D. E. Short

DS/ R.185