{"id":770,"date":"2018-06-18T17:33:15","date_gmt":"2018-06-18T21:33:15","guid":{"rendered":"http:\/\/limitations.ca\/?p=770"},"modified":"2018-06-18T17:33:15","modified_gmt":"2018-06-18T21:33:15","slug":"ontario-the-limitation-of-stand-alone-mortgage-guarantees","status":"publish","type":"post","link":"https:\/\/limitations.ca\/?p=770","title":{"rendered":"Ontario: the limitation of stand-alone mortgage guarantees"},"content":{"rendered":"

In Hilson v. 1336365 Alberta Ltd.<\/em><\/a>, the court determined, for the first time, the limitation period for a stand-alone mortgage guarantee agreement. A stand-alone guarantee that affects or relates to an interest in land, and includes covenants to pay money secured by a mortgage, is subject to a ten year limitation period under s. 43(1) the Real Property Limitation Act<\/a><\/em>.<\/p>\n

\n

[41]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0The application of a predecessor provision to\u00a0s. 43(1)<\/a>\u00a0of the\u00a0Real Property Limitations Act<\/a><\/em>\u00a0(being s. 49(1)(k) of the\u00a0Limitations Act<\/em>, R.S.O. 1914, c. 75) was considered by the Ontario Court of Appeal in\u00a0Martin v. Youngson<\/em>\u00a0(1924),\u00a055 O.L.R. 658 (C.A.)<\/span>.\u00a0 In that case, the mortgagee commenced an action against the guarantor of the mortgage more than ten years after the mortgage became due.\u00a0 If the predecessor to\u00a0s. 43(1)<\/a>\u00a0did not apply, the limitation period would have been 20 years.\u00a0\u00a0 Pursuant to s. 49(1)(b) of the predecessor statute, the 20-year limitation period applied to \u201can action under a bond, or other indenture, except upon a covenant contained in an indenture of mortgage\u201d.\u00a0 The guarantee covenant in\u00a0Martin<\/em>\u00a0was contained in the mortgage indenture, which the guarantor had executed.\u00a0 At p. 663, the court found that the applicable limitation period was ten years, as indicated below:<\/p>\n

Dealing now with the successive points argued by the appellant, 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.\u00a0I 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.<\/u>\u00a0But, 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. [Emphasis added.]<\/p>\n

[42]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0In its 2012 decision in\u00a0Equitable Trust<\/em>, the Ontario Court of Appeal considered and affirmed its previous decision in\u00a0Martin<\/em>.\u00a0 As in\u00a0Martin<\/em>, the issue in\u00a0Equitable Trust<\/em>\u00a0was the applicable limitation period where the guarantee covenant was contained in the mortgage indenture that the guarantor signed, rather than in a \u201cseparate collateral document\u201d.\u00a0 Counsel did not bring to my attention any subsequent decision that considered whether the ten-year limitation period would apply to a claim under a guarantee covenant in a separate document, the issue that\u00a0Martin<\/em>\u00a0expressly left outstanding.<\/p>\n

[43]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0In\u00a0Equitable Trust<\/em>, the guarantor argued that the limitation period for the guarantee contained in the mortgage was two years, based on the following reasoning.\u00a0 The guarantee covenant in that case was a demand obligation governed by\u00a0ss. 5(3)<\/a>\u00a0and\u00a0(4)<\/a>\u00a0of the\u00a0Limitations Act, 2002<\/a><\/em>.\u00a0 Those provisions were intended to apply to all demand obligations, including a demand guarantee obligation contained in a mortgage indenture. \u00a0The court rejected that argument.\u00a0 Relying on s. 2(1)(a) of the\u00a0Limitation Act, 2002<\/em>, the court held that the ten-year limitation period in the\u00a0Real Property Limitations Act<\/a><\/em>\u00a0applied.\u00a0 In doing so, the court stated as follows (at paras. 27, 28, 30 and 31):<\/p>\n

27\u00a0\u00a0 \u00a0\u00a0 \u00a0 \u2026 [T]he effect of\u00a0s. 2(1)<\/a>(a) of the\u00a0Limitations Act, 2002<\/a><\/em>\u00a0is to preclude the limitation periods of that Act from applying when the\u00a0Real Property Limitations Act<\/a><\/em>\u00a0applies. Put simply,\u00a0the\u00a0Limitations Act, 2002<\/a><\/em>, was enacted to deal with limitation periods other than those affecting real property.<\/u><\/p>\n

