Not all guarantees are governed by the general two year
limitation period provided under the Ontario Limitations Act,
The recent decision in The Equitable Trust Company v.
Marsig held that guarantees contained in mortgages are
governed by the ten year limitation period prescribed by the
Ontario Real Property Limitations Act, rather than by the
usual two year period.
Accordingly, mortgagees looking to recover from a guarantor
should be aware that the limitations clock ticking on their right
to commence an action has a much longer battery life than might
otherwise be expected.
In February 2005, Equitable Trust
("Equitable") made a loan to 2062277
Ontario Inc. ("Borrower") secured by a
real property mortgage. The mortgage contained a guarantee from
Ernest Marsig ("Guarantor"). Following
default, Equitable issued a notice of sale under the mortgage in
December 2007, and served both the Borrower and the Guarantor.
The property was sold under power of sale, but there was a
deficiency. In September 2010, Equitable commenced an action to
recover the deficiency from the Borrower and the Guarantor.
In a motion for summary judgment, the Guarantor took the
position that the action against him was statute barred because (i)
his guarantee was a demand obligation and (ii) all demand
obligations are subject to the general two year limitation period
of the Limitations Act, 2002.
The motion was dismissed. After concluding that the guarantee
was not a demand obligation, the motion judge more importantly held
that the action was subject to the ten year limitation period
prescribed by the Real Property Limitations Act, rather
than the two year period of the Limitations Act, 2002. The
Court of Appeal did not find it necessary to deal with the demand
obligation issue, and in a clear judgment held that the ten year
limitation period would apply to the guarantee whether or not it
was payable on demand.
The case serves as an excellent reminder of the existence of the
real property-related limitations regime created by the Real
Property Limitations Act, which co-exists with the regime
created by the Limitations Act, 2002 for limitation
periods other than those affecting real property.
As the decision illustrates, the former Limitations Act
was made up of definitions and Parts I through III. Parts II and
III were repealed in 2002 and replaced by the Limitations Act,
2002 to deal with limitation periods that do not affect real
property. The definitions and Part I continue today as the renamed
Real Property Limitations Act and deal exclusively with
real property limitations.
The case turned on the proper interpretation to be given to
Section 43 of the Real Property Limitations Act, the
relevant part of which reads as follows:
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 of part of any money secured by a mortgage shall be
commenced after ... the expiry of 10 years after the day on which
the cause of action arose.
Relying on, among other things, the unreported decision of
Montreal Trust Co. of Canada v. Vanness
Estate,1 the motion judge had no difficulty in
concluding that guarantees found in a mortgage are governed by the
Real Property Limitations Act. The Court of Appeal agreed,
referring to a 1924 decision of that Court2 which
concluded that the ten year limitation period contained in a
predecessor statute governed guarantees contained in real estate
While the Equitable Trust decision dealt with a
guarantee contained within the body of a mortgage, the ten year
limitation period should apply as well to any guarantee of a
mortgage obligation, including guarantees contained in a separate
instrument. This would result from the language of Section 43(1)(a)
of the Real Property Limitations Act which refers not only
to "a covenant contained in an indenture of mortgage" but
also to "any other instrument made...to repay the whole
or any part of any money secured by a mortgage".
As the Court of Appeal indicated, while the decision certainly
confirms that lenders have additional time to sue guarantors of
mortgage loans, it may paradoxically assist guarantors. Given the
ten year period in which lenders can bring an action, they may
decide to first realize on their mortgage security and then demand
that the guarantor only pay any deficiency, rather than rush to sue
the guarantor for the entire mortgage debt. From a practical
standpoint, this approach may also benefit the lender since a claim
for the smaller deficiency balance may lead to a quick resolution
of the matter and avoid litigation.
1 (19 August 2004), Ottawa, 02-CV-19501 (Ont. S.C.),
aff'd,  O.J. No. 594 (C.A.)
2 Martin v Youngson (1924),55 O.L.R. 658 (C.A.)
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