If a debt guarantee is included in a mortgage what is the limitation period? Ten years

Equitable Trust Company v. Marsig, 2012 ONCA 235 deals with what limitation period applies when a debt guarantee is part of a mortgage. The Court holds ten years:

[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.

[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 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), 34 O.R. (2d) 681 (C.A.), leave to appeal to S.C.C. refused (1982), 35 O.R. (2d) 224n; 394363 Ontario Ltd. v. Fuda (1984), 49 O.R. (2d) 672 (H.C.J.), aff'd. (1986), 54 O.R. (2d) 443n, leave to appeal to S.C.C. refused (1986), 56 O.R. (2d) 608n; Scotia Mortgage Corp. v. Young (2002), 2 R.P.R. (4th) 57 (Ont. S.C.).

[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 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 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