28\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0A guarantee given in conjunction with a mortgage transaction affects real property law rights. Guarantors, if they have made payments toward the mortgage debt,\u00a0<\/u>need to be served in mortgage enforcement proceedings because they\u00a0have an equity of redemption and an interest in the mortgaged property<\/u>\u2026. [Case citations omitted.]<\/p>\n

\u2026<\/p>\n

30\u00a0\u00a0 \u00a0\u00a0 \u00a0 It is true that it may not always be easy to determine whether a particular guarantee \u2026 is subject to the\u00a0Limitations Act, 2002<\/a><\/em>\u00a0or, like the guarantee in the case at bar, is subject to the\u00a0Real Property Limitations<\/em>\u00a0Act<\/em><\/a>. However, it does not follow that all guarantees should be treated the same way.\u00a0It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims.<\/u>\u00a0Moreover, as already noted, it is my view that\u00a0the Legislature intended that all limitation periods affecting land be governed by the\u00a0Real Property Limitations Act<\/a><\/em>.<\/u><\/p>\n

31\u00a0\u00a0 \u00a0\u00a0 \u00a0 The mortgage enforcement practice, as demonstrated in the case at bar, is to give guarantors notice of power of sale proceedings. In my view,\u00a0it 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.<\/u>\u00a0[Emphasis added].<\/p>\n

[44]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0In its subsequent decision in\u00a0Zabanah v. Capital Direct Lending Corp.<\/em>,\u00a02014 ONCA 872\u00a0(CanLII)<\/a>,\u00a0123 O.R. (3d) 350, the Court of Appeal acknowledged that it was appropriate to circumscribe the expansive expression in\u00a0Equitable Trust<\/em>\u00a0(at para. 30) of the legislative intent that \u201call limitation periods affecting land be governed by the\u00a0Real Property Limitations Act<\/a>.<\/em>\u201d\u00a0 In\u00a0Zabanah<\/em>, the assignee of a mortgage was unable to recover the amount due under the mortgage either from the mortgagor or upon the sale of the mortgaged property.\u00a0 The assignee sued the original mortgagee for negligence and breach of contract.\u00a0 Summary judgment was granted, dismissing the action against the original mortgagee on the basis that the action had not been commenced within the two-year limitation period in the\u00a0Limitations Act, 2002<\/a><\/em>.\u00a0 The assignee argued on appeal that the ten-year limitation period in\u00a0Real Property Limitations Act<\/a><\/em>\u00a0applied, relying on the statement in\u00a0Equitable Trust<\/em>\u00a0that all limitation periods affecting land were governed by that statute.\u00a0 The appeal court held that the motion judge was correct that the two-year limitation period applied.\u00a0 The court distinguished\u00a0Equitable Trust<\/em>\u00a0on that basis that the assignee\u2019s action against the original mortgagee \u201cis simply a negligence and contract claim, and is not a claim to an interest in land, as in [Equitable Trust<\/em>].\u201d<\/p>\n

[45]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0Defence counsel argued that as in\u00a0Zabanah<\/em>, the plaintiff\u2019s claim against the Lightles under the stand-alone guarantees was a contract claim, not a claim to an interest in land.\u00a0 By the same reasoning, the two-year limitation period would apply to the plaintiff\u2019s claim against the Lightles under those agreements, according to the defence.<\/p>\n

[46]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0\u00a0Defence counsel also argued that s. 43(1) of the\u00a0Real Property Limitation Act<\/em>\u00a0does not apply because the stand-alone guarantees do not constitute an \u201cother instrument \u2026 to repay the whole or any part of any money secured by a mortgage.\u201d\u00a0 While the term \u201cinstrument\u201d is not defined in the\u00a0Real Property Limitation Act<\/em>, defence counsel referred to other statutory provisions to support his argument that the term \u201cinstrument\u201d should be read as being limited to an instrument that affects or relates to an interest in land.\u00a0 In his submission, the stand-alone guarantees did not fall within the meaning of \u201cinstrument\u201d as that term was used in\u00a0s. 43(1)<\/a>.<\/p>\n

[47]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0In particular, defence counsel referred to the definition of \u201cinstrument\u201d in\u00a0s. 1<\/a>\u00a0of the\u00a0Registry Act<\/em>, R.S.O. 1990, c. R.20<\/a>, as follows:<\/p>\n

