



COURT OF APPEAL FOR ONTARIO

CITATION: The Equitable
  Trust Company v. Marsig, 2012 ONCA 235

DATE: 20120413

DOCKET: C54423

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

BETWEEN

The Equitable Trust Company

Plaintiff (Respondent)

and

Ernest Marsig
, 2062277 Ontario Inc., Rhys
    Trenhaile, Isle Griegl-Schott, and First National Financial Corporation

Defendants (
Appellant
/Respondents)

AND BETWEEN

2062277 Ontario Inc. and Ernst Marsig

Plaintiffs by Counterclaim

and

The Equitable Trust Company, First National Financial
    Corporation and Canadian Mortgage Housing Corporation

Defendants by Counterclaim

Melvyn L. Solmon, for the appellant

Howard W. Reininger, for the respondent The Equitable
    Trust Company

Katrina Marciniak, for the respondent Isle Griegl-Schott

Heard: March 16, 2012

On appeal from the order of Justice J.A. Ramsay of the Superior
    Court of Justice, dated September 13, 2011, with reasons reported at 2011 ONSC
    5294, 11 R.P.R. (5
th
) 144.

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 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), 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
.

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;

...

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.

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]

Sections 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 persons 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 ONCA 754, 97 O.R. (3d) 561,
    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 follow, however, that all demand obligations
    are governed by the
Limitations Act, 2002
.

[17]

In
Williamson
, Feldman J.A. examined ss. 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. Marsigs 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

(19 August 2004), Ottawa, 02-CV-19501 (Ont. S.C.), affd,  [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
R
eal 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 judges analysis, which is consistent
    with this courts 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.), affd. (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. (4
th
) 57 (Ont.
    S.C.).

[29]

Mr. Marsig argues that, having regard to the laws typically
    protective approach to guarantors and in light of the policy perspective of
    fostering certainty and clear laws, this courts 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. Marsigs 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.

D.

CONCLUSION

[33]

For the above reasons I would dismiss the appeal with costs on a
    partial indemnity basis of $6000, inclusive of disbursements and applicable
    taxes.

Released: April 13, 2012 DOC

Perell
    J. (ad hoc)

I
    agree D. OConnor A.C.J.O.

I
    agree Janet Simmons J.A.