\u201cinstrument\u201d includes every instrument whereby title to land in Ontario may be transferred, disposed of, charged, encumbered or affected in any other way, and, without limiting the generality of the foregoing, includes \u2026 a deed, conveyance, mortgage, assignment of mortgage, certificate of discharge of mortgage, \u2026 a contract in writing, \u2026 and every notice, caution and other instrument registered in compliance with an Act of Canada or Ontario;<\/p>\n

[48]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0Under s. 22 of the\u00a0Registry Act<\/a><\/em>, any instrument as defined in\u00a0s. 1<\/a>\u00a0may be registered under that Act, subject to specified exceptions.\u00a0 As well, under s. 23 of that Act, the land registrar may refuse to accept for registration any instrument that, in the registrar\u2019s opinion, does not affect or relate to an interest in land.\u00a0 On the same basis, the registrar may refrain from recording part of a registered instrument.\u00a0 As defence counsel also noted, there is no definition of \u201cinstrument\u201d in the\u00a0Land Titles Act<\/a><\/em>, but s. 81 of that Act is to the same effect as\u00a0s. 23<\/a>\u00a0of the\u00a0Registry Act<\/a><\/em>.\u00a0 Under s. 81 of the\u00a0Land Titles Act<\/a><\/em>, the land registrar may refuse to register all or part of an instrument on the basis that it does not affect or relate to an interest in land.<\/p>\n

[49]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0Applying the foregoing legislative provisions, it is clear that only instruments that affect or relate to an interest in land are capable of being registered under the\u00a0Land Titles Act<\/a><\/em>\u00a0or the\u00a0Registry Act<\/a><\/em>.\u00a0 Registration under those statutes provides public notice relating to ownership and other interests in real property in Ontario, and provides the basis for determining the priority of those interests.\u00a0 What was not clear to me was why the meaning of instrument for registration purposes was determinative (or even relevant) when interpreting the meaning of that term for purposes of determining the limitation period for court proceedings, as set out in s. 43(1) of the\u00a0Real Property Limitation Act<\/em>.<\/p>\n

[50]\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0In any case, plaintiff\u2019s counsel did not dispute that the term \u201cinstrument\u201d in\u00a0s. 43(1)<\/a>\u00a0should be interpreted as meaning an instrument that affects or relates to an interest in land.\u00a0 As explained further below, I agree with plaintiff\u2019s counsel that the stand-alone guarantees are instruments that affect or relate to an interest in land, applying the reasoning of the Court of Appeal in\u00a0Equitable Trust<\/em>.\u00a0 As well, by their terms, the stand-alone agreements include covenants \u201cto repay \u2026 money secured by a mortgage\u201d, that is, the second mortgages between the plaintiff and the corporate defendants.\u00a0 Accordingly, I have concluded that the limitation period for the plaintiff\u2019s claim under the stand-alone guarantees was ten years.<\/p>\n<\/blockquote>\n

This reasoning seems sound to me, but I find the real property limitations scheme as arcane as everyone else.<\/p>\n","protected":false},"excerpt":{"rendered":"

In Hilson v. 1336365 Alberta Ltd., the court determined, for the first time, the limitation period for a stand-alone mortgage guarantee agreement. A stand-alone guarantee that affects or relates to an interest in land, and includes covenants to pay money secured by a mortgage, is subject to a ten year limitation period under s. 43(1) … Continue reading Ontario: the limitation of stand-alone mortgage guarantees<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[473,471,166,265,470,53,472],"class_list":["post-770","post","type-post","status-publish","format-standard","hentry","category-ontario","tag-arcane-principles","tag-guarantees","tag-mortgages","tag-ontario-real-property-limitations-act","tag-ontario-real-property-limitations-act-s-431","tag-real-property","tag-real-property-limitations-act-s-431"],"_links":{"self":[{"href":"https:\/\/limitations.ca\/index.php?rest_route=\/wp\/v2\/posts\/770","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/limitations.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/limitations.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/limitations.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/limitations.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=770"}],"version-history":[{"count":1,"href":"https:\/\/limitations.ca\/index.php?rest_route=\/wp\/v2\/posts\/770\/revisions"}],"predecessor-version":[{"id":771,"href":"https:\/\/limitations.ca\/index.php?rest_route=\/wp\/v2\/posts\/770\/revisions\/771"}],"wp:attachment":[{"href":"https:\/\/limitations.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=770"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/limitations.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=770"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/limitations.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=770"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}